Can India Survive ₹100/$? Oil Shock & Rupee Crisis Explained | Big Warning From Economist | ET Now

Added: 2026-05-22

[00:00:00]Let's uh switch to India's macro, because the resilience there is being put to test as rising oil prices, escalating West Asia tensions are threatening to shake its economic cushions. So, from growth and inflation to the rupee, multiple pressure points are emerging at once. And the big question now is uh can India weather the oil storm and navigate this uncertainty without losing momentum? I spoke with Samiran Chakraborty, and uh here's what he had to tell me. Um here's an excerpt, in fact, of my conversation with him.

[00:00:34]The other big headwind, uh other than oil prices and an elongated war, is the currency, Samiran.

[00:00:41]Now, you know, like we were discussing earlier, two camps. One believes that the market should find its own rate, and the rupee will settle down wherever it has to. We're seeing some estimates even talk about 100 to the dollar right now.

[00:00:54]What is it that should be done right now? What tools does the central bank have to try and uh you know, try and uh resurrect or stall this fall that you're seeing on the currency?

[00:01:06]So, if you take a step back, >> Mhm.

[00:01:09]the the problem which predates the war is the lack of capital inflows.

[00:01:16]>> Yeah. Or rather, Outflows.

[00:01:18]>> outflows. Yes. Uh the war has complicated matters by increasing the current account deficit. Like, for us, we were pre-war thinking current account to be 0.6% of GDP. Now, we are thinking that number to be 2% of GDP. Mhm. So, it's a significant impact that has come, which has complicated the policy challenge on the currency front.

[00:01:43]Mhm. Let's face it that if our forecast is correct that even FY '27 will be a substantial BOP deficit year, then this will be the third consecutive years of BOP deficit, which we have never seen in the past. So, in a BOP deficit year for the central bank to control the currency is that much more difficult.

[00:02:08]That's agreed.

[00:02:09]And that's where some people are suggesting that just let the currency go and let that self-equilibrating mechanism play. But unfortunately, in Indian context there are certain challenges. One of the challenges is that a large part of our exports, in fact, majority of our exports are in the form of re-exports. We import crude oil, export refined products. We import yarn, export textiles. We import gold, export gems and jewelry. In those cases, the exchange rate just becomes a pass-through. So, you don't actually see the benefit of exchange rate depreciation on exports as much.

[00:02:48]Similarly, on investment side, we rarely see that investments flow in just because the currency is cheaper.

[00:02:55]Investments flow in only when they think the underlying asset is going to deliver returns, not just because of the currency part. In fact, currency depreciation can create an environment of risk rather than return in that sense. So, that's where if there is this perception of continuous depreciation without any support from the policy makers then that depreciation begets depreciation and this becomes a slippery slope.

[00:03:24]And that's where I think there's some policy intervention would happen at some point of time both towards encouraging capital inflow as well as to some extent discouraging capital outflow because that will have a more immediate effect. Encouraging capital inflows, unfortunately, takes time to work through the system. So, it's hard to put numbers here that exactly where this rupee is going to settle down, but it is at least I belong to the camp where I cannot suggest that that allow depreciation in an unlimited way and hope for the markets to find a self-correcting mechanism. I don't think it works in the Indian context.

[00:04:07]>> Mhm.

[00:04:08]But how do you arrest the BOP situation?

[00:04:10]I mean, what tools would the government have to try and, you know, buffer up the CAD? Because you don't have flows financing it right now.

[00:04:19]Yeah, I mean But see, the 2% of GDP current account deficit is not too large. Sure. In fact, some people would argue that a country at India's stage of development should actually run a slightly bigger current account.

[00:04:35]>> Mhm. Uh So we can't have too many very forceful measures to reduce the CAD because that could have its own consequences on growth, etc. So, the government has started doing it through the gold and silver route, which typically has been thought of as more unproductive in nature. We can delay those purchases for a few months.

[00:04:58]Uh Now, we are moving into the electronics product categories. The government has announced it for AC compressors. You could see more of that coming. The other important element which historically the government has tried tweaking duties is edible oils. I've seen those duties move up and down depending upon conditions.

[00:05:20]So, that can be another area.

[00:05:23]I'm definitely not in the camp of uh trying to tweak with the LRS limits.

[00:05:28]Mhm. In my view, that will not work as much because the LRS volume value is not output value is not increasing year after year. It's been kind of flattish.

[00:05:40]So, and most of it is because of very essential things like travel and education. So, there's not too much of a speculative element in it. So, the problem really is that uh what to do with the capital account because that's what is predates the crisis.

[00:05:57]Uh so, we have to think of innovative solutions towards that. One sort of appreciation from this 3-month war period is that the bond inflows have been stickier than the equity inflows.

