Much of the government’s emphasis over the past few weeks has been on controlling the current account deficit (CAD), whether by way of compressing gold imports through duty hikes or by trying to lower oil imports while providing incentives to boost exports. While the finance minister’s statement that he would keep the CAD to under $70 billion in FY14 was met with initial scepticism, the rapidly slowing economy—and the impact of the falling rupee in compressing non-gold non-oil imports—suggests this may well be a reality. But what is driving the rupee down is not just the CAD—indeed the CAD has been improving since June—but increased outflows on account of fears of the US taper and the economy doing badly. Between January and May, when due to less fears of the taper starting anytime soon, $19.3 billion of FII funds flowed in, but the rupee still slipped from 53.3 per dollar to 56.5. Between June and now, when $12.4 billion flowed out, the rupee naturally fell even more, to 66.01 currently....
Posted on: Tue, 03 Sep 2013 02:51:07 +0000
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