Rupee at record lows: What could arrest the slide?

The Indian rupee continued to languish near record lows against the US dollar on Wednesday, touching an intraday low of 91.06, before recovering after a likely Reserve Bank of India (RBI) intervention that helped it to close at 90.37. It has lost over 6% this year. Mint explores.

- BY SUBHANA SHAIKH

Will stronger capital flows help?

Economists believe the single most important stabilizer for the rupee would be stronger and more durable capital inflows. India used to easily fund a current account gap of 2-2.5% of GDP when annual FDI inflows were around $130 billion. But over the past two years, net FDI has slowed as repatriation, outward investments picked up, even though gross inflows remain healthy, said Gaura Sengupta, chief economist at IDFC First Bank. FDI is long-term, sticky capital, unlike volatile foreign portfolio investment (FPI). To stem the slide, India needs a rise in net FDI, which hinges on higher expected returns on investment, Sengupta said.

Is weak nominal GDP hurting returns?