RBI Restrictions on Foreign Investments Responsible For Rupee Fall

The issue of falling rupee and soaring prices of onions has started giving sleepless nights to the UPA govt. Image

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India Inc criticized the government’s move to restrict outward foreign investments to control current account deficit, a key reason seen behind currency market volatility.

“While fully being cognizant of the situation on the current account balance front, which has prompted the RBI to impose cap on outward investment. This would be a dampener to India’s global aspirations,” said Chandrajit Banerjee, director general, Confederation of Indian Industry (CII).

“To stabilise the rupee, it would have been more appropriate to initiate policies which prevent influx of non-essential imports such as coal and iron ore and augment forex inflows.”

The depreciation of the rupee came despite a series of measures announced by the government to control current account deficit (CAD), a key reason seen behind the currency market volatility.
The Reserve Bank of India late unveiled rules to restrict restrict foreign investments of private individuals and companies and announced additional curbs on gold imports.
For the first time ever, the Indian rupee slipped below 63 against the dollar despite the government’s efforts to stem the currency’s fall.

The massive selling pressure in the stock markets was also attributed to the high demand for the U.S. currency.

The authorities fear continued fall in the rupee value will exacerbate the current account deficit in the short term, deter investment and further curb growth in Asia’s third-largest economy.

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