The Rupee Vs Dollar the battle we have chosen

In the recent past the financial media has glamorize the Free fall of the rupee and its been showcased as mere panic to the viewers, one of imagesthe major reason you should better be watching National geographic channel or Discovery.

Here are some thoughts on the financial development of India

We have reversed financial development, we have messed up the operating procedure of monetary policy, we have created chaos in the short end of the bond market, we have impeded Indian households taking refuge from high inflation by purchasing gold, we have resurrected gold smuggling, we have raised the possibility of reversing trade reforms. In return for what?

There are numerous problems that require the attention of the government. :-  

  • We must build currency derivatives trading, including giving access to foreign investors which would make it possible for them to hedge their investments in India.
  •  We must strengthen the monetary policy transmission, and evolve RBI into a modern central bank with clarity of purpose.
  •  We must fight inflation, and woo (not force) the Indian household to start trusting the Indian rupee again.
  • We must fight criminality.
  •  We must say to the whole world that India is moving forward with economic reforms.

All this requires the scarcest thing in Indian economic policy: the prioritisation and time of policy makers. Instead, the agenda of economic policy was substantially hijacked by a dogfight with currency speculators. Yes, the Indian government can make a difference to the rupee. As recent events have demonstrated, the cost of achieving this is too high and is not worth the trouble. Governors Reddy and Subbarao both wrecked there stint at the RBI by fighting against the floating exchange rate.

Economic policy strategy is about wisely envisioning the outcome of future battles, rather than impetuously plunging into a battle and learning the hard way. We need more high quality analysis, rooted in an understanding of open economy finance and macroeconomics, in picking a few battles that are worth winning, and can be won.

These are some of the thoughts that have taken from an extract by Ajay shah

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