Depreciation of Rupee due to Balance of Payment Deficit.

Press Information Bureau
Government of India
Ministry of Finance

15-May-2012 18:00 IST

Depreciation of Rupee due to Balance of Payment Deficit

   The current account deficit CAD is financed by capital account surplus and drawdown of foreign exchange reserves when CAD exceeds capital account balance.  The details are given below:

         The main reasons for rupee depreciation are the supply-demand imbalance in the domestic foreign exchange market, mainly due to widening of CAD, slowdown in FII inflows, and heightened risk aversion due to the euro area sovereign debt crisis.

         The current account deficit (CAD) increased to 4.0 per cent of GDP in 2011-12 (upto December 2011) as compared to 3.3 per cent during the same period of 2010-11 due to widening of trade deficit on account of higher imports of POL and gold & silver.

         The lower the impact of gold imports on CAD under balance of payment (BoP), Government in the Union Budget 2012-13 has proposed to increase basic custom duty on standard gold bars; gold coins of purity exceeding 99.5 per cent and platinum from 2 per cent ot 4 per cent and on non-standard gold from 5 per cent to 10 per cent.

         Further, the Reserve Bank of India has taken certain prudential measures in respect of Non-Banking Financing Companies (NBFCs) predominantly engaged in lending against collateral of gold jewellery, to restrict the loans against gold.

             This information was given by the Minister of State for Finance, Shri   Namo Narain   Meena in written reply to a question in Rajya  Sabha today.

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