Lok Sabha Question No. 989 (UNSTARRED), answered on 2024-12-02
Subject: Decline in Indian Rupee
Ministry: FINANCE
Asked by: Shri K C Venugopal, Shri Charanjit Singh Channi, Shri Rajmohan Unnithan, Shri Tanuj Punia, Shri Anto Antony

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

## LOK SABHA

## UNSTARRED QUESTION NO. 989 TO BE ANSWERED ON 02.12.2024

## DECLINE IN INDIAN RUPEE

## 989. Shri K C Venugopal:

Shri Charanjit Singh Channi:

Shri Rajmohan Unnithan:

Shri Tanuj Punia:

Shri Anto Antony:

Will the Minister of FINANCE be pleased to state:

(a) whether the Government has analysed the factors contributing to the recent decline in the Indian rupee and if so, the key findings of this analysis;

(b)  the  steps  being  taken  by  the  Government  to  attract  stable  foreign  investment  amidst  currency depreciation;

(c) whether the Government has evaluated the impact of the rupee's depreciation on inflation, import costs, and the purchasing power of Indian consumers, and if so, the details thereof; and

(d) the steps taken by the Government to stabilise the rupee and mitigate any adverse effects on the economy and consumers?

## ANSWER

## THE MINISTER OF STATE FOR FINANCE (SHRI PANKAJ CHAUDHARY)

(a) The value of the Indian Rupee (INR) is market-determined, with no target or specific level or band.  Various  domestic  and  global  factors  influence  the  exchange  rate  of  the  INR,  such  as  the movement of the Dollar Index, trend in capital flows, level of interest rates, movement in crude prices, current account deficit etc.

During the current calendar year (CY) 2024, the INR depreciated by 1.4% till November 19, 2024 against the US dollar (USD). One of the main reasons for this depreciation of INR has been broadbased strength of the USD. During CY 2024, Dollar Index has increased by about 4.8% till November 19, 2024. More recently, the Dollar Index touched 108.07 on November 22, 2024, its highest in more than  a  year,  exerting  pressure  on  emerging  market  currencies.  Further,  geopolitical  tensions  in  the Middle East and uncertainty surrounding US elections results also added to the headwinds.

Despite this, INR remains one of the best-performing Asian currencies. In comparison, major Asian currencies like the Japanese Yen and South Korean Won declined by 8.8% and 7.5%, respectively, as on November 19, 2024. Notably, all G10 currencies, except the British Pound (GBP), depreciated by over 4.0% during CY 2024.

The  relative stability of the INR  bears testimony to India's sound  and resilient  economic fundamentals, macroeconomic and financial stability.

(b)  Foreign  investment  inflows  are  based  on  private  business  decision  which  in  turn  depend  on  a whole  host  of  exogenous  factors  like  market  size,  macroeconomic  stability,  investment  climate, geopolitical factors, and other global economic factors.

To promote foreign direct investment (FDI), the Government has put in place an investor friendly FDI policy, wherein most of the sectors, except  a small negative list, are open for 100% FDI under the automatic  route.  Further,  the  policy  on  FDI  is  reviewed  on  an  ongoing  basis,  to  ensure  that  India remains an attractive and investor friendly destination.

Further, the Union Budget 2024-25 has announced simplification of rules and regulations for FDI to facilitate such investments and reduction in the corporate tax rate for foreign companies.

In addition, the Reserve Bank of India (RBI), in consultation with the Government has been taking measures to provide a facilitative environment for foreign investment in debt including measures to expand investment space and provide operational flexibility.

(c) The depreciation of currency is likely to enhance the export competitiveness, which in turns impacts  the  economy  positively.  On  the  other  hand,  depreciation  may  raise  the  prices  of  imported good. However, the overall impact of exchange rate depreciation on domestic prices depends on the extent  of  pass  through  of  international  commodity  prices  to  the  domestic  market.  Furthermore,  the imports  in  the  economy  also  depends  on  various  factors  including  the  demand  and  supply  of commodities  in  the  international  market,  kind  of  tradeable  (i.e.  essential  or  luxury  items),  freight costs, availability of substitutes goods etc. Thus, the impact of movement of the exchange rate on the import cost and hence on domestic inflation and consumer's purchasing power cannot be isolated.

(d) The RBI monitors key developments across the globe which may have an impact on USD-INR exchange rate. Among others, it includes monetary policy actions of the major Central Banks, major economic  data  releases  across  the  globe  and  their  impacts  thereof,  OPEC+  meeting  decisions, tracking, and analysing geo-political events, daily movements in G-10 and EME currencies etc. RBI regulates the foreign exchange market with a view to ensure its orderly functioning and development and intervenes only to curb undue volatility in the INR.

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