Lok Sabha Question No. 1079 (UNSTARRED), answered on 2016-07-22
Subject: Value of Rupee
Ministry: FINANCE
Asked by: JAGDAMBIKA PAL

- (a) whether the Indian companies are facing pressure in foreign trade due to fall in the value of Indian rupee;
- (b)  if  so,  the  details  thereof  and  the  reasons  for  instability  of  Indian  rupee  in comparison to dollar;
- (c) the steps taken to check fall in the price of rupee and the effects thereof; and
- (d)  the  details  of  effects  of  fall  in  the  price  of  Indian  currency  on  the  prices  and specific steps taken in this regard?

## MINISTER OF STATE IN THE MINISTRY OF FINANCE (SHRI ARJUN RAM MEGHWAL)

(a)  & (b) The Indian rupee has depreciated marginally by 0.4 per cent in June 2016 over  end  March  2016.  Theoretically,  depreciation  of  a  currency  should  boost  the country's  exports,  though  with  a  lag,  as  goods  produced  by  domestic  companies become cheaper in the international market, while making imports costlier affecting import oriented companies. The impact of exchange rate depreciation also depends on a set of factors, including elasticity of our exports and imports and exchange rate changes  of  trading  partner  and  competing  countries.  In  the  present  scenario, however, global slowdown is the major factor affecting trade performance of Indian companies. While Indian exports fell by 15.6 per cent and imports by 15.1 per cent in 2015-16, recently exports are showing signs of revival with June 2016 export growth being positive at 1.3 per cent and April-June 2016 export growth being less negative at - 2.1 per cent.

The  Indian  rupee  was  relatively  stable  and  was  one  of  the  best  performing currencies vis-à-vis other  Emerging  Market  Economies  (EMEs)  during  the  period April-December 2015. While the increase in the US interest rate in December 2015 did  not  have  any  major  impact  on  the  markets,  continued  global  economic uncertainty amidst low growth prospects in advanced economies including the US, economic slowdown in China and deceleration in  other  EMEs  adversely  impacted market  sentiments  and  contributed  to  volatility.  The  rupee  turned  volatile  and depreciated significantly during January-February 2016, recovered in April 2016 and turned volatile again in May and June in the wake of the uncertainty over the impact of  the  Brexit  vote.  However,  the  rupee  recovered  in  July  2016  so far  and  was not affected much by the recent Brexit vote.

(c)  &  (d)  The  exchange  rate  policy  of  the  RBI  is  aimed  at  managing  excessive volatility and maintaining orderly conditions without having any fixed target or band for  the  exchange  rate.  The  strong  foreign  exchange  reserves  provides  a  buffer against  any  temporary  episodes  of  volatility.  The  Government  and  the  RBI  are continuously  monitoring  the  evolving  situation  on  the  exchange  rate  front  and  are taking  appropriate  steps  to  bring  stability  in  case  of  unwarranted  increase  in  forex market volatility.

As regards impact on prices, the effect of depreciation is marginal as it impacts mainly imported items. WPI headline Inflation was in negative territory at - 2.5 per cent  in  2015-16  and  was  low  at  1.1  per  cent  in  2016-17  (Apr-June).  WPI  food inflation  was  also  low  in  2015-16  but  increased  to  7.3  per  cent  in  2016-17  (AprJune). The Government has taken a number of fiscal and administrative measures to curb inflation, in  particular, food inflation,  which  include,  increased allocation of Rs 900  crore  for  Price  Stabilization  Fund  in  the  budget  2016-17  to  check  volatility  of prices  of  essential  commodities,  in  particular  of  pulses;  decision  to  create  buffer stock    of  Kharif  and  Rabi  pulses  through  domestic  procurement  and  imports; announcing  higher Minimum Support Prices so as to incentivize production; taking necessary steps to maintain sufficient stocks of sugar in the country like  imposing 20 per cent duty on export of sugar and empowering state governments to impose stockholding limits on traders to ensure availability of sugar at reasonable prices.

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