India's Financial Secret Weapon
A cheaper currency will help rebalance India’s massive trade deficit.
Abstract: Since January, the Indian rupee has tumbled more than 9 percent, hitting a new all-time low of about 70 to the dollar in mid-August. The fall has caused much hand-wringing in the media and in policy circles, where observers lament the currency’s status as Asia’s worst performing, charge Prime Minister Narendra Modi with economic mismanagement, and fret about India’s ability to pay its debts. Calls for the government to do something—anything—to stop the rupee’s slide abound.
But should India’s central bank, which has responsibility for managing the exchange rate, reverse the fall? My short answer is: no.
The central bank has done an excellent job to date, and it should stay its course. Further, the weakening of the rupee will actually be a good thing for India.