Indian Rupee at mercy of markets

The Reserve Bank of India must resist pressure to interfere in the currency markets after the Indian rupee dropped to an all-time low as investors moved into the dollar in the face of continued international economic volatility.

The currency is at the mercy of market instability and any intervention is likely to be expensive and ultimately fruitless. Economic management is about making painful trade-offs, so the RBI must encourage the government to take advantage of the benefits of a weaker currency, to off-set the disadvantages.

A weaker currency usually results in inflation because of the higher cost of essential goods and commodities that have their prices set on international markets, like oil.

However, it can also result in a boost to exports as the cheaper rupee will make Indian products and services more competitive on international markets. To make the most of this however, India needs to push ahead with the reforms needed to make its economy more efficient and improve the business environment. This includes opening industries, making the bureaucracy more efficient and rooting out corruption. Government also needs to improve its fiscal management.

It has been said that within every crisis there is an opportunity for reform and growth. India must seize this opportunity.