Did RBI Manage the Rupee Exchange Rate to Help Select Oligarchs? — with Rathin Roy
Understanding India’s Currency Policy, Capital Controls, and more
In this episode, author and journalist Puja Mehra speaks to economist Rathin Roy about India's exchange rate policy and its intricate connections with foreign reserves, FDI/FII trends, and the role of the Reserve Bank of India (RBI). Economist Dr. Rathin Roy shares his candid insights on how India's foreign exchange reserves are shaped, the implications of private sector borrowing abroad, and whether the rupee's stability is a result of strategic RBI intervention or unintended consequences of policy oversights. Tune in for a discussion that explores the dynamics of the rupee, the independence of the RBI, and the broader implications of exchange rate management.
ABOUT RATHIN ROY
Rathin Roy was the Director and CEO of the National Institute of Public Finance and Policy (NIPFP) in New Delhi. He has previously worked as an Economic Diplomat and Policy Advisor at the United Nations Development Programme (UNDP), with postings in London, New York, Kathmandu and Brasilia. He has also served as an Economic Adviser with the Thirteenth Finance Commission, New Delhi, in the rank of Joint Secretary to the Government of India. He was part of the Prime Minister's Economic Advisory Council and was a member of the last pay commission that recommended pay hikes for central government employees as well as being a member of the selection panels that chose the two governors of the RBI. His policy interests and research has mainly focused on fiscal and macroeconomic issues pertinent to human development in developing and emerging economies.
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TRANSCRIPT
Puja Mehra: Thanks for coming on the show, Rathin.
Rathin Roy: Thank you for having me.
Puja Mehra: I want to talk to you about a lot of people who don't understand what India's rupee policy is. And about two years ago, we were told that the IMF wanted to reclassify India's exchange rate regime. What was that all about?
Why has the rupee been so stable and suddenly now it's not as stable? So yeah, a lot of people have a lot of questions on their minds. Please help us understand what's going on.
Rathin Roy: Okay, so let me first start by telling listeners that there is no settled theory of the exchange rate in economics, especially when you have capital controls. So India does have capital controls, otherwise the question is irrelevant. So in a country like the UK, which does not have capital controls, you can bring in money and bring out money as you like.
The pound sterling will then find its own level, as people like to say, without understanding what they're saying. And the only thing you can do to influence that level is to make investments in pound sterling more attractive. And the way you do that is by increasing the interest rate on pound sterling, so especially deposit rates.
So then money flows into your country, people change dollars or whatever it is for pounds. All that is fine as long as we can take in and take out money liberally from the country. But that is not the case in India, with very good reason.
We have capital controls, fairly relaxed ones, because people in countries that are policy uncertain, emerging economies, governments that have a track record of not working in a fully trustworthy way, people are nervous. And that nervousness means that they tend to panic and take money out of the country at the least opportunity. You also have what I call the gold rush phenomenon, which is when people start pumping money into the country.
So to control and temper and moderate all that, it is essential that a country like India has some relaxed capital controls, in my view. If you ask a diehard neoliberal economist, they would say no. And they would say that the rupee must find its own level.
In the manner of a country without capital control. The most important reason, however, why we have capital control, this is all pertinent to rupee policy, is that India, people often forget this, unlike other emerging economies, many other emerging economies, especially China, but not only China, runs a balance of current account deficit. Which means that every year as a result of the stuff that we buy and sell from abroad, the net balance is negative.
So every year, we will need to buy foreign exchange, to be able to pay for that deficit balance. That could mean that you would have to sell rupees. And so typically the rupee will depreciate, as long as you have a balance of payments deficit.
That is very different from talking about a stable rupee. When the IMF talks about a stable rupee, they are referring to a low volatility currency. And this is one of the most successful things that Indian policy makers did initially under the leadership of Raghuram Rajan.
