InvestorQ : Does India have to worry about a weak rupee?
Aditi Sharma made post

Does India have to worry about a weak rupee?

Mahima Roy answered.
1 month ago

Yes India has to worry about a weak rupee. Unfortunately, for India, weak rupee does not boost exports, as is the normal argument. India does not have export engines to benefit from a weak rupee. Instead it makes imports more expensive. This in turn triggers imported inflation problem. The real worry is the depleted forex reserves in this year and even out of that there is lot of volatile money. If the rupee remains very weak, as is happening at this point of time, the foreign portfolio investors (FPIs) also turn wary as rupee fall wipes away their constant currency dollar returns.

The challenge is that India may be getting into a kind of vicious cycle in terms of the rupee / trade interaction. India has no choice but to protect the rupee from falling, but it does not have the tools to do so. With the forex reserves having fallen so sharply, selling spot dollars is almost ruled out. India must look to replenish its reserves to contain the rupee. The question is whether tightening is good policy as India does not have exorbitant privilege of the dollar. Perhaps, India needs to focus on easy money and GDP growth, which would bring back growth and give the global investors reasons to come back to India.