Fall of the Rupee is Not so Bad for India’s Poor — and Just Fine for Impact Investors

There’s no shortage of gloomy prognostication about the impact on Indian society as the rupee falls into global disfavor, with a value (in U.S. dollars) barely half its high point in 2008. I have a different perspective: There is a silver lining in this dismal cloud. The situation could even be positive for those who are building businesses to meet the most fundamental needs of India’s poor, and for those investing in such businesses. As co-founder and managing partner of Unitus Seed Fund, my team and I look at dozens of business proposals every month from entrepreneurs who create opportunities for consumers at the “base of the economic pyramid,” or “BoP” to obtain economic self-reliance, education, and basic necessities. These new businesses depend largely on capital that flows into venture and private equity funds to fuel their growth. With the Indian rupee’s rapid depreciation and the likely economic slowdown, will impact investing capital from domestic and overseas sources continue to flow, or will it slow? For a number of reasons, I expect funds to increase, which means that more “impact businesses” will be created and scaled up. The result could be more quality goods, services, and opportunities for India’s poor. First, impact funds will flow because consumers will keep consuming. Yes, the increasing cost of oil and certain food staples will hit the one billion poor living on family income of less than $10 a day. The Indian government subsidizes many energy products to deflect the full impact on the BoP. These subsidies are likely to diminish due to budgetary pressures, but not disappear anytime soon. India largely feeds itself for core food staples, so the domestic food market is only indirectly affected by the rupee’s fall, again through the price of oil as an input to agriculture. India’s government — controversially — has just expanded its food subsidies for up to three-quarters of Indians, blunting most food price changes. Some poor consumers will undoubtedly see a decrease in income. But given that the kind of impact startups that investors target supply the most cost-effective basic necessities, education, healthcare, and skills training to consumers, I think these companies will continue to thrive. The purchasing priorities of these consumers will not change with respect to the most fundamental unmet needs of the poor. So domestic funds flowing to impact opportunities should continue on their current growth trajectory, and international impact investors will be getting more company for their dollar, resulting in a net-positive outlook for impact opportunities. Second, starting companies in challenging economic times is a good strategy. Investors like investing in innovative, market-disrupting companies when the economy is weak. A company that can be successful serving low-income consumers in a challenging economic environment will truly shine when the economy turns around and growth rates increase. In weaker economic conditions, companies are forced to maintain even tighter cost controls, and they’ll have generally lower costs of inputs, including labor. Investors prefer challenging economic times vs. over-heated market, as anyone can attest who invested in US tech venture funds just before the “dot bomb” or in real estate just before 2008. Summing it up: 70 or more rupees to the US dollar will cause plenty of pain for businesses that export to India. And it may cause a little pain for low-income consumers due to the increase in oil and oil-linked commodity prices. But for local and global investors making a bet on the growing number of impact startups serving domestic market needs for education, basic necessities, and healthcare, a 70-rupee dollar is a fine thing, producing better impact startups and giving investors more company for their money. And for hundreds of thousands of small businesses in artisanal craft or export-linked activities, the devalued rupee brings immediate opportunities for growth. They should be able to look forward to increased support from local and global impact investors seeking to increase both the profits and social impact of their dollars.