India is the fastest-growing large economy in the world and has a stable government. Yet it has joined the ranks of emerging markets that are taking a beating. The Indian rupee has fallen in value by 15 per cent against the US dollar this year.
The tightening of global financial conditions, in tandem with prospects of further interest rate rises by the US Federal Reserve and a stronger dollar, has increased pressure on countries with current account deficits and high levels of foreign currency debt. While it shares some of these vulnerabilities, India can hardly be counted among countries such as Argentina, Brazil, and Turkey that face tough domestic economic and political circumstances.
But investors apparently see a lot to worry about. Rising world oil prices and strong domestic consumer demand have led to a bigger current account deficit and stoked concerns about rising inflation, larger budget deficits, and further currency depreciation.