Narrowing down the impact of the rupee’s depreciation on the country’s exports and imports is not possible as several other factors also explain the developments in trade, the finance ministry has informed the Parliament.
In a written response to a question in the Lok Sabha on December 18, Minister of State for Finance Pankaj Chaudhary said that the rupee’s exchange rate is market-determined, with “no target or specific level or band”.
“These factors include the kind of tradeable (i.e. essential or luxury items), availability of substitutes, freight costs, income growth of exports demanding countries, etc,” the junior finance minister said. “Thus, the impact of recent depreciation of the Indian Rupee against the US Dollar, on levels of exports and imports cannot be isolated.”
Chaudhary’s comments come after the rupee hit a new all-time low of 83.41 per dollar on December 13. Since then, the Indian currency has gained some ground and was even trading in the sub-83 per dollar territory early on December 18.
Commenting on the Reserve Bank of India’s (RBI) actions in the foreign exchange market, Chaudhary said the Indian central bank regulated the market “to ensure its orderly functioning and development while eschewing undue volatility”. He added that the RBI has taken several measures to diversify and expand the sources of forex funding to mitigate exchange rate volatility and dampen global spillovers.
On December 8, RBI Governor Shaktikanta Das said the Indian rupee had been less volatile in 2023 compared to its emerging market peers.
“The relative stability of the Indian rupee reflects the improving macroeconomic fundamentals of the Indian economy and its resilience in the face of formidable global tsunamis,” Das said.