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| Indian Rupee Falls to Record Low | Indian Rupee Falls to Record Low |
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| HONG KONG — The Indian rupee lurched to a record low against the dollar on Tuesday, shrugging off recent measures aimed at propping it up and underscoring the severe problems facing the economy as the country heads toward an election next year. | |
| The rupee has slumped nearly 15 percent since May, when the possibility of scaled-back bond purchases in the United States prompted foreign cash to flee emerging markets around the world. The Indian central bank reacted last month with several steps to support the currency, but the rupee continued its slide Tuesday, falling to 61.71 per U.S. dollar by late afternoon. | The rupee has slumped nearly 15 percent since May, when the possibility of scaled-back bond purchases in the United States prompted foreign cash to flee emerging markets around the world. The Indian central bank reacted last month with several steps to support the currency, but the rupee continued its slide Tuesday, falling to 61.71 per U.S. dollar by late afternoon. |
| Stemming the rupee’s rapid decline will be one of the first tasks for the next governor of the Reserve Bank of India, the nation’s central bank. Reuters reported Tuesday that the Indian government appointed Raghuram Rajan, the chief economic adviser in the finance ministry, to the post. According to a statement by the finance minister, Mr. Rajan will replace Duvvuri Subbarao, whose tenure ends on Sept. 4 after five years, Reuters reported. | |
| Mr. Rajan joined the Indian government last August, after serving chief economist at the International Monetary Fund and a professor at the University of Chicago. | |
| India’s fundamental problems, said Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight in Singapore, are a “chronic current account deficit,” which has worsened over the years, and a big outflow of foreign capital since Ben S. Bernanke, the chairman of the United States Federal Reserve, signaled in May that the American economy may soon be ready to be weaned off the massive bond purchases that have bolstered its economy since the global financial crisis. | India’s fundamental problems, said Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight in Singapore, are a “chronic current account deficit,” which has worsened over the years, and a big outflow of foreign capital since Ben S. Bernanke, the chairman of the United States Federal Reserve, signaled in May that the American economy may soon be ready to be weaned off the massive bond purchases that have bolstered its economy since the global financial crisis. |
| “Last year, they were able to deal with the current account deficit because capital inflows were strong,” Mr. Biswas said. Now that the money is ebbing away, the rupee is coming under systemic pressure, he said. | “Last year, they were able to deal with the current account deficit because capital inflows were strong,” Mr. Biswas said. Now that the money is ebbing away, the rupee is coming under systemic pressure, he said. |
| More broadly, much-needed economic overhauls — like improving the country’s infrastructure and cutting red tape — have been notoriously tough to push through, while a slowdown in growth in recent years has made the country less attractive to foreign investors, despite the potential offered by a huge, young population. | More broadly, much-needed economic overhauls — like improving the country’s infrastructure and cutting red tape — have been notoriously tough to push through, while a slowdown in growth in recent years has made the country less attractive to foreign investors, despite the potential offered by a huge, young population. |
| The pace of expansion has slowed to about 5.5 percent this year from more than 8 percent in 2009 and 2010, and the latest purchasing managers indexes for the manufacturing and services sectors, released by the British bank HSBC, both slipped in July. | The pace of expansion has slowed to about 5.5 percent this year from more than 8 percent in 2009 and 2010, and the latest purchasing managers indexes for the manufacturing and services sectors, released by the British bank HSBC, both slipped in July. |
| “There are few good signs on the economic horizon,” Mr. Biswas said, “and there is not a great deal that either the government or the central bank can do in the short term.” He added that slowing growth had further reduced the government’s room to maneuver. | “There are few good signs on the economic horizon,” Mr. Biswas said, “and there is not a great deal that either the government or the central bank can do in the short term.” He added that slowing growth had further reduced the government’s room to maneuver. |
| The slide in the rupee, moreover, will probably make things worse, analysts warned. | The slide in the rupee, moreover, will probably make things worse, analysts warned. |
| Although a cheaper rupee makes Indian exports less expensive for consumers abroad, the effect provides relatively little lift to the Indian economy, as the country is far less reliant on exports than many of its Asian peers. | Although a cheaper rupee makes Indian exports less expensive for consumers abroad, the effect provides relatively little lift to the Indian economy, as the country is far less reliant on exports than many of its Asian peers. |
| Meanwhile, the weaker currency raises India’s import bills for dollar-denominated goods like oil, of which the country is a big importer, adding pain to an already slowing economy and potentially fueling inflation to worrisome levels further down the line. | Meanwhile, the weaker currency raises India’s import bills for dollar-denominated goods like oil, of which the country is a big importer, adding pain to an already slowing economy and potentially fueling inflation to worrisome levels further down the line. |