2.  General Changes
 Prior Intimation to RBI for Increase in Threshold Limits by Foreign Institutional Investors
(FIIs)
 Investments by Foreign Venture Capital Investors (FVCIs)
 Investments by Qualified Financial Investors (QFIs)
 Import of capital goods/machinery/equipment (including second-hand machinery)-
conversion to equity
 Transfer of shares where valuation norms are not met
 Limit for providing undertaking for transfer of security by PRI to PROI as gift has been
raised
 Changes in Sectoral Caps
 Policy on commodity exchange
 Non-banking Finance Companies (NBFC) clarification on leasing
 Changes in FDI policy in single-brand retail trading and pharmaceuticals sector
 Foreign Investment in Pharmaceuticals Sector - Amendment to the Foreign Direct
Investment Scheme

3.  Banking - 74%
 Non-banking financial companies (stock broking, credit cards, financial consulting, etc.) - 100%
 Insurance - 26%
 Telecommunications - 74%
 Private petrol refining - 100%
 Construction development - 100%
 Coal & lignite - 74%
 Trading - 51%
 Electricity - 100%
 Pharmaceuticals - 100%
 Transportation infrastructure - 100 %
 Tourism - 100%
 Mining - 74%
 Advertising - 100%
 Airports - 74%
 Films - 100%
 Domestic airlines - 49%
 Mass transit - 100%
 Pollution control - 100%
 Print media - 26% for newspapers and current events, 100 % for scientific and technical
periodicals

5.  Continued Global uncertainty
 Current Account Deficit
 Capital Account flows
 Persistent inflation
 Interest Rate Difference
 Lack of reforms

7. Market Situation Economic Factors
Factors
Affecting INR
Political Factors Special Factors

8. Demand/Supply
FIIs situation of
currency
Buying/Selling
Floating rate of
in Forex
Currency
Markets

9. Internal Factors External Factors
• Industrial Deficit • Export Import
• Fiscal Deficit • Loan sanctions by World Bank
• GDP & GNP and IMF
• Foreign Exchange Reserves • International oil and gold
• Inflation Rate prices
• Agricultural Rate and • FDI & Portfolio investments
production
• Different types of policy
impacts( EXIM, Credit policy
etc.)
• Infrastructure

10. Delay in Delay in
Political
Implementati sanctioning
Instability
on of Policies budget

11.  Events contributing in appreciation or
depreciation of INR e.g.,
 Indo –China War (1962)
 Indo-Pak War (1965)
 Bofors Scandal (1985)
 Pokhran Nuclear Test(1998)
 Kargil War (1999)
 CWG Scam
 Anna Hazare Campaign
 Recent Credit Rating

12.  IT Sector– The sharp depreciation in rupee is expected to boost software sales and forex gains in coming months.
Remittances, travel expenses and dividends could increase outflows, however, they are unlikely to cause an abrasion in the P&L
position of these companies
 Textiles – With easing of cotton and cotton yarn prices and improved export realisations, the textile industry is expected to gain in
the current forex environment. Mark-to-market losses on existing hedged positions and suitability of new hedging contracts would
be crucial determinants of overall profitability.
The man-made fibres segment could face some pressure on account of higher import costs of inputs and marked-to-market losses
on expenses. Dollar-denominated expenses could lend some offsetting support to margins
 Pharmaceuticals – Companies in this industry are net exporters and stand to gains through higher export realisations enhanced by a
depreciating rupee.
Losses on external commercial borrowings (ECBs) and limited feasibility of conversion on foreign currency convertible bonds (FCCBs)
pose a concern to these companies, but are not expected to be huge.
 Gems and jewellery – With increased investment demand amidst a volatile global economy, prices of gold and other metals, which
are inputs to this industry, have witnessed steep rise. Consequently the sectors profitability could be affected. However, the sector is
export-oriented and is expected to gain against the rupee depreciation trend.
 Ferrous metals – Steep rise in prices of coking coal and iron ore aggravated by adverse rupee movements is expected to continue to
pressure raw material costs for this industry and allied segments.
Rather muted industrial production and investment activity in this industry on account of a tighter monetary regime could further
manifest in contraction of supply.
 Power – Thermal power plants are expected to face some strain on account of higher import costs of ferrous metals and petroleum
products, which in turn are expected to remain firm in the near future. Furthermore, some OMCs have restated assets in rupee terms
and are likely to face added pressure in coming months
 Fertilizers – The industry imports about 50% of its raw material requirement. In Q3 FY12, raw material expenses rose sharply by
nearly 20% on account of higher input costs against elevated global prices and depreciation in rupee.
Potassium chloride is one of the major import items and a decline is already being observed in the same. This trend is likely to
continue in the coming months along with a decline in sales.

