Rupee Will Not Collapse In India: Finance Minister

Despite concerns from the Opposition about the weak rupee's strength, Indian finance minister Nirmala Sitharaman stated that the country's currency was not "collapsing", but is continuing to follow its natural course.

Speaking in the Rajya Sabha on Tuesday, the minister said that although the rupee has declined against the dollar, its performance is still superior to other currencies in India. As the currency is at liberty to determine its own course, the central bank has not set any targets to control the rupee. The minister stated that the RBI intervened in the forex markets to reduce volatility in the rupee's movement. She stated that she had withstood the US Fed's decisions better than any other peer currencies.

In recent sessions, the domestic currency has been increasing after its depreciation for weeks, reaching almost 80 dollars per dollar last month. The rupee reached a record 78.65 on Tuesday after gaining 41 paise. Foreign fund inflows, and the recent weakness of the greenback against its rivals helped to increase rupee appreciation. The rupee was also helped by a drop in crude oil prices. The rupee still lost about 6% to the dollar in 2022.

The minister responded to suggestions from MPs that non-resident Indians should have the right to send remittances in foreign currencies to their country. She said that it was not the responsibility of the finance ministry to provide assurance but will forward the suggestion to Reserve Bank Of India (RBI).

After nine months of outflows in consecutive months, net funds from foreign portfolio investors to Indian equities began to turn positive in July. The central bank announced last month a series of measures to increase forex flows and support the rupee. These included allowing overseas investors to purchase short-term corporate debt and allowing greater access to government securities under fully accessible routes. It increased the limit for external commercial borrowing under the automatic route by $1.5 billion.

The minister responded to criticisms that the Centre had been using the cess route in order to capture large amounts of funds and thus depriving states their legitimate revenue share. She stated that the minister claimed the Centre has been spending more through states and for them through various programs than it has collected via cess. She also said that if the Centre has not collected enough cess to meet the fund needs, it will fill the gap. Cesses do not count towards the divisible tax pool, which is shared with all states.

According to official sources, the Centre collected Rs 2.03 trillion in road and infrastructure cess during FY22, but spent Rs 2.5 trillion (RE) in FY23. While the Centre anticipates collecting Rs 1.38 trillion from this cess in FY23, it is likely to spend around Rs 2.95 trillion.