Business Standard

Lost a shock absorber

The economy would be more stable if the exchange rate fluctuated more

dollar, rupee, trade
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Illustration: Ajay Mohanty

Ajay Shah
Exchange-rate flexibility is a shock absorber. When there are external or internal shocks, part of the load is borne by a flexible exchange rate. When the exchange rate does not adjust, a bigger burden of adjustment is placed on stock prices, real estate prices, and firm fundamentals. The dollar/rupee has become significantly more controlled from late 2022. This shapes our understanding of how future shocks will play out.
 
The Indian state has hindered cross-border activities from the time of the Second World War. A wide range of people, from economists to income-tax officers, have made autarky the baseline. When capital
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper

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First Published: May 12 2024 | 9:54 PM IST

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