13.  1966 Economic Crisis-From 1950, India ran continued trade deficits that
increased in magnitude in the 1960s. Furthermore, the Government of India had
a budget deficit problem and could not borrow money from abroad or from the
private corporate sector, due to that sector's negative savings rate. As a
result, the government issued bonds to the RBI, which increased the money
supply, leading to inflation. In 1966, foreign aid, which had hitherto been a key
factor in preventing devaluation of the rupee, was finally cut off and India was
told it had to liberalise its restrictions on trade before foreign aid would again
materialise. The response was the politically unpopular step of devaluation
accompanied by liberalisation.
 The Indo-Pakistani War of 1965 led the US and other countries friendly towards
Pakistan to withdraw foreign aid to India, which necessitated more devaluation.
Defence spending in 1965/1966 was 24.06% of total expenditure, the highest it
has been in the period from 1965 to 1989 (Foundations, pp 195). Another factor
leading to devaluation was the drought of 1965/1966 which resulted in a sharp
rise in prices.
 At the end of 1969, the Indian Rupee was trading at around 13 British. A decade
later, by 1979, it was trading at around 6 British pence. Finally by the end of
1989, the Indian Rupee had plunged to an all-time low of 3 British pence. This
triggered a wave of irreversible liberalisation reforms away from populist
measures.

14.  1991 Economic crisis-In 1991, India still had a fixed
exchange system, where the rupee was pegged to the
value of a basket of currencies of major trading partners.
India started having balance of payments problems since
1985, and by the end of 1990, it found itself in serious
economic trouble. The government was close to default
and its foreign exchange reserves had dried up to the
point that India could barely finance three weeks’ worth of
imports. As in 1966, India faced high inflation and
large government budget deficits. This led the
government to devalue the rupee.
 At the end of 1999, the Indian Rupee was devalued
considerably.

15.  Current Deregulation Of Petroleum Prices. (Earlier Government Used To
Give Subsidies, But Not It Decide D To Let The Market Forces Determine
The Price)
 Central Government Intends To Do Away With Various State Sales Taxes
And Excise Duties And Combine Them All In A Comprehensive GST
(Goods And Services Tax), It Is Not Implemented Yet But Will Be Pretty
Soon In Next Year Or Two.
 The Various CECA And CEPA (Kind of Free Trade Agreements) With
Malaysia And Singapore.
 Allowing Retail Giants Like Wal-mart To Open Shops In India.
 Supreme Court Monitored Investigation Of Indian Black Money Stashed
Abroad.
 The Nuclear Fuel Supply Agreements With France, America Et Al.

16.  The weighted average of a country's currency
relative to an index or basket of other major
currencies adjusted for the effects of
inflation. The weights are determined by
comparing the relative trade balances, in
terms of one country's currency, with each
other country within the index.

17.  The unadjusted weighted average value of a
country's currency relative to all major
currencies being traded within an index or
pool of currencies. The weights are
determined by the importance a home
country places on all other currencies traded
within the pool, as measured by the balance
of trade.

18.  Used as indicators of external competitiveness. NEER is the weighted
average of bilateral nominal exchange rates of the home currency in
terms of foreign currencies.
 The Reserve Bank of India (RBI) has replaced its five-country indices of
nominal effective exchange rate (NEER) and real effective exchange rate
(REER) with new six-currency indices. It is also revising its thirty six-
country indices.
 As against the present practice of having three base years in the case of
existing five-country indices, viz, 1991-92, 1993-94 and 2003-04, the last
being a moving base updated every year to facilitate comparison with a
more recent period, the new six-currency indices will have 1993-94 as
fixed base and 2003-04 as a moving base, which will change every year as
at present.
 The new six-currency indices will include USA, Eurozone, UK, Japan,
China and Hong Kong SAR. The new indices will also have two new
currencies — both Asian — the Chinese renminbi and the Hong Kong
dollar. Two currencies in the existing five-country series, viz, French franc
and Deutsche mark have been replaced by euro in the new indices.

