Indian rupee drops to record low as foreign investors flee

The Indian rupee slumped to a record low of more than 68 to the dollar yesterday on growing worries that foreign investors will continue to sell out of a country facing stiff economic challenges and volatile global markets.

The pummelling in markets - which sent the rupee reeling as much as 3.7 per cent to an all-time low of 68.75 - forced the central bank to intervene while state-run Life Insurance Corp was spotted buying shares .

"If steps are not taken to implement the reforms necessary to tackle the structural issues, the government will be left with the so-called 3-D options: debt default, devaluation, deflation," said Angelo Corbetta, head of Asia equity for Pioneer Investments in London.

Foreign investors sold almost US$1 billion of Indian shares in the eight sessions to Tuesday - a worrisome prospect given stocks had been India's one sturdy source of capital inflows.

Policymakers have struggled to come up with steps that can convince markets they can stabilise the rupee and attract funds into the country despite extraordinary measures last month by the central bank to drain liquidity and action to curb gold imports and cut a huge oil import bill.