Rupee Breaches 63-Mark Against $

Ends at 63.13 vs dollar, registering a decade’s biggest single-day fall of 148 paise or 2.4%

New Delhi (PTI): Continuing its free fall, the rupee on Monday breached 63-mark a dollar to end at record low of 63.13, registering the decade's worst single-day fall of 148 paise, heightening fears that more capital control steps could be in the offing.

Weighed down by heavy dollar demand and fall in stocks markets, the rupee fell to historic intra-day low of 63.30. At the Interbank Foreign Exchange (Forex) market, the local currency opened sharply lower at 62.30 a dollar from its previous close of 61.65 but tried to recover later to a high of 62.21. Rupee again turned negative and finally ended at 63.13, logging a fall of a massive 148 paise or 2.40 per cent. The previous biggest fall in decade was the 124 paise or 2.57 per cent plunge on September 22, 2011.

Forex dealers said that overseas investors sat on the sideline on caution ahead of the release of the minutes of The Federal Open Market Committee on August 21. "Big demand from oil companies was there since morning. Apart from state-run banks, private and foreign banks were also bidding for dollars," said Srinivasa Raghavan, Executive Vice-President (Treasury), Dhanlaxmi Bank said.

Sentimentwise rupee falling to 63.30 will further be negative for market sentiment, said Ajay Marwaha, Executive Vice President and Head, Trading, in the Treasury, HDFC Bank. Dealers said the FOMC minutes to be released on August 21 will likely give an indication on when the US Federal Reserve will start withdrawing its monthly asset purchase programme. The dollar edged modestly higher against a basket of six major currencies.

In order to arrest the rupee slide, RBI had last week announced stern measures, including curbs on Indian firms investing abroad and on outward remittances by resident Indians. The central bank reduced the limit for overseas direct investment (ODI) by domestic companies, other than oil PSUs, under the automatic route from 400 per cent of net worth to 100 per cent. Higher levels of ODI would now need prior approval from RBI.

Last week, Finance Minister P Chidambaram had reiterated that the current account deficit (CAD) would be brought down to $70 billion this fiscal from $88.2 billion in the previous year and steps would be taken to increase foreign fund inflows.

High gold imports pushed CAD to a record high of 4.8 percent of GDP in 2012-13 when India imported 845 tonnes of yellow metal. Import of gold in April-July 2013-14 rose 87 per cent to 383 tonnes as compared to the same period of last fiscal. In order to curb import of gold and contain CAD, the government raised customs duty on precious metals like gold, silver and platinum to 10 per cent. RBI also imposed restrictions on import of gold coins, medallions and dorebars and said importers would require licence for the purpose from Directorate General of Foreign Trade (DGFT).

FM reviews

With the rupee crossing 63 against the dollar, Finance Minister P Chidambaram on Monday met senior officials of various departments to take stock of the current economic situation and deliberated on steps to improve it. The three-hour-long meeting was attended by Secretaries of departments of Revenue, Expenditure, Financial services and Disinvestment. The agenda for next three months was discussed, sources said. The Minister would be meeting the Department of Economic Affairs on Tuesday.

Referring to the rupee, the official had said: "Given our fiscal deficit, given our CAD, there will be some pressure on rupee and rupee will indeed depreciate. All that we are saying is that we cannot allow the rupee to go into a free fall. We are arguing for a stable rupee".

Basu: Next 18 months difficult, but no 1991-like crisis

Former chief economic advisor and present World Bank chief economist Kaushik Basu said that the next 18 months will be difficult for India and the global economy, but the gloom surrounding India's economy had been "overplayed" and the country was not in danger of a full-blown crisis. "Growth may not have bottomed out. We have further to go (down), but the situation is not as bad as is being captured by the mood and captured in the headlines," AFP reported him as saying. "India is nowhere near the 1991 crisis. The gloom is being overplayed," he added.

His comments came as India's rupee hit a new low of 63.22 to the dollar and shares slipped another 2.11% on Monday on growing fears about the economy and the government's ability to deal with the situation.

The steps that failed to rescue troubled rupee

Despite a slew of measures initiated by the central government and Reserve Bank of India to arrest currency depreciation, rupee on Monday fell to a record low of 62.82 against the dollar. Unfortunately, all these measures to prop up the currency, which is down 12 per cent against the dollar so far in 2013, have thus far proved ineffective, making it the worst performer in Asia and threatening to drive the economy towards a full-blown crisis.

Following are measures announced by Indian authorities:

Gold

• The government is looking to contain gold imports at 850 tonnes this fiscal year, compared with 950 tonnes last year.
• The government hiked the import duty on gold for the third time in eight months to 10 per cent
• It also raised the factory gate duty on gold bars to 9 per cent from 7 per cent, besides banning imports of gold coins and medallions.

Silver

• The government is also targeting imports of silver, which are a tiny fraction of gold.
• It has raised the import tax on silver to 10 per cent from 6 per cent.

Oil from Iran

• 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.

Sovereign wealth funds

• Sovereign wealth funds (SWFs) will be allowed to invest in tax-free bonds floated by state-run infrastructure finance companies.
• The government has earmarked 30 per cent of these bonds specifically for investment by SWFs.

Quasi-sovereign bonds

• Indian Railway Finance Corp. Ltd. (IRFC), Power Finance Corp. (PFC) and India Infrastructure Finance Company Ltd. (IIFCL) will raise $4 billion from overseas via quasi-sovereign bonds to finance long term infrastructure.

Import restrictions

• The government aims to reduce imports of non-essential import items such as fridges and TVs.

Overseas corporate borrowing

• India has relaxed guidelines on borrowing by companies from overseas money markets, known as external commercial borrowing.
• The relaxed guidelines will likely bring in extra $2 billion this fiscal year.
• Under the new guidelines, subsidiaries of multi-national companies in India will be allowed to raise money from their parent companies.

Oil company finance

• State-run oil companies will raise additional funds from offshore money markets and trade finance.
• This will fetch an extra $4 billion.

Non-resident Indian deposits

• India has liberalised deposit schemes for non-resident Indians (NRIs). Chidambaram says this will likely bring in $1 billion.
• Under the new guidelines, incremental flows of deposits into Non-Resident Rupee Account Scheme (NRE)/Foreign Currency Account Scheme (FCNR) will be exempt from cash reserve ratio and statutory liquidity ratio requirements.
• In NRE deposits, the interest rate will be deregulated on deposits with maturity of 3 years or more, while in FCNR (B) deposits of 3-5 years, the ceiling has been relaxed to LIBOR plus 400 bps from 300 bps.

Foreign exchange outflows

• The RBI has announced measures to reduce foreign exchange outflows by resident Indians.
• It has cut the limit for overseas direct investments (ODI) under the automatic route for all new transactions to 100 per cent of networth from 400 per cent.
• The RBI has also reduced the limit for remittances made by resident individuals under the liberalised remittance scheme to $75,000 from $200,000 per financial year.