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Informist, Wednesday, Jul. 29, 2026

 

Please click here to read all liners published on this story

--Abheek Barua on RBI's FX inflow steps: Only option left to support rupee
--CONTEXT: Comments by economist Abheek Barua in interview with Informist
--Abheek Barua: India needs to grow at over 8% for sustainable FX inflows 
--Abheek Barua: Need strong India tech story for sustainable FX inflows
--Abheek Barua: See rupee at 95-96/$1 if crude stabilises at $75-$80/bbl
--Abheek Barua: Rupee at 100/$1 level can dampen investor sentiment 
--Abheek Barua: Falling rupee can impede foreign inflows into India
--Abheek Barua: Expect RBI's MPC to hold rates at Aug meeting
--Abheek Barua: See rate hike by RBI's MPC if CPI above 5% sustainably
--Abheek Barua: Don't see CPI inflation above 5% on sustainable basis
--Abheek Barua:Maybe India deserves a notch higher rating by rating agencies
--Abheek Barua: Govt needs more holistic approach towards capital spending
--Abheek Barua: Govt may not meet 50?bt-to-GDP aim by FY31
--Abheek Barua: Can't keep waiting for right valuation for PSU stake sales
--Abheek Barua: RBI, PSU dividends can't be cornerstone of fisc glide path
--Abheek Barua: Moot wealth tax to handle rising inequality globally
--Abheek Barua:Moot robot tax for cos when automation replaces human capital

By Pratiksha and Priyasmita Dutta

 

NEW DELHI – Amid a volatile geopolitical environment that is exerting significant pressure on the Indian rupee, Abheek Barua, visiting professor of economics at Ashoka University, believes that depreciation of the currency towards psychologically important levels such as 100 per dollar would dampen investor sentiment and, in turn, hit foreign capital inflows into India. 

 

"I have always believed that in a situation where the sentiment is against the capital markets, the level of the currency matters," Barua told Informist in an interview. "If the rupee is depreciating, or will continue to depreciate, it will impede capital inflows." 

 

The rupee has fallen nearly 6.5% against the dollar so far in 2026, owing to a surge in crude oil prices and heavy foreign outflows following the outbreak of war in West Asia in late February. The Indian currency fell to a record low of 96.96 a dollar in May, inching closer to the 100-per-dollar mark. 

 

The former HDFC Bank chief economist expects the rupee to remain around 95-96 a dollar if crude oil prices stabilise at $75-$80 a barrel and there are no flare-ups in West Asia. "If we are in a situation where things flare up again, and the strategic reserves that were released ultimately run out, then we are looking at a very different story. It will be anybody's guess where it (rupee) will go," he added.

 

Barua said the rupee is currently in a "vulnerable and fragile place" and that, had it not been for the Reserve Bank of India's recent measures to attract capital inflows, the currency would have fallen close to 100 a dollar. Earlier in June, the central bank announced a host of measures to attract foreign capital, including concessional foreign exchange swap facilities for banks' foreign currency non-resident deposits and public sector borrowings, expanded routes for government securities, and changes to export realisation norms. RBI Governor Sanjay Malhotra recently said banks had mobilised nearly $32 billion through these measures so far. 

 

Beyond these measures, Barua said India needs to grow more than 8% to ensure a sustained stream of foreign capital. He also argued that India must build a compelling technology story to attract global investors. So far in 2026, foreign portfolio investors have pulled out more than $18 billion on a net basis from Indian markets, the largest outflow in four years. 

 

"We need to be visible in the tech space in some way," he said. "Indian companies are doing bits and bobs, but we need some enterprise solutions coming out of our huge and old tech sector, where you are using AI to give solid and replicable enterprise solutions in major sectors like the BFSI (banking, financial services, and insurance). We need a strong tech story."

The economist also discussed a range of issues, including the government's fiscal consolidation efforts, its capital expenditure targets, and the recent progress in accelerating disinvestment and stake sales. Below are the edited excerpts of the interview:

 

Q. What is your assessment of the RBI and the government's measures to bolster capital flows?

A. We had reached a stage where it was perhaps the only thing to do. It has high costs that we have to bear over the longer term. We are getting into a situation with perhaps better macros on the domestic front compared to 2013, but a significantly higher cost of borrowing.

 

Fundamentally, we are in a difficult situation now. We have a significantly negative sentiment towards Indian equities, and that is manifesting in various ways. Just look at where we are: Although we are not positively leveraged on the AI or the tech cycle, any bad news about the tech cycle seems to be affecting us. We are not, unlike a year and a half ago, when we were thought of as a buffer against China, both in terms of economics and geopolitically; we seem to have diluted that position. So, valuations are still not compelling.

 

There are very few new narratives about India in place. You need to tell the India story, and what is the India story today about? It's a good, solid growth market. But apart from that, you need something exciting, and there are a lot of exciting things that have come on stage over the last couple of years with tech and also realignments in the global economy.

