Why in the News?
Finance Minister Nirmala Sitharaman highlighted concerns regarding “3Fs” Fuel, Fertiliser and Foreign Exchange amid the economic impact of the ongoing West Asia crisis.
Key Economic Concerns
Rupee Depreciation
- Rupee weakened sharply against the U.S. dollar after the war began.
- RBI reportedly intervened heavily in forex markets.
Foreign Portfolio Investment (FPI) Outflows
- Foreign investors sold: Indian stocks and bonds leading to:
- Capital outflows
- Pressure on forex reserves
Forex Reserves Decline
- India’s forex reserves reportedly fell significantly compared to pre-war levels.
Government Measures Taken
- Higher import duty on:
- Gold
- Silver
- Platinum
- Restrictions on duty-free gold imports
- Fuel price hikes
- Appeals to reduce non-essential imports and foreign travel
[2022] With reference to the Indian economy, consider the following statements:
1. If the inflation is too high, Reserve Bank of India (RBI) is likely to buy government securities.
2. If the rupee is rapidly depreciating, RBI is likely to sell dollars in the market.
3. If interest rates in the USA or European Union were to fall, that is likely to induce RBI to buy dollars
Which of the statements given above are correct?
[A] 1 and 2 only
[B] 2 and 3 only
[C] 2 and 3 only
[D] 1, 2 and 3