20.  Exporters: Exporters get their payment in dollar (or
other forex currencies ) and convert into Indian
Rupees, In the situation of falling rupee they get more
Indian rupees . Thus a falling rupee is good for the
exporters.
 Non-resident Indians : NRIs send money to their family
regularly. In a falling rupee market, they can send more
Indian rupees to their relatives. Hence in a situation of
rupee becoming weak, NRIs and their relatives stand to
gain.
 Receivers of fees and remuneration in foreign exchange:
People doing online jobs for foreign companies from
here and receive payment for that ( example Ad sense
revenue) can get more Indian rupee equivalent and they
gain when rupee is weak against dollar.

21.  Expensive Importers: Importers face the opposite
of exporters. In a falling rupee market, they have
to pay more Indian Rupee to pay their imports in
dollars. So they stand to lose .
 Indian tourists, students, Haj pilgrims going
abroad: These category of people have to pay
more Indian Rupees to fetch dollars to take care of
their travel and needs abroad. So they are badly
affected in a falling rupee market, which can
unsettle their plans.
 Higher inflation
 Repayment of Loans

22.  Growth deceleration not accompanied by lower
inflation
 Outlook for growth lowered by almost all including RBI
 Lower private consumption demand
 Reserve Bank’s estimates suggest trend growth (non-
inflationary) has fallen to 7.5% from 8%.
 Weak monsoon feeding into food inflation worries
 Currency depreciation could lead to imported inflation
 Already high fiscal deficit reduces maneuverability
 India is an outlier in many respects, particularly with
respect to high fiscal deficit and persistent high
inflation.
 Current account deficit at 4.2% in 2011-12 is above
comfort levels

23.  Large fiscal deficit and
persistent inflation limits
fiscal and monetary space
for further stimulation.
 The centre’s gross fiscal
deficit (GFD) higher at 5.8
per cent in 2011-12 against
4.9 per cent in 2010-11.
 Subsidies to GDP ratio –
budget proposed cap of 2%
 Our peers seem to have
better fiscal fundamentals
than ours
 Even our inflation is one of
the highest among peers
Note: Inflation and fiscal deficit are IMF estimates for 2012
Source: IMF

25. The current & evolving economic and financial system is a product of both
domestic and external factors
Slowdown in India in 2008 was more due to global developments
Current slowdown is combination of global and domestic factors
Global developments have considerable direct and indirect influence on our
economy and financial system through various channels - 7Cs

26.  Using Forex Reserves
 Raising Interest Rates
 Make Investments Attractive- Easing
Capital Controls

27.  Key policy reforms that should be initiated includes rolling of Goods and
Services Tax (GST), Direct Tax Code (DTC), FDI in aviation and
retail, Companies Bill and diesel decontrol.
 Efforts should be made to invite FDI but much more needs to be done
especially after the holdback of retail FDI and recent criticisms of policy
paralysis.
 The government took steps recently to loosen rules for portfolio
investment in the Indian market, indicating its desire to sustain external
inflows.
 The measure to increase External Commercial Borrowings (ECB) to
$10bn will help in borrowing in dollar at a less cost. It may take similar
steps to encourage FDI as well, helping sustain external funding.
 Dollar-window For Oil Companies
 Dollars against oil bonds
 Sovereign-backed non-resident indian bond
 Sovereign overseas bond
 Moral suasion
 Stagger import payments

28.  Small Industries Development Bank of India
(Amendment) Bill, 2012
 The NHAI (Amendment) Bill, 2011
 The Microfinance Institutions (Development and
Regulation) Bill, 2012
 Public Procurement Bill, 2012
 Prevention of money laundering (amendment)
bill, 2011
 The Direct Taxes Code Bill, 2010
 The Micro financial Sector (Development and
Regulation) bill, 2011

29.  The Indian Rupee has depreciated significantly against the US
Dollar marking a new risk for Indian economy. Grim global
economic outlook along with high inflation, widening current
account deficit and FII outflows have contributed to this fall. RBI
has responded with timely interventions by selling dollars
intermittently. But in times of global uncertainty, investors prefer
USD as a safe haven. To attract investments, RBI can ease capital
controls by increasing the FII limit on investment in government
and corporate debt instruments and introduce higher ceilings in
ECB’s. Government can create a stable political and economic
environment. However, a lot depends on the Global economic
outlook and the future of Eurozone which will determine the
future of INR.

30. Thank
You