Lok Sabha Question No. 726 (UNSTARRED), answered on 2018-12-14
Subject: Devaluation of Indian Rupee
Ministry: FINANCE
Asked by: K. C. VENUGOPAL, T.G. VENKATESH BABU

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF ECONOMIC AFFAIRS

## LOK   SABHA UNSTARRED QUESTION NO. 726

TO BE ANSWERED ON DECEMBER 14, 2018

## DEVALUATION OF INDIAN RUPEE

726. SHRI K. C. VENUGOPAL : SHRI T. G. VENKATESH BABU :

Will the Minister of FINANCE be pleased to state:

- (a) whether there is a great fall/unprecedent devaluation in the value of Indian rupee during the last few months resulting in pressure in foreign trade;
- (b) if so, the details thereof and the reasons for instability of Indian rupee in comparison to dollar and other major currencies;
- (c) whether the Government has identified any reasons behind such a recurring process of devaluation and assessed the economic impact of such drastic devaluation, if so, the details thereof;
- (d) the details of effects of fall in prices of Indian currency on the prices of essential commodities and specific steps taken in this regard; and
- (e) the steps, if any, taken by the Government to check the fall in the prices of rupee and the effects thereof?

## ANSWER

## MINISTER OF STATE IN THE MINISTRY OF FINANCE (SHRI PON. RADHAKRISHNAN)

(a) to (c) The average exchange rate of rupee to US dollar during H1 (April-September) in 201718 was 64.37, which depreciated by 6.1 per cent in H1 of 2018-19 to 68.57. Trade Deficit as per cent of GDP increased to (-) 7.3 per cent in H1 of 2018-19 as compared to (-) 6.2 per cent in H1 of  2017-18,  indicating  a  deterioration  in  trade  balance  by  1.1  percentage  points.  The  recent episode of depreciation  of  the  rupee  via-a-vis  US$  can  be  mainly  ascribed  to  adverse  global developments viz increase in the prices of crude oil  in  the  international  market,  escalation  of protectionist sentiments in some countries; rising interest rate and balance-sheet normalisation by the US Fed along with expansionary fiscal policy in the United States. These factors, among others,  led  to  the  strengthening  of  US$  vis-à-vis  a  large  number  of  currencies,  including  the Indian rupee.

The deprecation of Indian Rupee with respect to other major currencies in H1 of 2018-19 over H1 of 2017-18 is shown below:

Table: Depreciation of Indian rupee vis-à-vis other currencies in H1 of 2018-19 over H1 of 2017-18

| Major Currencies   |   Depreciation (in percent) |
|--------------------|-----------------------------|
| US Dollar          |                        -6.1 |
| Pound Sterling     |                        -8.8 |
| Euro               |                        -9.3 |
| Japanese Yen       |                        -6.7 |

Source: RBI, FBIL Reference Rate

- (d) The Wholesale Price Index increased by 4.7 percent during H1 of 2018-19 as compared to 2.5 percent in H1 of 2017-18. This may have been due to several factors, and depreciation of the rupee could be one of them.
- (e)  The  exchange  rate  of  the  rupee  is  market  determined.  The  Reserve  Bank  of  India  (RBl), however, intervenes in the domestic foreign exchange market to manage excessive volatility and maintain orderly conditions without having any fixed target or band for the exchange rate. The RBI will continue to monitor the evolving situation and take appropriate steps to bring stability during periods of forex market volatility.

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