Don't worry about the smoke, douse the fire.

In the 1950s the exchange rate was fixed at Rs 4.76 to the dollar and the government used foreign currency reserves to defend the rate, so that by 1958 "the reserves almost ran out", wrote Prof A Panagariya. The government then resorted to "foreign exchange budgeting" which meant that licenses for new projects depended on allocation of foreign exchange to import machinery and inputs. This resulted in high inflation and export revenues shrank as our goods became more expensive. "It took another three decades to accept that the exchange rate was a key tool of macroeconomic adjustment." From Rs 17.50 in 1990 the rupee has dropped to 74 to the dollar today. After 2008, interest rates in the US fell to near zero, the Indian government relaxed limit of investment in our bonds by foreign funds which suppressed yields and kept interest rate low. Interest rate was not increased for 4 years until June of this year. Companies also went on a borrowing binge. The Federal Reserve has been increasing its Funds rate slowly since 2015, up to 2.25% in September. Foreign currency flow has reversed and yields on benchmark 10 year bonds jumped to over 8%, but have fallen back to just over 7.9%. Companies want the Reserve Bank to use its reserves to defend the rupee because the stronger the dollar the more they have to pay and a weak rupee means higher fuel prices because we buy oil in dollars, wrote I Patnaik. A weak rupee is supposed to increase exports by making our goods cheaper but exports fell 2% in September. Former Chief Economic Adviser A Subramanian also said that the rupee should fall in line with other emerging market economies as this is a necessary adjustment. Defending the rupee will deplete RBI reserves which has fallen to $394.5 billion, after the biggest weekly fall in 7 years. Reserves reached a record high of $426.028 billion in April 2018. As the rupee weakens foreign investors exiting India get fewer dollars in exchange for their rupees. If the RBI supports a stronger rupee foreign investors will get more dollars, increasing their profits. Which would be silly. The government has raised import taxes on a range of goods to restrict outflow of foreign currency and the Finance Minister assured markets of staying within fiscal deficit target but no one believes politicians, wrote P Mehra. The government collected over Rs 10 trillion in the past 3 years by taxing oil products which it used on social schemes. "Using low-cost foreign financial capital may seem attractive but this lunch is not free. Eventually, when the inflows reverse, which they inevitably do, the economy does pay for it and rather heavily." But, they should have the knowledge to understand that or the humility to ask experts. Egomaniacs.