India’s exchange rate policy framework has not undergone many major changes in recent times despite having run a large current account deficit for years now. This has been true since 1993, when India moved to a market-determined exchange rate system. The rupee’s exchange rate against other currencies is determined largely by the market forces of demand and supply. The Reserve Bank of India intervenes occasionally to maintain orderly conditions in the market by curbing excessive volatility. India’s forex reserves provide a cushion at times of sudden capital flow reversals. On most of the parameters generally used for measuring the adequacy of reserves, India’s reserves have fallen in recent times. Structurally current account deficit countries like India have been depending on capital flows, which may often be highly volatile. Hence, for financing the current account deficit, there may be a case for augmenting the forex reserves as and when the situation permits, without any particular bias related to exchange rate movements.
The problem our economy is confronting that most of the sectors are permitted to enter into the Indian market under automatic and approval route with or without the prior permission of the RBI or government but the exit route is unregulated. Therefore, there are very high chances that foreign firms may take away capital with profit i.e. capital outflow from the economy. Hence, there is high time to regulate and manage the sectors which are given easy exit routes. Sectors which enjoy public confidence needs to be regulated in terms of entry and exit routes because these sectors are vulnerable and have high investment from public and government. Therefore, sectors like; insurance, petroleum & natural gas, manufacturing, service, civil aviation, information, infrastructure, etc. needs to be properly regulated and managed.
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