I'm not familiar with what has happened under the previous governor. But certainly with Dr. Rajan, whom I did work closely on this, the emphasis after the 2013 taper tantrum, was to make sure that the rupee was not volatile. They didn't have swings of like 7-8 rupees per dollar up, and then 5 rupees down.
Because the logic of that being that for us economists, I mean, we have different models, but it's possible to model for a given current account deficit, what you would expect the depreciation of the rupee to be. It's not linear. It's non-linear.
So in my modelling, I found that taking into account our export composition, the reassuring fact that we have a balance of trade surplus in the United States, which means that our dollar-rupee equation is somewhat stable, a 1% current account deficit would require approximately 2.5% to 3% rupee depreciation. Anything closer to 2% would require a 5% to 6% rupee depreciation. And 2% is considered to be anything over that is a dangerous bargain.
So you have to bring in special measures. So I didn't go beyond that. So in that sense, it's non-linear.
So if you agree, and if you're able to predict what the current account deficit is going to be, then you can go out and tell people, investors, who after all are the ones who lose. If I bring in $100 to this country and I make a 15% profit, that means I have $15 to take back. Say I bring in $100 at one rupee to one dollar.
But if the rupee depreciates by 10%, my 15 rupees becomes only 13 rupees to the dollar. So I lose money, right? So we go out and tell investors that you're investing in India because interest rates and returns abroad are very low.
You will earn enough in India, even with depreciation, to make a profit. Now you're worried about the risk of depreciation. That's where all the talk of ledging comes in.
So here's what. We think that the rupee will depreciate, let's say, that the current account deficit will be 1.5% or 1.6. Rupee will depreciate between 4% or 5%. And the authorities are organising themselves to make sure that this happens in an orderly way.
Across the year. I think we've been very successful in this policy. The one thing that was troubling us was, as usual, Indians.
Indians sitting in Hong Kong and Dubai were trying to short the rupee every time there was pressure. So for things I cannot fully reveal, I mean, the obvious policy is to tell the shorters that we know where you live. And we know where your cousin lives.
And we know where your uncle lives. And therefore you dissuade them from shorting. I think that was done very effectively.
The RBI also has become far more professional like intervening in the foreign exchange market. The RBI now intervenes unpredictably and strategically. And also there is considerable economic intelligence that is connected.
So the rupee will depreciate. The rupee therefore has depreciated. I predict in the foreseeable future that we will not have a current account surplus.
So every year the rupee will hit a record low. And every year the newspapers keep saying the rupee hits a record low. But don't be concerned by that.
The main thing we have had is that we've had an orderly depreciation of the rupee. And that is what the IMF is referring to. It was not referring to the rupee-dollar exchange rate as being stable.
It was referring to the fact that the rupee was stable across a given year, given its own, I'm sure, calculations of what expected depreciation would be, given the fact that we have capital controls, and given the fact that we run a current account deficit.
Puja Mehra: But I'm sure, Rathin, that many economies have orderly depreciation of their exchange rates. Do they all also... I mean, does the IMF want to reclassify them as a fixed regime?
Rathin Roy: Actually, you know, there are very few economies that have managed to be ordered, not as fixed regime, as stable regime, right?
Puja Mehra: The word they used is fixed. They said it was to be reclassified as a fixed regime.
Rathin Roy: Oh, that's strange because India does not have a fixed regime. I have no idea what they're talking about. I thought they said that fixed in the sense of volatile.
Puja Mehra: Stable is the word that RBI brought into that conversation. The terminology used by the IMF was fixed.
Rathin Roy: I think the IMF has been ideological there. Certainly, the rupee is managed, and managed because we have capital controls. Until 2022, the rupee was managed in a realistic way.
And the absence of volatility, quite correctly, is what I think the RBI therefore says, is we have a stable rupee. Very few emerging economies have a stable currency. The Turkish lira, for example, is notoriously unstable.
The Brazilian dirham is notoriously unstable. Forget about the Argentine peso. The Thai baht sees a lot of volatility.
