Chairman of the 16th Finance Commission and former NITI Aayog Vice-Chairman Arvind Panagariya has called on the Reserve Bank of India to allow the rupee to depreciate gradually instead of supporting it through artificial measures. His argument comes as the rupee approached historic lows and the one-year forward rate briefly crossed the 100-per-dollar mark.

In a string of posts on X, Panagariya contended that “100 is just a number” and cautioned policymakers against allowing the psychological threshold of Rs 100/USD to drive monetary policy decisions. He said India is in a far stronger macroeconomic position than it was in 2013, with inflation below target and therefore better able to absorb the inflationary impact of a weaker currency.

“Dear RBI, do not let the psychology of Rs 100 per dollar determine your policy response. 100 is just a number, like 99 and 101. Whether the oil shortage is short-lived or long-lived, the right response at this moment is to let the rupee depreciate,” Panagariya posted on X.

He further argued that if the oil shortage is temporary, the rupee may fall now but should recover later as the import bill eases and foreign investors look to buy cheaper Indian assets. If the shock lasts longer, he said defending the currency would only burn through reserves without solving the underlying problem.

ALSO READ

‘Not 2013 anymore’: Why Arvind Panagariya wants RBI to stop defending rupee

Panagariya warned against using dollar bonds or high-interest NRI deposits as a fix, calling them expensive “band-aid” measures that mostly transfer returns to wealthy Non-Resident Indians (NRIs). Panagariya also pointed out that these tools pay higher rates than India earns on its foreign-exchange reserves, making them a costly way to defend the currency. In his view, letting the rupee adjust is the cleaner and more sustainable response.

Arvind Panagariya said, “This is not 2013- Inflation was in the double digits in 2013. Thanks to your prudent monetary management, that is not the case now. Therefore, the economy is well-positioned to absorb some inflationary pressure that will accompany the depreciation. Dollar-denominated bonds and High-interest NRI Dollar Deposits: These are costly instruments that pay significantly higher interest than the rate India earns on its own foreign-currency reserves. It is largely a transfer to rich NRIs.”

“The oil shortage is long-lasting (One to an unknown number of years): A resort to anything other than depreciation will be a losing proposition. Trying to defend the rupee will continue to bleed the reserves until they are exhausted. Nor would the dollar-denominated bonds or high-interest dollar-denominated NRI deposits turn out to be more than a band-aid. Eventually, you will have to cross the 100-rupee-per-dollar psychological barrier,” he added.

The rupee has been under pressure this year and has been described as the worst-performing Asian currency, with depreciation of 6.6 per cent in 2026. On Thursday (May 21), it rebounded after a nine-day losing streak, but it still closed at 96.20 per dollar in one report and 96.37 in another account of the same trading day. Consumer Price Index (CPI) inflation in April stood at 3.48 per cent, below the RBI’s 4 per cent target, which strengthens Panagariya’s argument that the economy can absorb some imported inflation.

RBI’s policy dilemma

The RBI is already under pressure to stabilize the currency and reports say it has been examining crisis-era tools from 2013, including special NRI deposit windows and other inflow-boosting measures. But Panagariya’s intervention pushes in the opposite direction, suggesting that the central bank should tolerate more exchange-rate weakness rather than spend reserves trying to impose a line in the sand. The debate is now centered on whether India should defend the rupee aggressively or let it adjust to oil-driven external stress.