

Mint Quick Edit | It’s risky to rattle the currency market—a lesson in crisis response from 2013
Subscribe to enjoy similar stories.Should India tighten capital controls in response to its dollar crunch? Not unless the country faces a dire emergency. That’s a key lesson from the ‘taper tantrum’ crisis of 2013.
In an oped for Hindustan Times, Duvvuri Subbarao, who was the Reserve Bank of India’s (RBI) governor back then, recounts the effect of a small tweak. The central bank cut the annual outward remittance cap for resident Indians by $50,000 to $200,000.“The market reaction was swift and brutal,” he writes, “The rupee fell 10% in less than two weeks.” RBI’s decision was interpreted as “a reversal of India’s capital account liberalization policy.” Indeed, given how hard it is to second-guess how the minds of market participants work in times of uncertainty, policy actions must not rattle their confidence.
It may be tempting to argue that India’s current account gap this year wouldn’t be as glaring as it was 13 years ago even if it widens beyond 2% of GDP, so the currency market might be less skittish.However, we face a worrying scarcity of foreign capital flows today. Portfolio inflows had stayed positive in 2013-14, while outward direct investment and repatriations were modest.
Alas, that’s not the case now. Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint.
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