The Indonesian rupiah sees a lot of volatility. So relatively stable regimes either tend to be, that's a different ballpark. Regimes without capital controls that manage their currency carefully.
Communist regimes, when times are good, but when things fall apart, so does their currency, like the Chinese renminbi. On one point, the Russian ruble, right? So in that sense, I would say we are stable.
I think the apparition fixed is very unfair. The rupee is certainly not fixed. In my lifetime, it has gone down from about 70 rupees a few years ago, right?
To 80, to 85. That's not fixed. I mean, I'm just using fixed in the sense of match fixing.
Puja Mehra: No, they were talking about a specific period of a year, around a year. They were talking about a specific period of a year.
Rathin Roy: You can't, how can they draw a judgement in the space of a year on whether the currency is fixed or not? When the currency is going up and down, I think that they're talking rubbish.
Puja Mehra: Understood, understood. But the point, so that sort of settles the matter of the policy. There's also a lot of...
Rathin Roy: No, let me just caveat. I don't know whether that policy still operates because I've seen a lot of writing by very eminent people, including my friend Ashwini Mahajan, arguing for a strong rupee.
Puja Mehra: Just observing what the RBI has been doing, how the rupee has been moving, there is some concern by some very eminent and very liked and well-respected economists on how the sudden change in the rupee's management or the RBI's interventions is causing a lot of anxiety for a lot of people. Clearly, there are two phases. There is a phase where, according to these commentators, the rupee was too stable and now it's impossible to keep it that stable.
So, you know, just take us through this.
Rathin Roy: I think you're referring to Arvind Subramanian and his fore-partner, which is very good.
Puja Mehra: Him and Abheek Barua.
Rathin Roy: I see. But Arvind, certainly, I've read carefully and what he writes does give me cause for concern. If what he's saying is correct and if you look at the numbers, certainly, they bear him out, the rupee was not depreciating consistent with my anticipated current account deficit since 2022, in which case the relationship I proposed between the current account deficit and the depreciation of the rupee was no longer held to be valid.
Why would that be the case? In his last article, Arvind Subramanian, they posit that there are three or four causes for this. One of these is the Akhada mentality of the species.
But then they dismiss it by saying that if that happened, then you'd see a number of other things happening, such as tariffs. Right? And Modi is no Donald Trump.
So, we don't see a muscular or strong tariff policy incremented with the government of India. But I think complementary to a strong rupee that you'd expect an Akhada policy to have. You have some talk about making India and nobody takes it seriously.
You have some PLI happening. And that PLI has had no macroeconomic impact on our current account deficit. Right?
People will say something. We are making more pressure cookers. Yes, but you're not importing as much defence.
Fine. I'm sure they are right. But when you look at the macro, which has not impacted our current account deficit, it's still between one and two percent.
And in addition to that, service exports have been sort of suffering a bit, right? In the last one or two years. Two things have happened.
One of which I understand and I have some empathy with the RBI for trying to keep the rupee more stable. In recent times, if that is true. And while I think they overdid it, that's okay.
We have a large, large volume of results. And that is that India has a balance of payments deficit. A balance of the current account deficit.
You have to ask, how can a country with a current account deficit increase its foreign exchange reserves? As has been happening, right? It's very simple for your listeners.
I'm sure you know. You import more than you export. And the difference has to be paid for.
It is paid from existing stocks of foreign currency you have. Those existing stocks of foreign currency can either come from a trade surplus, which we don't have and never have. Or it can come through inward flowing of foreign savings into India in the form of foreign direct investment, in the form of foreign institutional investment, equities, et cetera.
And in our IBNR. So that has always been much larger than our current account deficit. Not always.
The last seven or eight years. And therefore, our reserves have consistently gone up. So these are not reserves created by selling more to foreigners than you buy from them.
