The Policy Dilemma
The Indian rupee has staged a modest recovery in recent trading sessions, rebounding nearly Re 1 from its record lows to hover near the 96 per dollar mark. This shift follows aggressive, sustained intervention by the Reserve Bank of India (RBI), which has reportedly sold roughly USD 1 billion daily to curb volatility. While the central bank aims to prevent a rapid slide, a growing coalition of prominent economists is now urging regulators to move past the psychological fear of the rupee hitting 100, arguing that intervention may be counterproductive to long-term economic health.
Contextualizing the Currency Slide
The rupee’s recent depreciation has been driven by a confluence of factors, including elevated global oil prices and shifting capital flows that have pressured emerging market currencies. Historically, the 100-rupee mark has served as a symbolic threshold in Indian public discourse, often associated with national economic stability. However, the current debate centers on whether the RBI should treat this number as a hard limit or allow market fundamentals to dictate the currency’s true value.
Expert Perspectives on Competitiveness
Former NITI Aayog Vice Chairman Arvind Panagariya has dismissed the 100-rupee threshold as a psychological trap, suggesting that policy should not be tethered to arbitrary numbers. This sentiment is shared by former Chief Economic Advisor Arvind Subramanian, who posits that a gradual decline in the rupee is necessary to maintain parity with Chinese export competitiveness. Subramanian suggests that a depreciation of up to 10 percent could provide a vital boost to Indian manufacturing on the global stage.
Former RBI Governor Raghuram Rajan has similarly advocated for a hands-off approach, noting that the currency should be allowed to find its natural level. IMF former Chief Economist Gita Gopinath added that currency depreciation acts as a necessary mechanism to curb import demand, particularly for oil, thereby aligning with broader government goals of energy efficiency. She warned that aggressive intervention risks depleting foreign exchange reserves without providing a lasting structural solution.
The Risks of Intervention
The caution against intervention extends to the credibility of the central bank itself. Former RBI Governor D. Subbarao highlighted the danger of a
