1. Policy Measures to arrest continuing Slide of
Indian Currency Value (INR) & Impact on
Indian Trade
Presented by MBF Group 2

2. Depreciation of Rupee
 More and more rupee brought
in our country and dollars are
sold.
 More and more rupees are sold
and dollars are brought
Rupee
Appreciates
Rupee
Depreciates

3. Movement in INR Compared to Dollar & Euro
72.23
70.68
69.54
70.98
73.68
77.98
80.95
62.00
64.00
66.00
68.00
70.00
72.00
74.00
76.00
78.00
80.00
82.00
Exchangerate
Months
INR to EURO
53.29 53.77
54.39 54.22
56.50
59.70
61.12
48.00
50.00
52.00
54.00
56.00
58.00
60.00
62.00
Exchangerate
Months
INR to USD
The Indian Rupee has depreciated significantly against the US
Dollar marking a new risk for Indian economy.
The rupee touched an all-time low of Rs 61.17 /$ on 31 July
2013, breaching its previous historic low of Rs 59.98/1$ of 2008. At
the end of day it was Rs 61.12/1$.

4. .

5. Reasons for Slump in the value of
Indian Currency
 High Current Account Deficit
 Lower Foreign Capital Inflows
 Lower Economic Growth and
Devaluation Pressure

6. High Current Account Deficit
 Gold Imports, hefty oils bills and decreasing exports due to
global slowdown leads to higher current account deficit. Our
imports are higher than exports resulting into a worsening CAD.
 The fall of the oil price to US$90/barrel has helped India to fight
the depreciating rupee up to some extent but at the same time
the Euro zone, one of India's major trading partners is under a
severe economic crisis leads to reduced exports. Thus India
record a CAD of around 4.9%, depleting its Forex reserves and
depreciating the rupee.

7. Import V/s Export
-
100,000
200,000
300,000
400,000
500,000
600,000
2009-10 2010-11 2011-12 2012-13
Export($M)
Import($M)

8. Foreign Capital Inflows
.

9. Lower Capital Inflows
 Although India has emerged as an attractive investment
destination which can woo foreign capital from FII and deposit
from Non residents in the long term, but it is still not enough
to make up for deficit.
 Further the uncertainty and delay in our commitment to
economic reforms, retrospective taxes, and policy paralysis
within the government have created a fear in mind set of
global investor resulting into decline of foreign Investment.
 In 2012-13, India received FDI of $22.4bn against $ 35.1 bn
in the PY. (38%less).

10. Economic growth and Devaluation
Pressure
After annual economic growth of nearly 9.30% in 2010-11, the growth
rate has declined to 6.20% in 2011-12 and further to 5.00% in 2012-13.
The expectations for 2013-14 are also not too encouraging.

11. Economic Growth and Inflation
 In this scenario, most foreigners as well as Indians tend to take
money abroad, or keep it away from India.
 Global investors are also nervous about investing abroad in
nations such as India due to the economic crisis in their
respective countries.
 That has added further selling pressure on the rupee.
 Importers demand for dollars to cater for their needs to buy
goods abroad.
 Exporters cannot bring in enough dollars; in fact, they keep their
foreign earnings abroad as they expect the rupee to fall further.
 Meanwhile, foreign investors increase the demand for dollars as
they convert their rupee assets into dollars to take their money
out.
 This demand-supply gap between the dollar and the rupee
leads to further devaluation.

12. The Rupee’s weakness is more due to high imports than
anything else. Decreasing Imports and improving Exports is
the panacea for long term.

13. Measures to be adopted to curb the
continuing slide of Indian Currency
 Measures to Control Current Account
Deficit
 Measures to Increase Foreign Capital
Inflows
 Measures to Revive Economic Growth

14. Measures to Control CAD
 Growing Indian economy has led to widening of current
account deficit as imports of both oil and non-oil products
have risen. Despite dramatic rise in software exports, current
account deficits have remained elevated.
 The first set of measure should include a careful evaluation of
the import tariff structure and increase it wherever such levels
are lower than WTO requirement.
 Curb on Import of non essential & unproductive products
such as GOLD by imposing higher taxes.

15. Measures to Control CAD
 To reduce import we should bring in import substitution by
supporting the domestic organizations by providing
subsidy, tax benefits, grants and proper Infrastructure.
 In this regard National Manufacturing policy will play a major
role in years to come.
 To contain the current account deficit we should also focus on
boosting exports by export promotion policies and looking for
more stable longer term foreign inflows have been suggested
as ways to alleviate concerns on current account deficit.
 Subsidy on import products such as oil should be
discontinued.

16. Measures to Increase foreign
Capital Flows
 Recession in developed economies and uncertain political
Environment made big institutions to pull out their money
from India.

17. Measures to Increase foreign
Capital Flows
• Government can create a stable political and economic
environment. Providing infrastructure and local support to the
investors is another, admittedly more difficult avenue that can
be explored in this regard.
• One of the measures being looked at is allocating a separate
quota for sovereign wealth funds (SWF) in PSU divestment
issues. This reservation could be as high as 30 percent.
• Making government bonds available to non-resident investors
will also increase the inflow of dollars in to the country.
• RBI can ease capital controls by increasing the FII limit on
investment in government and corporate debt instruments
and introduce higher ceilings in ECB’s.

18. Measures to Revive Economic
Growth
 Apart from above measures to Control Current Account deficit
and increase foreign Capital flows, on time policy executions
and strict laws to curb corruption will also help us to revive
the economic growth at fast pace.
Conclusion
 Companies should be encouraged to raise fund
overseas, foreign direct policy will be liberalized further, and
there should be curb on import of non essential products.
 Apart from the above measures a lot depends on the Global
economic outlook and the future of Euro zone which will also
determine the future of INR.

19. .

20. Impact on Indian Trade
 Controlling Import by Import Substitution will help the
domestic organization in growth resulting into favorable
impact on Indian Trade.
 Relaxing Foreign Investments norms will help Indian
companies to expand and start new businesses.
 Clear cut structure of tax and other laws & transparent
policies will also have positive impact on trade.