UPSC CSE | GS PAPER III – INDIAN ECONOMY
1. IN NEWS
The Reserve Bank of India (RBI) tightened rules on rupee derivatives and reduced the transaction limit for certain dollar transactions to address pressure on the Indian rupee.
2. KEY POINTS
- Institution: Reserve Bank of India (RBI).
- Main objective: Reduce speculative pressure on the rupee.
- Key measure: Tighter rules for foreign-exchange derivatives.
- Transaction limit: $5 million for specified transactions.
- Expected impact: Better monitoring of foreign-exchange exposure.
3. WHY IS THE RUPEE UNDER PRESSURE?
- Higher demand for US dollars.
- Foreign portfolio investment outflows.
- Rising international oil prices.
- Global economic uncertainty.
4. IMPACT ON THE INDIAN ECONOMY
- Imports: A weaker rupee can increase import costs.
- Inflation: Costlier imports may push prices upward.
- Exports: Indian goods may become more competitive abroad.
- Foreign Debt: Repayment of dollar-denominated debt may become costlier.
- Foreign Exchange Market: RBI measures can help manage excessive volatility.
5. IMPORTANT RBI TOOLS
- Repo Rate: Influences borrowing costs and monetary conditions.
- Foreign Exchange Intervention: Buying or selling foreign currency to manage market volatility.
- Open Market Operations: Buying and selling government securities to manage liquidity.
- CRR: Cash that banks must maintain with the RBI as a proportion of specified liabilities.
6. PRELIMS QUICK FACTS
- RBI was established in 1935.
- RBI was nationalised in 1949.
- India’s official currency is the Indian rupee (₹).
- The RBI manages India’s foreign-exchange reserves.
- India’s foreign-exchange market is regulated under the Foreign Exchange Management Act (FEMA), 1999.
7. UPSC MAINS QUESTION
Q. What factors influence the value of the Indian rupee? Discuss the role and limitations of RBI intervention in stabilising the exchange rate. (150 words)
CONCLUSION
Exchange-rate stability is important for controlling imported inflation, maintaining investor confidence and supporting external-sector stability. RBI measures must balance market stability with efficient foreign-exchange transactions.
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