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US dollar (AP )
US dollar (AP )

Opinion | Dollar dilemma

It is true that our exports have floundered and dollar earnings are low. But we do have sizeable foreign exchange reserves to tide over short-term volatility

Is India’s policy mix on foreign exchange adequacy “bipolar", as former Reserve Bank of India governor Urjit Patel has suggested in an opinion piece? Easing inflows of “hot money" from abroad into Indian assets, or taking on a bigger burden of foreign loans, while also raising import tariffs that would blunt our export edge and thus the ability to earn dollars do not square up, in his view. Together, they could expose our economy to instability if money were to flee our shores, the rupee dropped and dollar debts got hard to repay. By highlighting this risk, Patel implicitly seems to reject calls for dollar bond issuances to help fund a fiscal package for covid-19 relief.

It is true that our exports have floundered and dollar earnings are low. But we do have sizeable foreign exchange reserves to tide over short-term volatility. More pressingly, we need foreign capital right now, and a sharp rise in external debt need not pose a threat if we carry out the reforms needed for exports to thrive. Import barriers could be reduced, especially on intermediate goods, even as taxes are eased and efficiency boosted in other ways. But first, we need clarity of purpose.

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