New Delhi: The rupee fell to a record low of 70 against the dollar on Tuesday amid fears that the financial troubles faced by Turkey may quickly spread to other emerging economies, triggering a capital flight.

The rupee ended trading on Tuesday at 69.89 per dollar.

The weakening of the rupee has many implications for the economy. While rising oil import bill may add pressure on government finances as well as on inflation, exporters may gain some advantage, although it may be temporary.

Economic affairs secretary Subhash Chandra Garg said the rupee was still performing better than some other currencies. He said the country had sufficient foreign exchange reserves to deal with volatility.

“As currencies of other economies are also depreciating, intervention by the Reserve Bank of India, by selling dollars in the country, will not help much at this stage for stabilizing the rupee," Garg told reporters. “Even if the rupee falls to 80, it will not be a concern provided all other currencies depreciate."

This year, the rupee has weakened 8.3% against the dollar, while foreign investors have sold $6.8 million and $5.15 billion in equity and debt markets, respectively.

Former chief statistician of India Pronab Sen said the only direct effect of a weaker rupee would be on imports, with the oil import bill going up. “On the export front, this should at least prevent our exports going down," he added.

India’s merchandise exports rose 14.3% in July while oil import bill shot up 57.4%, official data released on Tuesday showed.

India should see this as a ‘Make in India’ moment, Anand Mahindra, executive chairman of Mahindra Group, tweeted. “With this boost to India’s export competitiveness could we now convince global companies that it’s time to switch to India for world-scale, export-focused manufacturing?" he said.

Sen said this decline is temporary, and instead of moderating it, RBI should be prepared for moderating an appreciation once the uncertainty wanes. “RBI is not going to be able to prevent dollar flight by raising interest rate because this has nothing to do with returns. Once this uncertainty wears off, a lot of this money is going to come back to India—then rupee will start appreciating," he said. “One should be very conscious of potential sharp appreciation of rupee in a not too distant future."

Abheek Barua, chief economist at HDFC Bank Ltd agrees. “Rupee will return to 68-69/$ by end of September. What happened on Tuesday is a clear case of overshooting. Sanity will slowly prevail and some reversal in EM currencies including rupee will happen," he added.

Gopika Gopakumar from Mumbai, Gireesh Chandra Prasad contributed to this story.

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