These are reserves created by foreigners investing in us. And the danger there, as I had to explain many years ago to a communist government, we're saying our reserves are too high. We should use it for development.
If you don't own those reserves. They do. It's a very important point and people got to understand this.
But the dollar reserves, the foreign exchange reserves that we have can be impacted simply by foreigners choosing to take money out of India or by foreigners reducing their capital inflows into India. Both have happened in recent times.
Puja Mehra: You're questioning Dr. Subramanian's calculations. No, what has he said? He said that in the last two years, Arbaaz spent something like $220 billion to defend the rupee.
Rathin Roy: Yeah, I'm not saying that the whole amount. I'm saying that part of the reason for that could be that because of the decline in FII and FDI and the pullout by foreign investors. Because, you know, I mean, who would invest in a country like India if you have America to invest in?
America has high growth. Interest rates are going up. It's a nicer place.
Even Indians want to invest there. Indians want to live there also. That's why all this fuss in the papers about the visas, right?
So, Indians want their capital there. Indians want their money there. So, when that happens, obviously, FIIs who have the liberty to move, will move out.
And I think that has happened to some extent. Now, when that happens, you could have temporary volatility in the rupee. Because what you want is rupee depreciation to be largely impacted only by our current account deficit and not other factors.
Puja Mehra: But you're saying that there has been no volatility.
Rathin Roy: There has been no volatility. And I think, so I'm saying, given the slowdown in FDI and FII and the pulling out of FII from the economy, you would have expected the rupee to become volatile. It was not volatile.
That it was stuck at the exchange rate it was or even appreciated mildly, may have been, that's why I said, may have been overcorrection. If this was the reason the RBI was doing it. The other reason Arvind points to is a little worrying for me.
I don't know if it's true. I really don't know if it's true or not. But if it is, it's very frightening.
In the Indian private sector, that interacts with the rest of the world, the Indian private sector is essentially an oligarchy. It's like the Russian oligarchy or the Turkish oligarchy. You know, there are about 10, 11 players of whom, you know, the top three, they have weddings, very ostentatious ones.
One has just announced that he will not have an ostentatious wedding for his son. And these people, so the government of India, thank heavens, the government of India has had a very permissive policy towards Indian organised corporate sector borrowing abroad. And the Indian organised corporate sector has wanted to borrow abroad because interest rates abroad are much lower.
Now, obviously, the net net effect of that is when you repay, if you're earning your income in rupees, then when you repay, the net difference in interest rates is somewhat cancelled out by depreciation. So the less depreciation there is, the better it is for our oligarchs. When our oligarchs are increasingly putting their money, borrowing their money from abroad, they're in fact putting their money abroad.
That being the case, if, as Arvind alludes to, the unusual fixity of the rupee in recent times, in the last six months of the last governor, if that is the reason for that happening, then that is very boring indeed. Because effectively then what you're doing is you are running a fixed exchange rate regime, but not to ration foreign exchange, to protect those who have access to international capital markets from taking advantage of the interest rate differential. I'm not at all sure that's a good policy aim or condition.
Nowhere has the government of India or the RBI or anybody else stated that that is something that they wish to pursue as a policy goal to migrate with ease. So if it is happening, it is happening sub-fast under the carpet. And if it is the reason why we have had this debility, then I can only work up the recent slide because that would have been wrong.
Very wrong headed policy. So to summarise very quickly, two reasons. One is we've had an FII, FDI outflow, which is unusual.
That can lead to increased volatility. The RBI therefore is quite legitimately trying to temper that volatility by drawing down its reserves, selling dollars, and buying rupees. But that should not lead to a completely stable rupee.
The charitable explanation is that the RBI overshot its price. Bad policy playcraft. That's a charitable explanation.
The uncharitable explanation is what Arvind alludes to: is it happening because they're trying to protect our oligarchs who are borrowed abroad? I don't know. But there are two possible reasons why this could have happened.
I'm just highlighting this.