 

The rupee is in a pretty vulnerable, fragile place, and it is being exacerbated by oil prices, bad news on the tech cycle, certainly domestic bad news, some governance-related issues, among others. I think that was the only option left for the RBI; otherwise we would have seen the rupee at close to a hundred.

 

Q. Do you think it was the most appropriate action the RBI could have taken, and is it enough?

A. The RBI can hold things a little at 96-ish levels credibly. Apart from pure fundamental fund flows, there is a lot of opposition against India in the NDF market, and you need to show a good FX balance sheet to be able to credibly intervene, if you do want to intervene. There is still a minority view that the rupee should just be allowed to find its own level, which comes with its own set of problems, especially since commodity inflation and energy inflation are high. But I think the RBI is certainly in a better place today. The numbers as they come out on FCNR (B) deposits just restore its ability to intervene in the short term.

 

Hopefully, things will improve. I have been noticing that because of strategic reserves being released by China and the US, oil is crossing $100 per barrel on a terrible day, but it is coming back very quickly at any amount of good news. So, oil will ultimately move to a $70-$80 a barrel level once things settle.

 

And even if things remain unsettled, if you take an average, oil prices are not going to be above $100 a barrel. But it is very difficult to reverse the negative, the adverse position taking, without sustainable inflow into India's most visible market, which is the stock market. Unless we have some good news there, it's going to be a bit of a long fight.

 

Q. What needs to be done to ensure a steady stream of capital flows sustainably? Is India's inherent macro strength not enough?

A. The macro strength, in relative terms, seems to be good in comparison with others. But I would use two benchmarks to dilute or dampen the enthusiasm a little bit. For the kind of long-term growth that we aspire to, and the kind of levels of per capita income that we aspire to, we need to be growing much faster. We don't seem to be close to that. That number is over 8%. We are not there.

 

And it is not filtering down to the earnings level in a comprehensive fashion. Some companies are showing good earnings, but if you take the classic India growth play, which is the consumption story, we are not there. We need to get our act together on certain things that people kind of assumed about India. We need to be visible in the tech space in some way. Indian companies are doing bits and bobs, but we need some enterprise solutions coming out of our huge and old tech sector, where you are using AI to give solid and replicable enterprise solutions in a major sector like the BFSI. We need a strong tech story.

 

And again, let me emphasise, it does not mean that we come up with ChatGPT. But what is our space in tech? We are great enterprise implementers of tech. It will improve productivity, and we need a revenue-generating tech story to be able to get some of the action back. This is not an easy task. But we need to put our heads together and see what we can do.

 

Q. Do you think 100 a dollar is just a number for rupee? Where do you stand in that debate? What is your outlook for the currency for FY27?

A. My baseline scenario is, assuming that oil prices stabilise around $75-$80 a barrel and there are no flare-ups in West Asia, maybe 95 to 96 a dollar is the level that I would be looking at. If we are in a situation where things flare up again, and the strategic reserves that were released ultimately run out, then we are looking at a very different story. It is anybody's guess where it will go.

 

I have always believed that in a situation where the sentiment is against the capital markets, the level of currency matters. If the rupee is depreciating, or will continue to depreciate, it will impede capital inflows. It matters alongside the clear perception that even if it is depreciating, it is depreciating in line with what the central bank would like it to, in line with where it would like to move. And these two things become very important for capital flows. This is also important if India wants bond flows and wants to be included in the Bloomberg index. 

 

Q. Considering the RBI and government have taken non-policy measures to support the rupee so far, do you think a rate hike to support the rupee is an appropriate measure now?

A. There is a big issue there and a very important one. In the RBI's policy, there has been a definite shift in its stance and its perspective on how the economy should be managed. And clearly, growth is taking some precedence over inflation. Perhaps at this stage, the RBI would be reluctant to hike rates. And I think that is the right way to move.

 

Because domestically, the growth situation, particularly among key sectors which are hugely credit dependent, is bad. In terms of hiking policy rates, it has to be a very difficult call. And as I was saying, despite the volatility and the noise, oil is not at $90 plus. It is settling close to 80, and that is reflective of the fundamental situation. Markets will slowly train themselves to look through flare-ups and look at a more stable oil price, and that will lend some stability to the rupee.

 

So, the RBI, by being patient and not just being reactive to any one day or any one week of high spikes in oil prices, can hold back. I also believe that the Federal Reserve is going to be very cautious about hiking rates and that itself will be a support for the rupee.

 

Q. So are you expecting a status quo at the next meeting as well?

A. I would think so. That is my call. Let's see. Things could completely spin out. It is so volatile, and the data could go awry.

