Is it wise to support the rupee by borrowing dollars?

Prime Minister Narendra Modi has dictated that India's gross domestic product (GDP) will grow to $5 trillion by 2024. Last year India's GDP was $2.6 trillion according to the World Bank. "There are many ways to calculate a country's GDP," wrote U Misra. "You could aggregate the total production, or you could add up all the income earned by the people, or you could add up all the expenditure made by the entities (including government) in the economy. For most international comparisons, GDP is calculated via the production method (that is, adding up the value added at each step) and the monetary value is arrived at by using current prices in US $." To reach $5 trillion, from $2.7 today, India needs to grow at a real rate of 8%, which means a nominal growth of 12%, with inflation staying at or below 4%, and, most crucially, the rupee must stay strong against the dollar. "Is there any obvious reason for appreciation between 2018 and 2024? Probably not. The rupee/dollar rate will either be roughly where it is, or the rupee will depreciate," wrote B Debroy, Chairman, Economic Advisory Council - Prime Minister. Recently there has been a lot of debate about the growth rate of the GDP, with the former Chief Economic Adviser calculating that the growth rate is actually 4.5% and not above 7%, as claimed by the government. The government will spend over Rs 3 trillion on subsidies in this financial year. What is the point in handing out taxpayer money to the poor and then counting that in the GDP when they spend it, while cutting expenditure on education, healthcare, defense and capital spending? Since GDP is calculated in dollars the rupee has to retain its value. That can only be done if we earn more dollars. But we always run a trade deficit because we export less than we import. Last year our trade deficit was a record $176 billion which means we were distributing money to other countries. Our trade deficit has widened with 25 major countries in the last 3 years. We cannot earn dollars and we cannot print it. So the government has adopted various strategies to borrow more dollars to support the rupee exchange rate. The Reserve Bank (RBI) conducted swap auctions to buy dollars from banks. After 3 years the banks are committed to buying the dollars back at a premium, predicting a fall in the rupee. Indian companies are raising money overseas with gay abandon after the RBI relaxed its rules. The government will also raise money in foreign currency by selling sovereign bonds overseas. If the rupee drops the government will be tempted to borrow more in foreign currency to pay back the old debt and prevent a big hole in its budget, wrote P Mehta. That will be dangerous. Prof A Nandy thinks this is the best time to borrow abroad with central banks cutting interest rates. "The Modi government speaks of pushing labor and other reforms to attract investment, but it also promotes a full buffet of welfare programs, and its latest budget reflects a commitment to continued welfarism more than new investment," wrote R Sharma. Borrowing from other countries need to be paid back. In dollars.