Being unpredictable

The RBI-government strategy appears to signal that in a week or two, major reform measures will be announced. These measures are expected to pull in capital and restore hopes of rupee appreciation. In this environment, people will believe that the rupee overshot, that it will now become stronger and thus bring capital in to earn those returns. There is a risk that the reforms the government announces may not be able to pull capital in unless they are very radical. Maybe this is the time to privatise public sector banks and enterprises, initiate labour reforms and rethink legislation like the Food Security Bill.

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