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Economist and Chairman of the 16th Finance Commission Arvind Panagariya has been caught up in a debate for not wanting the Reserve Bank of India (RBI) to defend the rupee from going past the ₹100 per dollar mark. In a pointed posting on X, he said 100 was merely no different from 99, or even 101, and started to suggest the currency need not be suppressed in the vis-à-vis the rising prices of crude oil in West Asia due to tensions there.

Panagariya contended that "aggression"—or action in foreign exchange reserves—is unsustainable and will bleed the foreign exchange reserves. Import costs in rupees would rise, particularly the cost of oil, restricting the import bill and reducing the current account deficit and improving the competitiveness of exports due to a weaker currency.

He said the economy is not easily hurt by the shock. Let us hope the oil shortage turns out to be short-term or long-term, but whichever is the case, there is no option other than taking a hit on your investments rather than making expensive investments like high-interest NRI deposits or dollar bonds. Such dispatches have come when the rupee was trading around the Rs.97 mark recently, thus focusing attention on the importance of flexible exchange rate management rather than artificial stability, as Panagariya suggests.

Such a position emphasizes economic adjustment more for the long term rather than the short term.