Let the rupee depreciate past ₹100 to a dollar, 16th Finance Commission chairman advises RBI
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📌 Summary:
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Sixteenth Finance Commission chairman Arvind Panagariya urged the RBI (via a post on X) not to let the "psychology of ₹100 per dollar" dictate policy, arguing 100 is "just a number" and the rupee should be allowed to depreciate
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Context: the rupee nearly touched ₹97 to a dollar in intraday trade on May 21, 2026, with the RBI reportedly intervening to defend that level amid the West Asia oil shock
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His argument — if the oil shortage is short-lived, the rupee will depreciate now but "substantially recover" once the oil import bill shrinks and foreign capital flows in to exploit the cheaper rupee
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If the shortage is prolonged (over a year), defending the rupee will "bleed the reserves until they are exhausted" — depreciation becomes the only sustainable response
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He warned that dollar-denominated bonds and high-interest NRI dollar deposits are merely a "band-aid": costly instruments paying far higher interest than India earns on its own forex reserves, amounting to "a transfer to rich NRIs"
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He stressed "this is not 2013": inflation was in double digits then, but prudent monetary management means the economy can now absorb the inflationary pressure that accompanies depreciation
🎯 UPSC Relevance: GS3 (Indian Economy) — exchange rate management, forex reserves, monetary policy trade-offs, and the impact of external (oil) shocks on the current account.
📝 Prelims Facts:
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Arvind Panagariya is the chairman of the Sixteenth Finance Commission
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The Finance Commission is a constitutional body under Article 280, constituted every five years
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The rupee touched nearly ₹97 to a dollar in intraday trade on May 21, 2026
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The 2013 "taper tantrum" episode coincided with double-digit inflation in India
🔑 Key Term: Currency depreciation — a fall in the market value of a currency under a floating exchange rate regime; distinct from devaluation, which is a deliberate downward revision under a fixed or managed regime.
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