Even as the reported move to revisit the tax treaty with Mauritius led BSE Sensex to tank 320 points and pushed it below the 17,000-mark to close at 16831.08 on Friday, the rupee almost slumped to 54 against the U.S. dollar.
A worried Finance Minister Pranab Mukherjee, now abroad to attend the annual board meeting of the ADB, reported to have told journalists in Manila that the Eurozone mess, caused by structural deficiencies and volatile commodity prices, must share the blame for the BoP (balance of payment) stress in many Asian countries. The rupee has been under assault by a combination of factors, ranging from growth slowdown to escalating capital account deficit. The row over taxation of foreign investors has become an additional contribution to rupee volatility.
The volatile financial markets even forced the Reserve Bank of India (RBI) to intervene. The bank came out with a series of quick-fix measures to improve the foreign currency flows. For one, it increased the interest rates on FCNR (B) (foreign currency non-resident bank) deposits across maturities. For another, it also gave leeway to banks to determine their interest rates on export credit. It went further to ease access to pre-shipment credit by letting banks to use FCNR (B) deposits for the same. The apex bank felt that these measures would augment foreign currency flows into banks. The banks could then use them to offer foreign currency loans to exporters, the RBI said.
