Putting the falling rupee in perspective, he said that the resolution of the trade issue was imperative to sort out the exchange rate issue vis-a-vis the American dollar.
“Right now capital outflows are happening. Many institutional investors abroad are selling the shares immediately and repatriating the money,” he said while delivering the Founder’s Day lecture of the Madras Institute of Development Studies (MIDS) at Anna Centenary Library.
“In a normal situation, we would go and find out why this is happening… Whether something is wrong with the Indian economy or not. But in the current situation, you can’t say that. The Indian economy, on broad parameters, is doing well in the sense that growth is adequate. It can always be better. But growth is there and the inflation level is low,” Mr. Rangarajan said.
“What is happening is essentially because of the fact that the American President has imposed a tariff rate of 50 per cent on our exports to the United States. This is something which has nothing to do with economics. It has something to do with weaponization of tariffs or geopolitical considerations,” he said.
“As far as dealing with the exchange rate is concerned, we can use the reserves and bring down the exchange rate as it has happened in the last two weeks. But the final solution to that lies in the diplomatic arena,” Rangarajan, former chairman of the Prime Minister’s Economic Advisory Council, said.
Earlier delivering the lecture on evolving contours of India’s monetary policy, he highlighted how policy making had evolved in the 90 years of RBI’s existence. Rangarajan also called for studies to evaluate the impact of interest rate changes. “We need to go beyond the interest rate in order to influence the economy and let private investment pick up,” he said.