Puja Mehra: So I understand that for some reason. But if we are going into the conversation on reasons, that does mean that, like you're saying, the RBI is overshot in its management of the exchange rate.
Rathin Roy: Yes. And the way these things go, you know, if you have this Sakhara mentality and you get brownie points in Nordblock or wherever the finance ministry sits nowadays, that's a new covenant. Then, you know, your incentive to go easy on rupee management is lower than it would otherwise be.
So that also could be a factor, but a minor factor, hopefully.
Puja Mehra: I get your point. I don't think this is such an ideological approach. It's probably far more nuanced than that from, I agree with what you're saying.
I mean, my own guess was also something similar. Now it's going to be difficult to keep the rupee stable. Or if Dr. Subramanian is right, then whoever it was, who was benefiting from the earlier policies had a window to readjust their transactions. And there is no need for this policy. So what happens now?
Rathin Roy: What happens now, only the government of India can dispose of. Firstly, let me also clarify one thing. There's no point only blaming the RBI.
The RBI does not take any... The RBI is not an independent central bank. It does not take any decisions.
Puja Mehra: You're saying this because you know and you have observed or you're saying this because it's written somewhere in the statute.
Rathin Roy: It's not written anywhere. You only write a central bank is independent if it is independent.
Puja Mehra: What does it mean when you say a central bank is independent? And what do you mean when you say a central bank is not independent?
Rathin Roy: It means that it does not take policy concurrence from the government and has the last word on certain policy actions within it. A good example is inflation targeting, where in fact it went ulta. Under the governor before this, Urjit Patel, when he was deputy governor, he framed some econometric model which said that the inflation target should be between four and six.
And the government just picked that up. You don't frame inflation targets with an econometric model, sorry. You know, you have a political reason to say that, okay, this is the level of inflation tolerance by whatever you tolerate.
And you give this RBI target and then it goes out and does what it can with that target. Right? It's not his fault that he prepared an econometric model.
It was part of an advocacy exercise he was doing. But then up until 20, I just said that's our model today and went and implemented. There was no thought.
Luckily, there is some thought happening now. Remember in 2019, I wrote a note when I was at BMAC. I wrote a note to the prime minister of the office saying that we need to worry about this now.
And they didn't. At least now the CEA is worrying about it.
Puja Mehra: No, one sec. It's not related to our episode, but since you bring it up, I mean, at one point, you say that the RBI is not an independent central bank. On the other hand, you say that a deputy governor has so much say that he gets to decide.
Rathin Roy: No, that is because the finance ministry has very limited technical competence. So anything that comes, that is why, you know, in all of the government of India, why do McKinsey and Boston consulting hang around, you know, framing education policy? There's no technical competence in government.
If that happens, then you bring out something, it's a persuasive story, you sell it, the government buys it. I don't blame the deputy governor for doing it. I mean, he was making an advocacy point, as I said.
It's up to the finance ministry then to use its wisdom to accept that or not. And more importantly, the political authorities must understand, not understanding Omid Shah and Amjeeb Ali, they must understand that it is in their power to set the inflation target. It is not something that is determined by a bunch of pandits doing Havan or for that matter, a bunch of economists doing Havan.
Puja Mehra: But the policy says it and it came up for review.
Rathin Roy: It did come up for review. The government did not change it. They did not change it, they did not say why.
I mean, there was a lot of discussion and they have not said that this is the inflation target because this is the inflation prominence, et cetera, et cetera. There is no official paperwork which would persuade investors that this has been a thought-through policy. But anyway, to come back to the exchange rate, that is even more complicated, you see, because that is never laid down and should not be laid down because then it will be gained by the markets.
So the exchange rate policy is one line of thinking that I have given. The other line of thinking could well be, which is what a neoliberal economist would argue, and I am not one, that you need to move ultimately to capital convertibility. So then your exchange rate policy, your investment policy and many other complementary policies are all designed with a view to moving to the complete abolition of capital influence.
