The Indian rupee sank to a new all-time low, and may continue its free fall in the coming days. However, the factors responsible for the fall in the rupee are mostly exogenous. Key among these is the increased demand for dollars against most major currencies owing to the euro-zone crisis. Though the Indian economy opened its doors to the global market in 1991, we have failed to include some vital precautionary measures in our policy. Before the euro crisis, such measures as quantitative easing in the US flooded the Indian market with dollars that, in turn, gave rise to inflation. And now with the euro crisis, the sudden withdrawal of dollars from the Indian market has resulted in the rupee’s depreciation. It’s high time that we introduce some strong and prudent measures – like the Tobin Tax that keep a tab on foreign institutional investors inflows and outflows – which could save us from the vagaries of external economies.
Sagar Soni, Gandhinagar
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