International Monetary Fund (IMF) staff reports on India usually focus on the problems faced by policymakers in New Delhi—the fiscal deficit, above all. But the new report released on Tuesday lavishes attention on the Mumbai end.
And why not? India’s main economic problem is quite different today.
The Reserve Bank of India (RBI) has been busy trying to manage the flood of foreign capital that has flowed in. This capital has pushed up the rupee, fed asset bubbles and ensured that the central bank’s targets for money supply growth have been breached.
IMF has generally been supportive of what RBI has done over the past few months. But there is subtle criticism as well. IMF, true to form, believes that the way to manage the problem of forex plenty is to let the rupee appreciate further, encourage outflows and open up the financial system. RBI would like to be more cautious—and justifiably so.