That would be a different exchange rate policy. You would not state it, obviously, but it would be a different exchange rate policy. Either way, that call is that of the government of India.
That's a policy call. That is not the call of the Reserve Bank of India. So any decision such as the two I mentioned, I mean, FII and FDI going out and if the old policy was working, we managed the exchange rate consistent with our balance of payments deficit, that is an orderly depreciation, you know, whatever number whoever the economist the government is destined to comes up with.
If that has to be changed to basically smooth out volatility happening due to FDI and FII, at the very minimum, the FDI would need to take the concurrence of the government of India, not the approval, but the concurrence. They couldn't do it without taking the concurrence. Similarly, if you were shifting to a no capital controls policy, they would need to take the concurrence of the government of India.
So this is a whole of government decision. So therefore, when you keep the exchange rate mysteriously stable for so long, other than pure operational or technical failure, which can then be reversed very simply, and you don't have to wait for a governor to go and a new one to come to reverse it, you can survive. Now, what you said was very interesting a moment ago.
You said that perhaps what the government was trying to do is give our oligarchs a chance to unwind their positions before they came in. But I don't think they have unbound their positions in substantial measure or even in significant measure. That would have actually been a logical policy also.
OK, you've gone out and borrowed. We've kept the exchange rate unusually stable, now unwind a bit, or prepare for a current account deficit. What now? Close to 1.4, 1.5. So prepare for a 5% depreciation interest rates are still relatively benign. Borrowing in India is in double digits. Borrowing in the US is in the middle single digits. So you still gain about 2-3% by borrowing abroad.
So prepare for that. I don't think that has happened either. I would rather advance the result of this conversation bearing on the idea that the RBI perhaps overshot.
I wouldn't blame them too much. It is not easy to precisely calibrate these things. And if you feel, however implicitly in your head, having spent a lifetime serving a government irrespective of its ideology or your position, you don't have a position.
It has been adopted there as an administrator. Then if people are talking up a strong rupee, your tendency to not go a bit gung-ho with a rupee stabilisation policy would be perhaps stronger than if a government said, you know, we are policy neutral about this. We accept your logic and go out and implement it.
I don't know which is which. But certainly the unbinding we have seen now is about right for the current account deficits cumulatively we've had last year and this year. If parametric trends don't change, and by which I mean, if we do not continue to get, if one, the balance of current account does not further worsen to 2%, 2% plus.
Number two, if foreign direct investment and foreign institutional investment recover from the declines we have witnessed this year, and therefore, if we can expect a 1 to 1.5% current account deficit and a restitution to some extent to their reserves, then I would expect the rupee to sort of bottom out this year at about 91, 92. I think then talks of the rupee going to 100 in the next two or three years are mainly exaggerated. The rupee will go to 100 eventually, but that is good and right and proper.
I think they're greatly exaggerated. However, if there are other parametric factors at play, as Dr. Subramanian points out, then all bets are off. You could go back to a volatile time condition where you have long periods of fixity in the rupee followed by sharp falls as we have just seen.
That would be very bad for the economy because we would have been giving up a very hard won battle. If you remember, as recently as 2013, we had huge volatility in the rupee. 2018 to 2013, that was our biggest mapping tonic headache.
Since then, we've had an amazing run of 11 years of stability. This is only the latest time at which you're seeing this stable and then tanking. And I do hope this is not repeated in future cycles.
Puja Mehra: Not so much about the level of the rupee. It can be 100 or 91. But you're saying that we are seeing some sense of returning to that policy that was probably seen in the governorship of Raghuram Rajan, where there is an orderly depreciation aligned with what the current account requires.
You're not so sure. We will see that.
Rathin Roy: No, I have no means of knowing because there is no discussion in the public domain in which the government participates, in which these matters are discussed. Nor can I reveal or infer anything from government behaviour because just in a period where the rupee has been unusually stable, I've been charitable in saying the RBI overshot. But if they go back to it, then I will not be so charitable because then the real preference would indicate that there is some other policy at work of which I'm not aware.
