What about the firms which might be adversely affected by currency fluctuations? These firms need to be given a well-functioning currency derivatives market on which they can do their own hedging. Instead of the government trying to protect everyone from currency volatility, each firm should buy its own protection. The currency futures market at NSE has made a good beginning. SEBI and RBI had planned to review the market to remove the restrictions that are holding this market back. This should be done right away so that businesses can buy their own protection when faced with high rupee volatility.

In summary, this is not a time for the RBI to try to prevent depreciation. Focus on the currency will be counter-productive. It should let the rupee find its own level, and encourage firms to protect themselves when faced with a volatile currency.

The writer is a senior fellow at the National Institute of Public Finance and Policy, Delhi

express@expressindia.com