The rupee fell to 62.03 per dollar, a new record low. Foreign investors have been taking their money out of Indian debt and shares amid concerns over its economy.
The rupee fall occurred despite attempts to prop up the currency.
The Reserve Bank of India, the country’s central bank, placed further restrictions on how much money individuals and companies can send abroad.
In a press release issued on August 14th, 2013, Alpana Killawala, Principal Chief General Manager of the Reserve Bank of India wrote that it had:
“Reduced the limit for Overseas Direct Investment (ODI) under automatic route for all fresh ODI transactions, from 400% of the net worth of an Indian Party to 100% of its net worth.
This reduced limit would also apply to remittances made under the ODI scheme by Indian Companies for setting up unincorporated entities outside India in the energy and natural resources sectors.
Reduced the limit for remittances made by Resident Individuals, under the Liberalised Remittance Scheme (LRS Scheme), from USD 200,000 to USD 75,000 per financial year.
While current restrictions on the use of LRS for prohibited transactions, such as, margin trading and lottery would continue, use of LRS for acquisition of immovable property outside India directly or indirectly will, henceforth, not be allowed.
The present set of measures is aimed at moderating outflows. However, any genuine requirement beyond these limits will continue to be considered by RBI under the approval route.”
The measures appear to have had little impact on the slide of the rupee.
Since the beginning of June 2013, foreign investors have withdrawn $11.58 billion in debt and shares from India’s markets.
Concern weak rupee will fuel inflation
Authorities in India, as well as experts around the world, fear the weakening rupee will push up inflation.
Many food products, crude oil and chemicals are imported into India. As they are priced in dollars and the rupee has fallen in value, they will become more expensive.
India’s Wholesale Price Index was 5.59% (annualized rate) in July 2013, compared to 4.86% in June.
India’s 9% annual economic growth is definitely over. This year has seen a steep drop in economic growth, mainly because of a slowdown in services and manufacturing.
Companies in India are reporting significantly lower revenue compared to one or two years ago.
In an interview with the BBC, Param Sarma, chief executive with NSP Forex, said “There is a complete lack of faith in the markets. There are fears that the RBI (Reserve Bank of India) measures may not help improve the rupee.”
The rupee has been slipping steadily during the last few months. It has lost more than 13% of its value since the beginning of May. According to the Wall St. Journal, the rupee is currently Asia’s worst-performing major currency.
The rupee has been steadily declining in value since 1947.