By the way, if you have a policy, if we don't have it, I'm sure we don't have it. I don't think this Prime Minister could countenance it. If you had a policy of moving to full abolition of capital controls, then you'd see very sharp depreciations in the rupee because then you'd go to the real effective exchange rate and that sort of thing and then you'd expect to see the rupee data 100, 105 as we abolished our capital controls.
Definitely. Because then there'd be some capital flight, right?
Puja Mehra: I thought the trend was we are seeing more controls, not less.
Rathin Roy: I haven't seen more controls in the rupee. No. And I think netting people a quarter of a million dollars a year is very generous.
So it's a very relaxed capital controls policy as far as I can see.
Puja Mehra: But do you think we need to move to full convertibility?
Rathin Roy: No, I don't think we should move in the foreseeable future to full convertibility because we should learn from the most powerful economies in the world and emulate them. United States and China who do not have full convertibility. The United States does it because it has a reserve currency.
Now, unless you're a small country that meets what in economics we call the Marshall Lanner conditions and if you're some Albania or something, I don't know, Sri Lanka, something, then you don't really have any market power to impose full convertibility or not. You'll just be gaped. But we are a large country, last I heard, and we do have that market power and we should utilize it in the national interest.
So I don't think a relaxed convertibility policy is good. Also, some of the policy failures of the past are going to be very expensive in terms of our imports. Nobody with any money educates their children in India.
So if you look at our education imports, they've gone up by something like 2,000, 3,000 percent. They were very small and therefore this number is coming from a lower base, but that number can only increase until we fix our local education system. They're not doing that.
We give all sorts of talk about, you know, people coming to study in India, nobody comes to study. Indians go to study in Bangladesh and they want medical seats. The second is that, you see, the top 150 million of our population, you know, who benefited the most on liberalisation.
Now the things they want can't really be made in India because if you want an Italian kitchen, I have to get it from Italy. You can't make it in India. And if you only want to drink Scotch whisky, then Scotch whisky is made in Scotland.
You know, now India is playing heroically. We have found new brands, apparently. But still the bulk of the people will, you know, bring Black Label or whatever it is, that will come from there.
Likewise, if you just look around you and look at the consumption of our top 150 million, you'll find the import content is going up. And also the import intensity of our exports is very high. It has been high for the last 24 years.
It's a structuring trade. So a combination of these, we cannot expect the current account deficit to close very sharply. Our big wing and a prayer faith since the early 2000s was that our IT boys would close the gap.
That is obviously not happening. You know, we are stuck in low-end IT. All the patrons, all the money, made by Google, Microsoft, etc.
So until that changes, the IT boys are not going to bail you out. So you cannot expect the current account deficit to significantly fall in the near future. And as long as it doesn't significantly fall in the near future, and that Trump got to vote on that, we are sharply affected by Trump, because India runs a balance of payments surplus with the US and we run a balance of payments deficit with China.
So essentially, the US is paying for us to import from China. And that is a geopolitics I don't think Trump is going to countenance. So there are those storm clouds coming in the future on the current account front.
So in those circumstances, I think maintaining a relaxed rupee convertibility policy is a good idea. This is absolutely no time to move towards full convertibility.
Puja Mehra: So we'll wait for clarity on if there is any change in the rupee management approach in the RBI, or if for whatever reason, whether ideological or lack of technical, I wouldn't say competence, but being overshooting, as you've said, to help certain large oligarchs, as you put it, whatever the reason, we'll see if there's any change in that.
Rathin Roy: I want to say I didn't say that. I'm terrified of the oligarchs. Aravind Subramanian said that.
Puja Mehra: Yeah, yeah, yeah. Thanks, thanks.
Rathin Roy: Okay. Cheers.
