---

Gudiwada:

---

---

quote:

The rupee has fallen 7.5% since the beginning of May, putting it among the worst-performing currencies in Asia. (Reuters)

MUMBAI—India's currency hit a record low against the dollar, on rising concerns over a widening trade imbalance and the pace of promised economic steps.

While a rise in the dollar triggered Monday's milestone, emerging-market investors attributed the broader weakness in the Indian rupee to the country's ballooning current-account deficit. They say the deficit has become emblematic of the troubles in Asia's second-largest economy, which is suffering from slowing growth and high inflation. India's exports remain sluggish because global demand is weak, while a run-up in gold purchases is keeping imports elevated.

India for months has relied on inflows from foreign investment funds to bridge this gap and stabilize its markets.

That support is ebbing, however, as some money managers lose patience with a government that they say has been slow to implement new rules aimed at attracting foreign investment and spurring growth.

The Indian rupee fell 1.9% to 58.16 rupees to the dollar on Monday, breaching the previous low of 57.33 from June 2012.

"India's fundamentals aren't robust," says David Robbins, a managing director with TCW Group Inc. who oversees the fund manager's $7.4 billion emerging-markets portfolio. "Clearly, the government has to do more."

Foreign investors have pulled $1.59 billion from India's bond market this month, according to the Securities and Exchange Board of India. That compares with inflows of $4.49 billion for the first five months of 2013.

The downward pressure on Indian assets has been exacerbated by the recent selloff across emerging markets.

But the rupee has underperformed other Asian currencies, which some investors say underscores the greater challenges facing India. The rupee has weakened 7.5% against the dollar since the start of May. Over the same period, the Thai baht has dropped 5.1% and the Philippine peso is down 4%.

The experience of IKEA shows India's bumpy road to reform. In 2012, India amended its laws to allow foreign retailers to have 100% ownership of their stores. But government agencies delayed the approval of the Swedish furniture retailer's $1.95 billion investment plan, which was approved in May, nearly 10 months after it was submitted.

Indian officials also pledged to raise fuel prices, which are heavily regulated, to reduce government spending on subsidies and to encourage drivers to cut consumption. But fuel prices remain well below prices on the world market, and the cost of oil imports remains high. This continues to cause a drag on the current account, which hit a record deficit of $32.6 billion in the three months ended Dec. 31, 2012.

"Given the situation, we expect the rupee to remain under pressure, at least for the next three months," said Mahendra Kumar Jajoo, chief investment officer at Pramerica Asset Managers Pvt. Ltd., which oversees about $447 million of assets.

To be sure, some investors say India's economy will gain from the government's efforts, even if progress has been uneven so far.

"India has been taking the right steps in the right direction," says Teresa Kong, portfolio manager of the $68 million Matthews Asia Strategic Income Fund. She has been buying the rupee recently, and is looking to add exposure after Monday's sharp fall. "It's not clear to me that India is worse off today than it was six months ago or a year ago." She adds that the fall in world oil prices since the start of the year could translate into a positive surprise, in terms of a narrowing of the current-account deficit, later this year.

As well, some Indians based in the Middle East are capitalizing on the rupee's fall by bringing money back to India, said N.S. Venkatesh, the head of treasury at state-run IDBI Bank Ltd. 500116.BY -2.39% The selling of dollars could lift the rupee in the near term.

Still, Indian importers, including oil companies, are buying dollars amid worries that more weakness in the rupee will boost their costs. "The panic has set in," said Kishore Narne, head of currency trading in Mumbai at Motilal Oswal Securities.

—Prabha Natarajan, Sudeep Jain and Nupur Acharya contributed to this article."

---