[00:06:11]And that's where we've been suggesting that getting India into more global bond indices could be one way of getting more sticky uh inflow into the country. Um and lastly, I think the market reaction, the INR move vis-à-vis the actual BOP deficit has been a bit too much.

[00:06:36]So, there is obviously, quote-unquote, this speculative element into markets as well.

[00:06:44]And that's where some of the measures could be just to ensure that the speculation is limited. We've seen some of that measures come in end of March.

[00:06:53]We could see a bit more of that also if the policy makers feel that this is this effect is again becoming stronger.

[00:07:01]You know, similar to the point that you were making about money chasing growth, is it an India problem right now or is it more a relative problem? If I'm getting higher dollar returns um and better returns in countries like Taiwan, Korea, and of course US, therefore the money is moving to those countries. Absolutely. I mean, that's quite possible that for a while, you know, this narrative was there that India is benefiting from the TINA factor.

[00:07:31]Uh that some of the countries, large countries were almost called uninvestable.

[00:07:37]Uh and for a couple of years, we saw massive amount of inflows into the country, but we should not also underestimate that in those years India per se had to offer a very attractive narrative also. We're doing a lot of public capex, so that was a narrative. We're doing the PLI schemes and that China plus one narrative was there. So, similarly, there were quite a few ones which investors were noticing.

[00:08:07]Today, I think what we require is another narrative which is will be attractive for investors. I know that there is that global AI narrative, semiconductor, defense. Different countries are playing these narratives and they're getting capital because of that.

[00:08:25]Whereas for us, we have a good macro, but that is something which is already in the price. So, there's nothing new as such there, so we need to put that new narrative into play and I firmly believe that that's how we'll be able to attract capital. But tell me, what what do you think that in a scenario like this where I think the one word that can describe the the state that we live in is just uncertainty.

[00:08:50]There is no word to describe it beyond this. What can the RBI do? Because many fear that, you know, now you're going to see a rate hike come in or at least the narrative may change.

[00:09:01]Uh you think that's where we are headed?

[00:09:04]So, if you go to economic theory, uh the historical wisdom has been that in uncertain times you have to move slowly.

[00:09:15]You hold fire. You hold fire. You see how things are progressing and then take action. Some people use this Chinese proverb to say that feel the stones while crossing the river.

[00:09:25]So, that has been the standard uh practice. However, the change that I'm observing is that earlier these supply side shocks, these uncertain environment, would probably come whatever once in a decade. Mhm. Now we have got like five such shocks in 6 years.

[00:09:45]Mhm.

[00:09:46]So when you have these repeated supply side shocks, the question is that can monetary policy really be very patient or could it need to act? I'm not for a second suggesting that in the June meeting itself RBI will have to act, but it's just that looking through these supply side shocks is becoming that much more difficult for the central bank since the supply side shocks are becoming recurrent.

[00:10:12]Mhm.

[00:10:13]Interesting. So you don't think RBI will move as soon as June.

[00:10:17]It looks unlikely to me because the last inflation print still is below the medium-term target. It's at 3.5, medium-term target is four. So there is enough elbow room there.

[00:10:29]Uh in fact, the RBI has now started focusing a bit more on the core inflation. They're giving the core inflation forecast also. So these energy shocks and the uh food price shock, they can in a sense look through those shocks and only focus on that core inflation number. So our sense is that the core inflation has to stay above 4 and 1/2 on a persistent basis for them to be worried about or utilizing the demand management tool that is the interest rate. Because otherwise, if it is just an energy shock or a food price shock, the interest rate tool is a very blunt tool to use. Mhm.

[00:11:08]You know, to the point that you were earlier making about the flight of capital, and what is it that you have to say about I mean um not just uh capex, but also about uh private capital moving out of the country. And again, for reasons which we discussed because you know, there are better investable opportunities outside India right now. You think that can be curtailed in some form?

[00:11:31]So we have seen a lot of liberalization over the years on that front, particularly after COVID. And uh clearly the increase in the outward direct investment from about $14 billion to almost $27 billion now is a very big jump. So, maybe there is some merit in considering what to do with it.

[00:11:54]Uh it requires a more nuanced analysis to figure out how much of this ODI is for genuine purposes versus how much could be in the nature of what we loosely call capital flight. Mhm. Uh without that granular distinction, it's difficult to think of policy measures.

[00:12:11]But, in a crisis situation, a lot of policy tools are brought out which are not advisable in normal circumstances. Mhm.

[00:12:24]So, one of them could simply be to stagger or defer these outflows for a few months. Not really stop them, but it's just going through a uh relatively more staggered phase.