This refers to A Seshan’s letter to the editor “An ‘optimistic’ mistake” (November 27). Since no details of the context are given, we don’t know if the finance ministry official’s view that the rupee is likely to appreciate once the economy is back on the upward curve merits the writer’s virtual dismissal that it reflects a mere common sense approach, unsupported by economic reasoning and analysis. The point that faster economic growth could lead to a surge in imports without a corresponding rise in exports (which depend more on the global markets) is well-taken. However, trade balance is not the only factor that impacts the rupee. The same factors that could revive the economy and take it back to the high growth trajectory, such as fiscal consolidation, economic reforms, easing of supply constraints and an investor-friendly regulatory framework, would also pave the way for increased foreign investments and other capital inflows, leading to currency appreciation, ceteris paribus. I wonder if the “common sense” view of the finance ministry official wasn’t based on such an understanding.
Parthasarathy Chaganty Mumbai
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