Former RBI Governor C. Rangarajan Suggests Diplomacy as Solution to Recent Decline in Rupee Value
Former RBI Governor C. Rangarajan argues that the recent decline in the Indian rupee's value is driven more by geopolitical factors and U.S. trade policies than domestic economic fundamentals. Despite a strong growth rate of 7.4% and low inflation, the rupee has depreciated due to capital outflows sparked by U.S. tariff threats. Rangarajan suggests that while the RBI can intervene to reduce volatility, a long-term solution lies in diplomatic engagement with the U.S. to resolve trade disputes. He warns that devaluation is not a remedy when inflation disparities are low.
Key Points
- The rupee's depreciation is attributed to capital outflows following U.S. threats of reciprocal tariffs.
- India's current account deficit remains modest at 0.76% of GDP, indicating strong internal economic health.
- The RBI's role is to reduce exchange rate volatility rather than pegging the rupee to a specific value.
- Diplomatic resolution of trade tensions with the U.S. is seen as the primary way to stabilize capital flows.
Exam Facts
- India's growth rate for the current year is estimated at 7.4%, with CPI inflation ending 2025 at 1.33%.
- The trade deficit for April-December 2025 was $96.58 billion compared to $88.43 billion in the previous year.
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