ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846
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Macroeconomic Vulnerability and the Rupee's Decline

Underlying the recent dramatic depreciation of the rupee is a set of structural weaknesses that not only renders the high growth of the first decade of the 2000s brief and ephemeral, but also results in persisting infl ation and current account deficits even when growth decelerates. This combination of outcomes then feeds a downward spiral, of which rupee depreciation aggravated by speculation is one symptom. Unwilling or unable to address these structural weaknesses, the government is seeking a solution in enhanced foreign capital inflows and is therefore desperately wooing foreign investors. While the logic and potential success of that effort is uncertain, its cost is likely to be a turn to austerity that can convert a difficult macroeconomic situation into one of crisis.



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