In this episode of How India's Economy Works, host Puja Mehra speaks with economist Renu Kohli, formerly at the Reserve Bank of India and the IMF and currently senior fellow at the Centre for Social and Economic Progress (CSEP). They talk about the recent depreciation of the rupee and why this episode may be different from previous currency shocks. Despite India's large foreign exchange reserves, the rupee has faced sustained pressure. Why?

Renu Kohli argues that the deeper issue lies not in India's trade balance but in the drying up of foreign capital inflows. She explains the difference between reserves earned through exports and what she calls "borrowed reserves", examines the decline in foreign direct investment, and discusses whether policymakers underestimated the structural nature of these pressures.

The conversation also explores the RBI's exchange-rate management strategy, the limits of using reserves to defend a currency, the impact of global capital flows, and why short-term measures can only buy time. Looking ahead, she outlines the reforms India may need if it wants to attract and retain long-term foreign investment in an increasingly competitive global environment.

What does the rupee's recent weakness tell us about India's place in the global economy? And what must change to ensure that external vulnerabilities do not become a lasting feature of India's growth story?

Tune in for insights on the rupee, foreign capital, forex reserves, and the structural challenges shaping India's economic future.

CHAPTERS

(00:00) Introduction

(01:04) Why Forex Reserves Didn't Prevent Rupee Weakness

(04:25) How the Current Shock Differs from 2013

(08:55) The Hidden Problem: Drying Foreign Capital

(13:33) Is This India's Most Serious External Vulnerability Since 1991?

(16:14) Did the RBI Misread the Nature of the Pressure?

(19:24) Should the Rupee Have Been Allowed to Fall Earlier?

(22:54) RBI's Short-Term Measures and Their Limits

(26:20) Can Policymakers Count on Global Capital Returning?

(29:29) Why India Is Struggling to Attract Foreign Investment

(32:19) What India Must Do to Secure Long-Term Capital Inflows