Context: Rupee Depreciation
Rupee has weakened to near record levels (around ₹95/$) amid oil-price shocks, capital outflows and global uncertainty, leading RBI to explore measures to mobilise dollar inflows and stabilise the currency.
Why is the Rupee Sliding?
2.1 External Imbalance (Oil Shock)
- Rise in crude prices → higher import bill → more dollar demand
2.2 Capital Outflows
- ~$19 billion equity outflows (Mar–Apr)
- Reduces dollar supply in domestic market
2.3 Strong US Dollar
- Global tightening → capital shifts to US assets
- Emerging Market currencies (including rupee) depreciate
2.4 Comparative Currency Performance (Fragile Five Context)
- Indian Rupee ↓ ~12.09% (last 12 months)
- Turkish Lira ↓ ~17.17%
- Indonesian Rupiah ↓ ~4.33%
- Brazilian Real ↑ ~12.70%
- South African Rand ↑ ~9.98%
→ Rupee shows relative underperformance
What RBI is Doing
3.1 NRI Deposit Scheme (FCNR-type)
- Considering revival of 2013 scheme
- Earlier mobilised ~$26 billion
3.2 Tax Relaxation on Overseas Bonds
- Proposal to reduce/remove withholding tax
- To attract foreign investment in government bonds
3.3 Forex Buffer Management
- Using reserves (though declined from ~$728.5 billion peak)
- Still adequate (~11 months import cover)
