India's recent efforts to bolster its currency, the rupee, have been a delicate balancing act. While the country has successfully avoided the implementation of capital controls, a move that could have been deeply unpopular, the underlying issues persist. The author argues that the core weakness in India's external accounts remains unresolved, despite the government's carrot-only approach. This approach, which encourages state-owned firms and banks to raise dollars abroad and bring them back to India with discounted hedging costs, may provide a short-term breather for the rupee. However, it does not address the fundamental problem of attracting foreign direct investment and financial investors. The author speculates that India's lack of a compelling story for global capital seeking AI innovation and its failure to reward households financing the expansion are significant factors. The author also criticizes the central bank's decision to maintain low borrowing costs, arguing that higher rates are necessary to stabilize the currency and avoid capital controls. Overall, the article provides a thoughtful and engaging analysis of India's currency challenges, offering a critical perspective on the government's strategies and the underlying economic issues.
