NEW DELHI: In today’s session of the Rajya Sabha, Member of Parliament Ritabrata Banerjee addressed pressing issues concerning the Indian economy, focusing on significant foreign portfolio investor (FPI) outflows and the depreciation of the Indian rupee.
#FLASH: FPI outflows of $15B put pressure on the rupee. RBI using dollar reserves to prop it up.
‘What policy measures has the govt explored to stabilize our currency?’ – Ritabrata Banerjee in Rajya Sabha.#RupeeDepreciation #FPIOutflows #RajyaSabha #IndianEconomy… pic.twitter.com/S2i0Et9iVX
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FPI Outflows and Sectoral Impact
Banerjee highlighted that between January 2023 and March 2024, FPIs withdrew nearly $15 billion from Indian equity markets, exerting considerable pressure on the rupee’s value.
He called upon the government to provide a detailed sector-wise breakdown of these outflows and their correlation with the currency’s depreciation.
“A crucial factor that determines the demand for any currency is the demand among foreigners for the goods and assets of the country. Since foreigners will first have to purchase the local currency before they can purchase goods and assets, high demand for a country’s goods and assets translates to high demand for its currency,” Banerjee stated in the Rajya Sabha.
According to data from the National Securities Depository Limited (NSDL), the financial services sector experienced the highest FPI outflows, with approximately ₹54,500 crore exiting between January and December 2024.
The oil and gas sector followed with outflows of around ₹50,000 crore, and the fast-moving consumer goods (FMCG) sector saw withdrawals totaling ₹20,000 crore during the same period.
Rupee Depreciation and RBI’s Intervention
Banerjee also raised concerns over the Reserve Bank of India’s (RBI) measures to stabilize the rupee. He noted that the central bank has been utilizing its foreign exchange reserves to prop up the rupee by increasing the supply of dollars in the foreign exchange market.
“The RBI has been using its dollar reserves to prop up the value of the rupee by artificially increasing the supply of dollars in foreign exchange markets,” Banerjee remarked.
Despite these interventions, the rupee has faced persistent depreciation pressures. As of December 26, 2024, the rupee reached an all-time low of 85.2525 against the U.S. dollar, marking its seventh consecutive session of record lows.
Current Account Deficit Concerns
Banerjee also pointed out that India’s current account deficit (CAD) widened to 1.2% of GDP in the third quarter of the financial year 2024.
“Sir, India’s current account deficit widened to 1.2% of our GDP in Q3 of financial year 2024,” Banerjee stated.
However, recent data from the Reserve Bank of India indicates that the CAD narrowed to $10.5 billion (1.2% of GDP) in Q3 FY2023-24, down from $11.4 billion (1.3% of GDP) in the previous quarter. This improvement is attributed to higher service exports, which grew by 5.2% year-on-year, particularly in software, business, and travel services.
Government’s Policy Measures
Banerjee further urged the government to outline its policy measures to stabilize the currency and address the widening CAD.
“I want to know from the government, what policy measures has been, as the government explored, to stabilize our currency?” he questioned.
While specific strategies have not been detailed publicly, the government’s broader economic policies aim to bolster domestic manufacturing, enhance export competitiveness, and attract stable long-term foreign direct investment (FDI) to mitigate the impact of volatile FPI flows.
The concerns raised in the Rajya Sabha highlight the need for a comprehensive approach to strengthen India’s economic resilience amid global financial fluctuations.
