Aman Gupta is a Director of RPS Group

When withdrawing funds from India, foreign institutional investors first sell the currency-denominated assets which results in the currency being traded to euros or dollars. This leads to an increase in the value of rupees from the currency exchange market and increase of demand for dollars or euros results in deficit rupee. Declining value of a currency increases the price of foreign goods, adds inflationary pressure to the economy, increases the current account gap, and creates the need for curbing the currency's decline.