Rupee is vulnerable to money coming in from outside India: AV Rajwade

In a chat with ET Now, AV Rajwade of AV Rajwade & Co shares his view on the depreciating rupee. Excerpts:


ET Now: I am sure you are not surprised with the decline in the rupee because last time when we interacted with you, you pretty much needed to a number of 60.

AV Rajwade: Yes. I had said that is possible. I would not claim that I had predicted it, but yes that was possible and we are very close to that now unless we have already crossed it.

ET Now: Do you think the today’s decline in rupee is largely technical in nature and it has got nothing to do with the Indian economy, it is all about what is happening to other emerging markets as well?

AV Rajwade: No, I do not believe that our exchange rate is determined either by what Mr Bernanke does or what anybody else does. It is a question of the fundamentals of our economy and that is what is creating the problem. The policies we have adopted for the last four or five years in relation to the exchange rate, we adopted for a floating exchange rate which has led to a huge real appreciation of the rupee and $200 billion appreciation on trade, $100 billion on current account and in the process we have wedged up external liabilities of $300 billion plus. So the rupee is completely vulnerable to money coming in from outside India and the moment there is some sneeze in that, the slightest amount of cold in that, the rupee comes under pressure.

The only agency which might be able to halt it, if only temporarily, will be RBI. If it intervenes in selling dollars from the reserves, but as I said there are limitations to RBI because the basic fundamentals both in terms of the current account and in terms of the external liabilities are too large for any intervention to have a lasting impact.