Finding resolution to tariff issues with U.S., the only way to address exchange rate issues: C. Rangarajan

Former governor of the Reserve Bank of India (RBI) C. Rangarajan on Thursday said the only way to sort out the current exchange rate issues (the falling rupee versus the dollar) was to shift attention towards finding a quick resolution to India’s trade problems with the United States.

“Right now, what is happening is capital outflows. Many institutional investors abroad are selling the shares immediately and repatriating the money,” he said, delivering the Madras Institute of Development Studies (MIDS) Founder’s Day Lecture at an event organised at Anna Centenary Library.

“Now, in a normal situation, we would go and find out why this is happening, whether something is wrong with the Indian economy or not. But, in the current situation, you can’t say that. The Indian economy, on the broad parameters, is doing well in the sense that growth is adequate. It can always be better. But growth is there and the inflation level is low,” Mr. Rangarajan said.

“So what is happening is essentially because of the fact that the American President has imposed a tariff rate of 50% on our exports to the United States. Now, this is something which has nothing to do with economics. It has something to do with the weaponisation of tariffs or geopolitical considerations,” he said.

“While we can use the reserves and bring down the exchange rate as it has happened in the last two weeks, the final solution to that also lies in the diplomatic arena,” Mr. Rangarajan, former chairman of the Prime Minister’s Economic Advisory Council, said.

Earlier, delivering the lecture on evolving contours of India’s monetary policy, he highlighted how policy-making evolved in the 90 years of the RBI’s existence.

Mr. Rangarajan also called for studies to evaluate the impact of interest rate changes. “We need to go beyond the interest rate in order to influence the economy, and let private investment pick up,” he said.