Plunging rupee pushes India to raise taxes on gold, oil

INDIA tightened exports of oil and imports of gold in an all-out effort to rein in the rupee that plunged to a fresh record on Friday (Jul 1).

The currency fell 0.2 per cent to 79.1113 per dollar on Friday, after hitting multiple lows in recent weeks, while the benchmark index dropped 1 per cent. The administration on Friday raised import taxes on gold while increasing levies on export of petrol and diesel.

Global investors have pulled an unprecedented US$28 billion from the nation's equities this year, and that along with higher oil import costs and a widening current account deficit have roiled the currency. A weaker rupee threatens to add to elevated inflation and may prompt the central bank to raise rates.

A shortfall in India's current account - the broadest measure of trade - will probably widen to 2.9 per cent of gross domestic product in the fiscal year ending Mar 31, according to a Bloomberg survey in late June, nearly double the level seen in the previous year.

The government on Friday raised the import duty on gold to 12.5 per cent from 7.5 per cent, according to a notice dated Jun 30, reversing a cut last year. The higher taxes on the export of petrol and diesel sent shares of Reliance Industries down by as much as 4.3 per cent.

Reserve Bank of India (RBI) governor Shaktikanta Das has said the central bank uses a multi-pronged intervention approach to minimise actual outflows of dollars and won't allow a runaway rupee depreciation. The RBI has close to US$600 billion of foreign-exchange reserves, which it has been deploying to curb any sharp volatility in the currency. BLOOMBERG