‘New RBI guv has been dealt an impossible hand…’: Arvind Subramanian’s 8-point take on rupee’s future

Former Chief Economic Adviser (CEA) Arvind Subramanian has termed India’s current currency dilemma as an almost impossible challenge for new Reserve Bank of India (RBI) Governor Sanjay Malhotra.

In a detailed X post, Subramanian outlined eight key points on why the rupee’s fall is inevitable and the tough choices facing the central bank.

Subramanian described Malhotra as a “victim” of the unstable policy framework and exchange rate he inherited from his predecessor, Shaktikanta Das.

During Das’s tenure, the rupee’s volatility was among the lowest in emerging markets, supported by $700 billion in foreign reserves, but this policy has reached a tipping point, Subramanian argues.

“The RBI’s own calculations suggest a large overvaluation,” he noted, adding that the rupee “should fall much further, especially if the US imposes tariffs.”

According to Subramanian, the RBI has only two choices: to allow a gradual devaluation of the rupee or to accept a sudden and significant fall. Neither option is painless. A slow fall, he warned, risks intensifying speculative pressures, while a discrete fall could disrupt companies and more. to the wider economy.

The rupee recently hit a record low of 86.7025 against the dollar, driven by outflows totaling $2.7 billion this year, higher oil prices and a stronger dollar, Malhotra, who took over in December, said in a Bloomberg report tends to allow greater flexibility in daily currency fluctuations to address these concerns, breaking with its predecessor’s rigid controls.

However, Subramanian warned of the inevitable turbulence. “This will unfold in real time in noise and pain,” he said.

While exporters have long called for a weaker rupee to boost competitiveness, the RBI remains cautious.India imports 90% of its crude oil, and a weaker rupee directly affects the import bill, Subramanian stressed navigating the pressures will be a formidable challenge for the RBI.