Finance Ministry sources on Friday said that concerns over the free-falling rupee are spilling over to equities. As the rupee hit an all-time low of 62.03 on Friday, the Sensex plunged 800 points.
The economic situation in India reflects what is happening globally, Finance Ministry sources said.
"Markets fear US stimulus tapering may start," the sources said.
The US Federal Reserve, which is the US' central bank, has been buying bonds worth $85 billion as part of its quantitative easing program to support its economy.
But as the US economy picks up, there is fear that the US fed may start the tapering soon.
Completely choking liquidity is not the mandate currently and neither is there any proposal to raise the margin on short selling in shares, the sources said.
The Finance Ministry is worried about the volatility in the rupee, which has been the worst performing Asian currency, falling almost 12 per cent in the last three months.
However, the ministry does not have a view on the level of the rupee, the sources maintained.
The Reserve Bank of India or RBI's steps to support the rupee should not be seen as capital control, the Finance Ministry sources said.
Earlier this week, the RBI imposed restrictions on foreign exchange outflows in its latest attempt to prop up the rupee, as a spike in inflation heaped more pressure on policymakers to curb a crippling external deficit.
The central bank has also banned imports of gold coins and bars, which constituted about 36 per cent of total bullion demand in India last year, and will require domestic buyers to pay cash for the yellow metal.
The government has also raised import taxes on gold and silver in an attempt to narrow the burgeoning current account deficit which is one of the main reasons for the rupee's slide. The import duty on gold was hiked to a record 10 per cent, the third such increase in eight months, while duty on silver was hiked from 6 per cent to 10 per cent. The excise duty on gold bars was hiked to 9 per cent from 7 per cent.
Crude and gold are the two biggest components of India's import bill. The government wants to cut back on both of them to ease the current account deficit and help the weak rupee. The government is aiming to cut the oil import bill by $1.5 billion this fiscal year. It is also looking for ways to boost oil imports from Iran, which will result in dollar savings.
Apart from the steps taken this week, a series of measures to save the rupee were announced last week as well. These included spurring state-run companies such as Indian Railway Finance Corp Ltd to sell debt abroad, and by raising money from Indians abroad.
State-run oil companies were allowed to raise additional funds from offshore money markets and trade finance, which would fetch an extra $4 billion.
The Reserve Bank of India had last week said it would sell Rs. 22,000 crore of cash management bills each week, its third set of measures to defend the currency by draining cash since the initial steps unveiled on July 15.