The Indian rupee fell past 64 to the dollar for the first time today before the central bank stepped in to support the currency.
Asia's third-largest economy is bearing the brunt of the global emerging markets selloff.
Underscoring how hard it is for New Delhi to push through reforms despite the urgency of a deteriorating economic outlook, parliament was adjourned today due to protests by members over a corruption scandal.
India's notoriously dysfunctional lower house of parliament was due to debate a bill to allow foreign investment in the fledgling private pension industry, a reform seen as key to government efforts to attract investment and narrow the current account deficit, which is exacerbating the currency crisis.
However, India managed to sell $9.3 billion worth of government debt limits to foreign institutional investors, although at rock bottom prices, a sign that they hold out hope of improving market conditions.
$10 billion in Indian debt has been offloaded since May 22, when the US Federal Reserve first signalled its intention to begin scaling back its quantitative easing. Foreign investors now hold only 43% of the $30 billion limit available to them in Indian government debt.
A spate of measures by India's central bank and the government has failed to halt the rupee slide, with liquidity tightening measures aimed at making it harder to short the currency pushing up borrowing rates and battering corporate and investor sentiment.
Prime Minister Manmohan Singh's weak coalition government, heading into national elections by next May, has been hamstrung from pushing through reforms to attract more long-term capital and close a record-high current account gap that has made India vulnerable to flows away from emerging markets.
Since Singh's government took office for a second term in 2009, the parliament has been the least productive in nearly three decades, according to PRS Legislative Research.
Instead, India has been limited to piecemeal measures such as yesterday's move to increase the foreign direct investment cap in asset reconstruction companies to 74% from 49%, and a ban on the duty-free import of flat-screen TVs from August 26
India's central bank today simplified rules for investment in shares and debt of Indian companies listed on local exchanges by non-resident Indians.
The rupee's plunge also adds to worries about whether Finance Minister Chidambaram will be able to meet his goal to pare the fiscal deficit to 4.8% of gross domestic product this fiscal year.
Rating agency Moody's said that while the rupee depreciation was a new variable for the economy, the factors underpinning it have been incorporated in its investment grade rating for India. India is at the lowest investment-grade sovereign rating.
