India faces growth dilemma as rupee falls to a record low

The rupee's weakness is a reminder of India's urgent need for economic reform.

"The Indian economy is currently stuck in an unenviable cycle," says Deepak Lalwani of consultancy Lalcap. GDP growth in the year to March was just 5%, the lowest rate in a decade. Under normal circumstances, this would spur the Reserve Bank of India (RBI) to ease monetary policy and stimulate growth but at present, policymakers don't have that option.

A yawning current-account deficit 4.8% of GDP last year and fickle capital inflows from foreign investors have sent the currency tumbling to a record low below 61 rupees per dollar, with no sign yet that the bottom has been reached. Under these circumstances, restoring macroeconomic stability has become the "primary concern", say analysts at Standard Chartered. The RBI is likely to maintain a relatively tight monetary policy in an attempt to stop the rupee's slide.

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