Falling Indian Rupee: What Government Has Done To Protect Economy

Blaming the euro zone crisis for a weak Indian economy, Finance Minister Pranab Mukherjee Tuesday said that the government was taking several steps to protect the economy and the rupee from further pressures.

In a written statement in the Rajya Sabha, the upper house of the parliament, Mukherjee said that the government had taken various measures to increase the supply of foreign exchange and to strengthen direct foreign investment for infra structural development. He said the steps include liberalization of external commercial borrowings (ECB) policy and portfolio investment norms besides steps to improve access to corporate bond market through Infrastructure Debt Funds, PTI reported.

The minister said that global slowdown due to unfolding of euro zone sovereign debt crisis has, inter-alia, impacted the Indian economy through deceleration in exports, widening of trade and current account deficit, decline in capital flows, fall in the value of Indian rupee, stock market decline and lower economic growth,

Mukherjee said that the Reserve Bank of India had taken certain initiatives to arrest rupee's fall. [These] included raising the NRI deposit interest rates, easing availability of export credit and stipulation that 50 percent of balances in the Exchange Earner's Foreign Currency Account be converted into rupees balances, Mukherjee said, according to the PTI report.

The rupee has been falling steadily against the dollar in the last few weeks and the RBI's intervention made little impact to protect the rupee since it depended on volatile market pressures. It fell to the record low of 55.39 against the dollar Tuesday.

According to analysts, a strong demand for the dollar globally due to the euro zone crisis has weighed on the rupee and other Asian currencies. Along with the weak global cues, policy paralysis on the part of the government and widening trade deficit have also affected the Indian rupee negatively.