--- title: "OPINION | Vault Matters: Water can find its level. With INR, don’t experiment" type: "News" locale: "en" url: "https://longbridge.com/en/news/288070080.md" description: "The article argues against letting the Indian Rupee (INR) float freely to address the current account deficit. It highlights that INR depreciation could significantly increase inflation by raising crude oil and import costs, jeopardizing recent stability. Furthermore, it contends that capital outflows stem from structural issues like bureaucratic hurdles and tax complexities, not just currency valuation. Allowing the rupee to 'find its level' is criticized as a short-term fix that ignores underlying problems, potentially causing long-term economic damage." datetime: "2026-05-29T12:35:04.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/288070080.md) - [en](https://longbridge.com/en/news/288070080.md) - [zh-HK](https://longbridge.com/zh-HK/news/288070080.md) --- # OPINION | Vault Matters: Water can find its level. With INR, don’t experiment These are times where the centrespread of a newspaper is more read than possibly page one, thanks to a variety of opinions voiced on what RBI should do with the rupee. The majority view that is emerging is that we need to let the INR find its own level against the US dollar. This stand is being taken to ensure that current account deficit does not run into troubled waters. The argument is well taken and is right in its own way, but it might be missing the forest for the trees. Here’s why: **Impact on inflation** Two weeks back, this column delved into why a practical deregulation of petrol and diesel prices, aligning it to the global prices may be problematic. Let’s extend this point a little more. Crude oil forms 15% of India’s inflation and price of crude is derived from the base price of crude oil globally, and the value of INR versus USD. In simple terms, how rupee is valued against US dollar has an indirect implication on the overall inflation computation in India. With crude being a major component and if second order impact through logistics, cost of perishable, etc, is considered the impact of crude on INR versus USD may be a lot more pronounced on inflation. After two years of struggle, India has managed to bring inflation well within its targeted 2 - 6% band, although the absolute level being targeted is 4%. We are just beginning to see transmission of crude oil prices to fuel costs. Factoring near ₹10 increase in petrol and diesel prices, the first print of its effect on inflation would be visible only by June. To that extent even the upcoming monetary policy meeting would have to factor only certain assumed impact on inflation which may or may not reflect reality. Therefore, with every rupee India pays more against the dollar, the cost of living is going to get expensive. And then there is this whole cost of overseas, education etc, remittance which is coming into India and so on. Therefore, the arithmetic around INR might dramatically change if we let it find its own course. **Impact on deficit** The fact that fiscal deficit is likely to breach the 4% threshold is almost a foregone conclusion. The question is another year of steep capital account deficit. FDI situation for the current year is bleak, and so is the position on FII inflows. Instead of trying to get to the underlying issues resulting in weak inflows and thin foreign capital exposure, by taking a view that INR should find its level against the dollar, the wound is getting plastered without trying to diagnose the nature of the problem. An hour-long chat with some economists who have recently returned to India from some global roadshows will give you ten other reasons why global investors look the other side when it comes to investment in India. The rupee depreciation is hardly the issue shooing them away from the market. For instance, ticking the boxes in KYC related issues, some say, is at least a 6-8 months process. Likewise getting clearances to start a business is still a year-long process, despite single-window clearances. Not to mention the demonic tax structures. In short, it is still hurdles aplenty for capital to enter the country which is hurting the Indian rupee, more than anything else. With these downside factors unattended, taking a view that the rupee should be allowed to find it’s level just like water might just be choosing short-term pacification in return for long-term grief. ### Related Stocks - [EPI.US](https://longbridge.com/en/quote/EPI.US.md) - [EEM.US](https://longbridge.com/en/quote/EEM.US.md) - [FLIN.US](https://longbridge.com/en/quote/FLIN.US.md) - [EDIV.US](https://longbridge.com/en/quote/EDIV.US.md) - [DFEV.US](https://longbridge.com/en/quote/DFEV.US.md) - [EVLU.US](https://longbridge.com/en/quote/EVLU.US.md) - [EMXC.US](https://longbridge.com/en/quote/EMXC.US.md) - [SPEM.US](https://longbridge.com/en/quote/SPEM.US.md) - [EMGF.US](https://longbridge.com/en/quote/EMGF.US.md) - [FEMX.AU](https://longbridge.com/en/quote/FEMX.AU.md) - [AVEM.US](https://longbridge.com/en/quote/AVEM.US.md) - [VWO.US](https://longbridge.com/en/quote/VWO.US.md) - [IEMG.US](https://longbridge.com/en/quote/IEMG.US.md) - [SCHE.US](https://longbridge.com/en/quote/SCHE.US.md) - [INDA.US](https://longbridge.com/en/quote/INDA.US.md) - [INDL.US](https://longbridge.com/en/quote/INDL.US.md) - [INDZ.US](https://longbridge.com/en/quote/INDZ.US.md) - [EMVL.UK](https://longbridge.com/en/quote/EMVL.UK.md) - [AVES.US](https://longbridge.com/en/quote/AVES.US.md) - [DEM.US](https://longbridge.com/en/quote/DEM.US.md) ## Related News & Research - [EMERGING MARKETS-Stocks surge as Asian chipmakers spark relief rally; FX mixed](https://longbridge.com/en/news/294490137.md) - [EMERGING MARKETS-Stocks slip on Fed policy uncertainty](https://longbridge.com/en/news/294341164.md) - [ASIA RICE-India's export rates stagnant as market faces slow demand](https://longbridge.com/en/news/286490582.md) - [Indian regulator clarifies banks, brokers not liable for offshore funds' tax dues, sources say](https://longbridge.com/en/news/286253948.md) - [Statsguru: Rupee woes signal renewed stress on external accounts](https://longbridge.com/en/news/287467538.md)