In any case, post-Capoor Rs 43.05 per strong US dollar against the pre-Capoor Rs 42.50 plus is hardly an alarming decline. However, last month the RBI was reportedly sucking excess dollars out the market -- in the wake of a sustained inflow of foreign portfolio investment -- in order to thwart the rupee's appreciation. This operation coincided with the escalation of Kargil, fuelling expectations, inter alia, of a surge in oil imports.

The latter could not have caused the modest decline of rupee since the country's bulging foreign currency reserves can take the pressure of a rise in imports. Conceivably,exporters withheld bringing in foreign currency receipts, following last month's tendency of the rupee to appreciate and subsequently waited to strike a bargain. The guessing game was the point at which the RBI would stop absorbing excess dollars, that is, how far it would let the rupee slide. This rather than misinterpretation of Capoor is at the bottom of the rupee's modest slippage.

In any case, Rs 43 plus to the US dollar is by no means worrisome. Indeed a modest dose of depreciation is desirable to encourage exports. The RBI's press note smacks of direction from Delhi which cannot countenance a weak rupee. (This is not to say that India can move out of the current export stagnation through devaluation; it cannot afford a collapse of the external value of the rupee on the east Asian scale).

The trouble is, it is difficult to say what should be the exchange rate. Even if inflation in India rises above inflation rates abroad, thus overvaluing the rupee, the market may not be able to bring about therequired correction -- not so long as India's foreign currency reserves keep rising, thanks to burgeoning foreign portfolio investment inflows and continuing slack in import growth underpinned by the lingering industrial recession.

So when Capoor, echoes Jalan, he does not address the basic problem of the rupee floating in suspended animation. Should the RBI talk down the rupee? The press note rules out any such intention. Besides, depreciation will only weaken import demand. It could let the rupee appreciate but that in the present situation will not give a fillip to import demand, necessary to correct the rupee, unless import duties are reduced.