The value of the rupee is determined by the trend in the external environment. This includes the international demand for currencies based on the global trade. The value of the rupee is influenced largely by the current account or the money in foreign currencies India owes the world. Governments manage the external sector by balancing the trade. They also take measures to attract foreign exchange to the country.
Shaktikanta Das, governor of Reserve Bank of India, recently explained the importance of external sector management in a speech. He highlighted various steps the government along with RBI took to manage the volatility in the external sector.
Simplification of these norms has been followed under two tracks. The government is taking steps to expand its list of eligible borrowers. To enable domestic firms to borrow from the external markets, rupee-denominated bonds under the External Commercial Borrowing (ECB) route have been offered.
Related read: 6 things to know about corporate debt borrowing
To make the Foreign Portfolio Investment (FPI) regime investor-friendly, half-yearly limits have been revised. FPIs on municipal bonds have been allowed considering the State Development Loans (SDLs). The government has also increased the flexibility of foreign portfolio investors.
Related read: Why foreign investment matters for India
The key to sustainable BOP is exports. Therefore, steps have been taken to diversify India’s export profile. This diversification is brought in terms of destinations as well as products. This is done to reduce trade shocks and broaden India’s trade base.
To improve productivity and competitiveness of Indian exporters, steps like facility up-gradation, improvement in global value chains and trade facilitation measures have been taken. Steps have also been taken to quicken the tax refund application and reimbursement process. Active engagement is pushed on e-commerce platforms.
For the evolution and progress of financial markets, the central bank has announced progressive liberalization. For an expanding investor, diverse risk management instruments have been introduced.
The Indian rupee has slipped considerably on account of the international contagion effect. On September 25, it opened at Rs.71.10/UD$ and fell to an intra-day low of Rs.71.14/US$. The government and the RBI have taken several steps to prevent the rupee from falling further.
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