Exchange Rates - A Broader Perspective

This paper focuses on the impact of India's economic reforms on Exchange rates. Exchange rates should be seen in broader perspective than merely exports. Exchange rate determination mechanism should not be looked at from a narrow perspective of balance of payments and exports but from a broader perspective of promoting growth, investment and employment. To understand the Indian elephant we need many views and perspectives. The rupee appreciation is not a new phenomenon. The rupee gained 8.5%-9% during 2002-03 and 2005-06 without much murmur. What makes the present appreciation unique is the sharp rise over a short period. In the current year, it has already appreciated over 8.5% compared to the appreciation of 8.7% in 2006. In the popular consciousness, a strong currency is often associated with economic strength and vice a versa. But it is not so. Depending on the macro economic parameters, the currency can be appreciating or depreciating. The end result of any currency policy has to be to enhance the economy's global competitiveness