Disregarding the steps the government and the Reserve Bank of India have taken, and the several assurances that have come from the Prime Minister and the Finance Ministry, the rupee today plunged to a new low, surpassing the 62 mark, in a clear indication of the ineffectiveness of the desperate measures being taken.
Here are the recent steps that have been taken to save the currency
- Earlier this week, India imposed restrictions on foreign exchange outflows in its latest attempt to prop up the rupee, as a spike in inflation heaped more pressure on policymakers to curb a crippling external deficit.
- The central bank has also banned imports of gold coins and bars, which constituted about 36 per cent of total bullion demand in India last year, and will require domestic buyers to pay cash for the yellow metal.
- The government has also raised import taxes on gold and silver in an attempt to narrow the burgeoning current account deficit. The import duty on gold was hiked to a record 10 per cent, the third such increase in eight months, while duty on silver was hiked from 6 per cent to 10 per cent. The excise duty on gold bars was hiked to 9 per cent from 7 per cent.
- The hike in duties came after Finance Minister P. Chidambaram said the government was looking to contain gold imports at 850 tonnes this fiscal year, after imports of 950 tonnes last year. This is likely to lower the import bill by $4 billion, he added.
- Crude and gold are the two biggest components of India's import bill. The government wants to cut back on both of them to ease the current account deficit and help the weak rupee. The government is aiming to cut the oil import bill by $1.5 billion this fiscal year. It is also looking for ways to boost oil imports from Iran, which will result in dollar savings.
- The RBI on Wednesday allowed banks to exempt some foreign currency non-resident bank (FCNRB) deposits and non-resident external (NRE) rupee deposits when calculating their cash reserve and statutory liquidity ratios.
- The RBI also raised interest rates on longer-term deposits accounts held by non-residents, and removed the ceiling on interest rates on non-resident external rupee deposits with maturities of three years and above.
- Apart from the steps taken this week, a series of measures to save the rupee were announced last week as well. These included spurring state-run companies such as Indian Railway Finance Corp Ltd to sell debt abroad, and by raising money from Indians abroad.
- State-run oil companies were allowed to raise additional funds from offshore money markets and trade finance, which would fetch an extra $4 billion.
- The Reserve Bank of India had last week said it would sell Rs. 22,000 crore of cash management bills each week, its third set of measures to defend the currency by draining cash since the initial steps unveiled on July 15.