Marking time

If the rupee has depreciated by about 16% against the dollar since the start of the year, a large part of this is due to the shortfall in the capital account and the increased pressure on India Inc to redeem loans—the impact of FIIs pulling out a few billion dollars has caught the public attention, but is hardly that significant. Apart from the increased need due to a higher current account deficit, the capital account is also falling short of what expectations were—based on FDI received so far, India is $15 billion short of the year’s target of $35 billion. The other problem, and that affects corporate profitability as well, is that caused by the rupee’s fall as well as that in share prices of firms that have borrowed abroad. Since around half the borrowings appear to be unhedged according to industry, this explains the panic in the currency markets.

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