Mumbai, May 23
The rupee slumped to a record low against the dollar on Wednesday, ratcheting up pressure on policymakers to restore confidence in the currency at a time when appetite for risky assets is ebbing around the world.

The rupee fell beyond the symbolically significant level of 56 to the dollar, and traders said it could fall further to 57. The currency has already dropped more than 13% from its 2012 peak in February.

Global risk aversion, brought on by the debt crisis in the euro zone, has exposed India's vulnerabilities, most prominently a current account deficit that reached 4.3% of GDP in the December quarter. The economy depends on capital flows to bridge the gap. That dragged down the balance of payments into a deficit of $12.8 billion at the end of 2012, the first shortfall in three years.

Worries about the government's finances, sluggish policy reforms, and a recent controversial tax proposal on foreign investment have all helped make the rupee Asia's worst performing currency this year.

Although foreign selling has not yet reached alarming levels, concern that overseas investors will choose to sell Indian assets has cast a long shadow over local markets.

"India is one of those odd cases where the bottom-up corporate environment is very strong but it is challenged by poor politics and macroeconomic policies," said Pranay Gupta, Asia chief investment officer for Lombard Odier. The political will to take tough steps to put Asia's third largest economy back on a firm growth path was lacking, he said.

Still, foreign investors have not yet staged an exodus from Indian markets. — Reuters

Mumbai, May 23
The Reserve Bank of India is coming under increasing pressure from various quarters to sell dollars directly to the state-run oil marketing companies in a bid to check the rupee’s slide.

On Wednesday Chief Economic Advisor to the prime minister C. Rangarajan endorsed the demand, saying the central bank could sell dollars directly to the state-run oil marketing companies.

His comments to a TV channel comes amidst a growing demand by global banks operating in India, heads of treasury departments of various organizations and foreign exchange traders that the oil marketing companies exit the foreign exchange market in order to stabilize the rupee.

"The state-run oil marketing companies are buying as much as US $500 million a day and there are no sellers because of which the rupee is getting hammered," said Amit Seth, a foreign exchange trader in Mumbai.

The buzz in the market is that the rupee could recover to Rs 53 against the dollar if the fuel retailers buy dollars directly from the central bank.

Such measures are not new as the Reserve Bank of India had sold dollars directly to state-run oil marketing companies way back in 2008 and 2009 when the rupee had fallen sharply against the US dollar.

Despite intervention by the Reserve Bank, the rupee breached the Rs 56 per the dollar on Wednesday.

According to the buzz in the market the rupee could breach the Rs 57 barrier in a day or two and fall further next week if there is no decisive action by the central bank.

A few traders are betting on the rupee making small gains before resuming its downward trajectory. Some institutions like the National Australian Bank are predicting the rupee will touch 70 to the US dollar.

New Delhi, May 23
A freefall in rupee, which on Wednesday touched a historic low below the Rs 56 level against the US dollar, has doubled the losses for foreign investors in Indian stocks, as against their domestic counterparts.

While the stock market as such has been on a declining trend in the recent past, the concurrent plunge in rupee has compounded the losses for foreign institutional investors and other overseas entities to nearly double the loss for domestic investors, shows the stock exchange data.

In the past one month, the stock market's benchmark Sensex has plunged nearly 7%. The decline is much steeper at about 14% for the Dollex-30 (the dollar-linked counterpart of the Sensex) in the same period. For the past one-year period also, the Sensex has declined by about 14%, while the Dollex-30 has plunged nearly 28%, BSE data shows.

It is a sharp depreciation in the Indian rupee's valuation against the US dollar that has led to this steeper fall in the Dollex value. The rupee has lost nearly 5% against the dollar in the last one month alone, while it has fallen nearly 20% in past one year.

Market analysts believe a weaker rupee erodes the return which foreign investors make in dollar terms.

"Fresh demand for the American currency from banks and importers due to higher dollar in the overseas market mainly affected the rupee's value against the dollar," said Moses Harding, head, ALCO and economic & market research, IndusInd Bank.

"The rupee has witnessed a fall of over 20% in the last one year against the dollar. This steep fall creates challenges for the economy — domestic businesses that have foreign currency borrowing are negatively impacted, foreign investors prefers to stay away from the capital markets as fall in the rupee heightened their losses," T.S. Srinivasan, general manager (treasury) of Indian Overseas Bank, said. "In addition, domestic liquidity conditions aggravated as the RBI intervenes to check heightened volatility in the rupee," he added. — PTI

Shimla, May 23
Acknowledging that containing India’s ever widening trade deficit in the face of the weakening rupee was a big challenge, Commerce & Industry Minister Anand Sharma said on Wednesday the government would address the issue in the annual supplement to its foreign trade policy to be released on July 5.

“The rupee’s continuing downslide, though due to global factors, is a serious concern as it has not only inflated the oil import bill but also affected exporters engaged in manufacture of items based on imported raw materials. I’ve already discussed the matter with the prime minister and the finance minister and the Reserve Bank of India will be taking all necessary steps to arrest the rupee slide”, said Sharma, who was in the city for a meeting with representatives of the Confederation of Indian Industries.

He said the volume of India’s two-way trade had reached US $788 billion but the soaring trade deficit was a major concern. “The government is on the job and consultations are on with industry. The requisite measures will be announced in the supplement to the trade policy to help boost exports”, he added.

Crude oil prices, which ranged from $80 to $90 a barrel in 2010, are now hovering at around $120 a barrel and India’s oil import bill has swelled to $154 billion. “It’s a critical period as the global economic crisis is also affecting India”, Sharma noted.

He said the government’s initiative to set up 12 manufacturing zones all across the country was a step towards raising the contribution of the sector to GDP from the current 16% to 26%, whereas in developed countries and even in China the figure ranges from 28% to 32%.

“Each manufacturing zone will have a minimum area of 5,000 hectares and industrial units would be provided a host of incentives, including weighted tax deductions for technology development to the extent of 150%. Focus will also be on skill development to help produce 100 million skilled workers by the end of the decade”, he said.

Chandigarh, May 23
As Dell India focuses on the small and medium enterprises for propelling growth, it has now come up with alternative models of deploying IT solutions for them. With more and more SMEs still wary of managing IT services on their own, the US-based multinational computer technology major has come up with a model where SMEs are leasing out the management of IT services to them.

SMEs form a major part of Dell India’s business now. Of late, the firm is making a transition from just being a provider of IT services to managing the services for these SMEs.

Sitaram Venkat, director, enterprise solutions business, said this alternative system of deploying IT for SMEs was helping most companies to streamline their services, besides helping them to reduce the cost of IT services. “Nearly three out of every ten SME clients are now opting for this alternative system,” he added.

With the government business being the major contributor to the company’s revenues, Venkat said there lay a huge opportunity for growth in this segment now, as most government agencies are going in for cloud computing. “After successfully partnering with the government in the UID project, we are now vying with other service providers to bag the ambitious pilot project for creating state level cloud computing solutions, where all citizen services will be integrated,” he added.

Venkat stated the company was also in talks with the governments of Punjab and Haryana to create cloud computing services for them.