A convertible rupee is a bad idea, it needs protection.

India's foreign currency reserves have fallen to $393.12 billion after reaching a high of $426.028 billion in April of this year. The country's reserves with the International Monetary Fund (IMF) also declined. Why when the rupee has become stronger in recent weeks, rising to 69.85 after dropping to near 75 to the dollar? Reasons why the rupee is stronger is that the price of crude oil has fallen to below $55 a barrel after hitting $85 a barrel and retail inflation dropped to 2.33% in November. Normally the Reserve Bank (RBI) sells dollars to support the rupee to stop it from falling precipitously but why did our reserves drop by $613.9 million in the week to December when the rupee was gaining strength? Even though India attracted inward remittances of $80 billion, the highest in the world, according to the World Bank.  Foreign funds have sold Indian securities to the tune of Rs 1 trillion in the first 10 months of this year despite our economy growing at 7.1% in the second quarter, after growing at a blistering 8.2% in the first. Some Indians believe in a strong rupee to bring down the cost of imports, especially oil, to control inflation and allow the RBI to reduce interest rate. S Bhatia recommends a fully convertible rupee, which would allow more foreign inflows into our bonds and stocks, and make the rupee stronger. China had a trade surplus of $442.4 billion in 2017 and had reserves of over $3 trillion in October 2018. India, on the other hand, doubled its trade deficit to $87.2 billion in the last financial year and our reserves are about 13% of those of China. China's yuan was included as the fifth reserve currency in the IMF's basket of Special Drawing Rights and yet China is restricting capital outflows to slow the fall in the value of the yuan. How the RBI will halt a run on the rupee, as happened in Iran when its currency fell from 39,000 to the dollar last year to 190,000, before strengthening to 135,000 in October 2018, is a mystery. At 14% of GDP, India's shadow banking sector is the main source of commercial lending, as public sector banks try to shrink their non-performing assets and the government grapples with a rising fiscal deficit, wrote A Mukherjee. Bank credit grew at 13% between October 2017 and October 2018, wrote A Krishnan, but services cornered most of it. "For instance, for every Rs 100 of new bank loans added, it was services which bagged Rs 50, while industry received just Rs 10. Out of the Rs 10 advanced to industry, large firms cornered Rs 8.30, while medium and small enterprises had to make do with just Rs 1.70." The government is to lend up to Rs 10 million in less than an hour to small and medium industries which have been starved of lending. The rupee is a national asset. It needs protection from the government.