The Indian rupee crossed the 90 level against the dollar on Wednesday. This decline has continued for the last eight months. This was further exacerbated by global trade payments, investment-related dollar outflows and steps being taken by companies to hedge potential exposure to millets.
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Rupee performed worst in Asia this year
The rupee has become one of the worst performing currencies in Asia this year. The rupee has declined by 5% against the dollar so far this year. According to analysts, the US’s 50% increase in import duty on Indian products has dealt a blow to India’s largest export market. Export pressure and weak interest from foreign investors have also reduced the attractive gains of the Indian stock market.
The rapid decline in the currency can be gauged from the fact that it took less than a year for the rupee to reach the level of 85 to 90. This is almost half the period in which it fell from 80 to 85 levels.
These are the main reasons for the fall in rupee
Foreign investors lose confidence in Indian market
This year, India has been among the markets in the world where there has been the highest withdrawal from Foreign Portfolio Investment (FPI). Foreign investors have made a net sale of about $17 billion in Indian shares so far this year, due to which there is huge pressure on the market. Along with the weakness in portfolio investment, there has also been a slowdown in foreign direct investment (FDI), which has made the situation more challenging.
Although gross investment inflows into India remain strong and rose to $6.6 billion in September, massive outflows from the booming IPO market have weakened net inflows. Net FDI remained negative for the second consecutive month in September due to booking of old investments by private equity and venture capital firms. RBI said in its November Bulletin that this situation has worsened due to increase in outward FDI and return of investments.
Goods trade deficit reaches record level
On the other hand, heavy US tariffs and a sharp increase in gold imports took India’s goods trade deficit to a record level in October. Meanwhile, dollar inflows from foreign loans of Indian companies and NRI deposits have also slowed down.
