The partially convertible rupee dropped as much as 3.1 per cent to 68.12 per dollar on Tuesday afternoon.
Media reports said the BSE Sensex crashed by 650 points during the afternoon session today after the Russian defence ministry was quoted by the RIA news agency as saying it had detected two ballistic "objects" fired towards the eastern Mediterranean.
The Nifty dropped nearly 200 points.
On Friday, the International Monetary Fund (IMF) had said the unprecedented slide of rupee poses challenges as well as opportunities for India.
IMF spokesperson Gerry Rice said the current situation presents a challenge, obviously, to the government of India, but also an opportunity for the government to continue in its policy efforts on a variety of fronts.
"But maybe just stepping back on the situation in India, the combination of large fiscal and current account deficits, high and persistent inflation, sizable un hedged corporate foreign borrowing and reliance on portfolio inflows are longstanding vulnerabilities that have now been elevated as global liquidity conditions tighten, and this clearly has affected market confidence," Rice said.
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The US India Business Council (USIBC) President Ron Somers stressed on taking steps to restore investors" confidence. "Bold leadership that continues to open India's economy and which advances reforms will help staunch the rupees' slide," Somers said.
"Lifting FDI caps in Insurance should be the highest priority, while resisting protectionist measures - such as forced manufacturing and backsliding on Intellectual Property protection - is crucial. Demonstrating such leadership will go a long way towards restoring investor sentiment," he added.
On the same day, Prime Minister Manmohan Singh had asserted that the fall of the rupee is a matter of great concern, but added that the government is taking steps to reduce current account deficit and added that growth will improve in the second half of fiscal year.
"There are concerns and justifiably so on how rupee fall will impact economy, the movement of the rupee recently is a matter of concern to the government," Dr. Singh told the Lok Sabha while making a statement on the current economic situation.
"What triggered the sharp depreciation in Rupee value was due to certain external forces.We need to reduce our appetite for gold, economise the use of petroleum products and take steps to increase our exports," he said.
"The rupee is also getting hit due to high current account deficit. Huge cost of gold and oil imports is also current account deficit. The government is taking steps to reduce current account deficit," he added.
Dr. Singh further said: "To some extent, depreciation can be good for the as this will help to increase our export competitiveness and discourage imports."
Urging political parties to work towards and join in the Government"s efforts to put the economy back on the path of stabile growth, Dr. Singh said: "The easy reforms of the past have been done. For more difficult reforms, we need political consensus."
"It cannot be denied that the country is faced with a difficult economic situation. And there are several causes. I do not deny that there are some domestic factors but there are also international factors arising out of the changes in the US monetary stance," Dr. Singh said.
"There are also problems created by the new tensions that are on the horizon in Syria and they have inevitable consequences for oil prices. So we have to reckon with all those uncertainties. I will be very happy to make a statement tomorrow. I need some time to reflect on what I have to say, but I would be quite happy to make the statement tomorrow," he added.