New Delhi: The rupee remains one of the best-performing Asian currencies despite geopolitical tensions in the Middle East and other headwinds, indicating India's sound economic fundamentals, Minister of State for Finance Pankaj Chaudhary said on Monday. The value of the Indian Rupee (INR) is market-determined, with no target or specific level or band, he said in a written reply in the Lok Sabha.
During the current calendar year (CY) 2024, he said, the rupee depreciated by 1.4 per cent till November 19, 2024 against the US dollar (USD). One of the main reasons for the depreciation of INR has been the broad-based strength of the USD.
"During CY 2024, Dollar Index has increased by about 4.8 per cent till November 19, 2024. More recently, the Dollar Index touched 108.07 on November 22, 2024, its highest in more than a year, exerting pressure on emerging market currencies," he said.
Further, geopolitical tensions in the Middle East and uncertainty surrounding US elections results also added to the headwinds. Despite this, he said "INR remains one of the best-performing Asian currencies."
In comparison, major Asian currencies like the Japanese Yen and South Korean Won declined by 8.8 per cent and 7.5 per cent, respectively, as on November 19, 2024.
Notably, all G10 currencies, except the British Pound (GBP), depreciated by over 4 per cent during CY 2024. "The relative stability of the INR bears testimony to India's sound and resilient economic fundamentals, macroeconomic and financial stability," he said.
The depreciation of a currency is likely to enhance the export competitiveness, which in turn impacts the economy positively. On the other hand, depreciation may raise the prices of imported good.
The overall impact of exchange rate depreciation on domestic prices, and consequently on citizens, depends on the extent of pass through of international commodity prices to the domestic market.
He further said, the RBI monitors key developments across the globe which may have an impact on USD-INR exchange rate. Such developments include monetary policy actions of major central banks, major economic data releases across the globe and their impacts thereof, OPEC+ meeting decisions, tracking, and analysing geopolitical events, daily movements in G10 and EME currencies etc, he said.
RBI regulates the foreign exchange market with a view to ensuring its orderly functioning and development and intervenes only to curb undue volatility in the INR. In the Budget FY22, it was announced that the Centre aims to attain the fiscal deficit level below 4.5 per cent of GDP by FY26, he said in reply to another question.
This glide path of fiscal consolidation was announced to retain adequate flexibility to manage public finances prudently and to ensure adequate resources are available to finance social welfare/development projects, he said.
Measures include efforts to rationalise revenue expenditure with emphasis on capital expenditure and augmentation of revenues. Assessment of impact of fiscal deficit is a continuous exercise conducted by Ministry of Finance.
This has enabled the government to prudently manage its public finances while ensuring adequate resource availability for social welfare projects/development programs, notwithstanding the unprecedented impact of Covid-19 pandemic, he said.
The government has also ensured that the requisite consolidation is achieved in line with the Budget 2021-22 announcement. Replying to another question, Chaudhary said FDI inflows into a country depend on a host of factors such as availability of natural resources, macro-economic stability, investment decision of foreign investors, global investment climate, central bank interest rates and tax regulations, among others.
The net FDI in the last 5 financial years has declined from USD 43 billion in 2019-20 to USD 10.1 billion in 2023-24. Net FDI inflow stood at USD 28 billion in 2022-23 as compared to USD 38.6 billion in 2021-22 and USD 44 billion in 2020-21.