Best of BS Opinion: India's foreign exchange strategy needs stable capital

From forex inflows and examination reform to FPI policy, rupee depreciation and behavioural science, today's Best of BS Opinion examines India's key policy choices

Hello, and welcome to the Best of BS Opinion, our wrap of the day's Opinion page. 

Strong inflows under the Reserve Bank of India’s concessional foreign currency schemes have helped bolster foreign exchange buffers amid global uncertainty. However, today's first editorial cautions that these short-term inflows should not substitute for a durable external-sector strategy. With oil prices rising again, geopolitical risks persisting, and net foreign direct investment remaining weak, India needs to attract more stable long-term capital rather than rely on volatile funding. It also cautions against reviving import substitution as a response to external pressures, warning that such policies could undermine competitiveness. The priority should be strengthening investment conditions while preserving macroeconomic stability. 

 

The police response to student protests over recent examination controversies has undermined confidence in the government’s handling of legitimate grievances. The second editorial argues that the paper leaks in Neet-UG and the CBSE’s Onscreen Marking System (OMS) failures expose deeper structural weaknesses in India’s examination system, including poor accountability, excessive centralisation, and inadequate oversight. While those responsible for the leaks have been arrested and technical issues addressed, students still lack assurance that similar failures will not recur. The government should respond through sustained engagement, greater transparency, stronger institutional accountability, and comprehensive reforms that restore trust in public examinations. 

While foreign portfolio investors (FPIs) play an important role in improving liquidity and price discovery in India’s capital markets, policymakers should avoid offering them short-term tax concessions or weakening regulatory safeguards to attract inflows, writes Ajay Tyagi. Instead, the government should simplify investment procedures, enforce strict beneficial ownership norms to curb round-tripping and money laundering, and maintain equal tax treatment for foreign and domestic investors. Since portfolio flows are inherently volatile and provide only temporary support to the rupee, Tyagi suggests that India should focus on attracting stable foreign direct investment through predictable policies and a consistent regulatory framework. 

Prasanna Tantri argues that a gradual depreciation of the rupee should be viewed as an economic adjustment rather than a marker of national failure. While acknowledging that a weaker currency raises import costs and external debt burdens, he contends it also boosts export competitiveness, encourages firms to upgrade productivity through exposure to global markets, and strengthens domestic manufacturing. Drawing on evidence from countries such as South Korea and Slovenia, Tantri says exchange-rate policy can support industrial development more effectively than protectionist tariffs. The Reserve Bank of India, he concludes, should curb excessive volatility rather than defend arbitrary exchange-rate thresholds. 

Microstimuli: The New Science of Persuasion by Biju Dominic argues that human decision-making is driven by rapid, intuitive responses that can be influenced through carefully designed behavioural cues. Drawing on neuroscience, behavioural economics, and practical case studies, the book explains how "microstimuli" can shape consumer choices, improve public safety, and alter everyday behaviour. Its strongest sections demonstrate the methodology through real-world interventions, particularly efforts to reduce railway-track fatalities in Mumbai. In his review, Ambi Parameswaran finds the book thought-provoking, suggesting it offers valuable insights for marketers, policymakers, and anyone interested in behaviour change.