 

Q. What do you think should be the threshold for CPI for a rate action?

A. Unless we have 5% plus inflation on a sustained basis, which I don't see as likely.

 

Q. We are not only facing external risks, but also El Nino-led domestic risks. What kind of measures do you think are warranted from the government to protect the large agriculture-dependent population?

A. One protection which we have implicitly given, and this is a very big safety net, is the free food scheme. That itself is acting as a huge cushion for the really poor. As we move along and as many demands from different segments come, we should give some fiscal support to these segments.

 

This could be done even through targeted credit guarantees. But apart from that, there is not much fiscal headroom if you want to consolidate. Look at the states; the unconditional cash transfers have put such a permanent burden on state debt, and this has become a part of the political cycle. Election after election, we are seeing either new schemes being announced or an increase in the amount allocated to such schemes. I understand that people need this; I'm not going to dismiss it as a freebie. These are important when your economy is operating at close to $2,000 per capita income. But this has become a narrative. The lever really lies with the centre.

 

Q. India has tried to balance its large revenue expenditure while proceeding with debt consolidation to woo rating agencies. What do you think is the correct glide path for the government at this point for it to balance these two things?

A. Collectively, the fiscal room at the headline (Centre plus states) level is limited. It is really the composition of spending that matters. What is happening is that the Centre is still doing more capital and less revenue expenditure. States just don't have the space to do capex because they are doing unconditional cash transfers. Our ability to do fiscal expansion is limited.

 

The grouse against rating agencies is twofold. One is, we find ourselves in a band with our peers, who are much smaller economies with chronic problems of their own. And two, if you do not have a sovereign issue outside, what is the big risk that you run? It is about using inflation to inflate your way out of the problem. Given the fact that India does not have a sovereign bond out there, the big question is: will India inflate its way out of this problem? India is not doing that. India is also signalling that we have a fixed inflation-targeting regime.

 

Given these two things, perhaps it is a legitimate claim that we are given short shrift by the rating agencies. If I were a credit rating agency, I would say maybe India deserves a notch higher, certainly not more, but let's notch you up a little. Maybe not today, because we have a lot of structural problems. But once some of these problems, which are very visible, get addressed, and we have some India narrative in place again, which is going to signal that the growth momentum will be sustained at a particular potential output level or slightly higher, then this underlying logic remains.

 

Q. Has India gone a little overboard with its capex plans? Do you think capex is happening meaningfully or is it a policy measure that works best optically and gives room for fiscal management?

A. There has been a huge capex fetish. I do not necessarily think that capital-to-revenue expenditures are that robust a measure of the quality of spending as is needed. We need a more holistic approach towards looking at capital spending and look at very critical elements which are still being flagged as major constraints to the India story: education, health, and other public policy issues. The quality of revenue expenditure does not mean unconditional cash transfers all the time. You can allocate more to schools.

 

 

 

Q. India adopted a conservative debt-to-GDP consolidation path in FY27 despite having room at the time of Budget, given pay commission spending and election-led spending will nudge the government to loosen purse strings in later years – around FY29. Do you think it is an appropriate glide path to meet the 50?bt-to-GDP target by FY31? 

A. Maybe not. Given some of the short-term contingencies that have emerged and maybe this problem will continue, oil will remain at a slightly more elevated level. Maybe there will be some glitches here and there.

 

The glide path can be modified, tweaked a little bit, and you can justify it even to the credit rating agencies, who, incidentally, will not listen to anything that you say. But you can still make a case that there will be these contingencies, these exigencies, and you will have to give us some headroom to manoeuvre.

 

Q. The government is making a head-on effort this year to shore up miscellaneous capital receipts. Do you think we are evaluating PSUs appropriately, or is it a hasty move to fill up the centre's coffers?

A. The entire disinvestment plan right from the beginning has been mismanaged, to put it very bluntly. We have not sold some of our public assets at valuations that seemed compelling. Today, we are in a situation where it is imperative. We do not have too much of an option. The question of undervaluation or the correct valuation will remain when we sell some of our assets. But we just need to get some of it off our books and generate revenue.

 

Having said that, I don't think RBI dividends or PSU dividends should become the cornerstone of fiscal consolidation. It just becomes a little ridiculous. This is one of the reasons why a lot of foreign investors and institutions are uncomfortable with investing in India.

 

Your currency is dropping, you intervene, you, as the RBI, make money, and the government gets a fiscal kick out of it. We need to take these below the line and just give a more realistic view of consolidation. That said, it is about time we stopped thinking about valuations for PSU stake sales and asset monetisation. We have waited long enough for some of the assets; they just need to go. We cannot afford this shilly-shallying, and the inter-ministerial wrangles that delay the process.

 

Q. Speaking of revenues, the government has given benefits to both income tax and corporate tax. Recently you argued about a robot tax to tax companies which replace human capital with excessive innovation. Do you think there is a need to consider a wealth tax and a robot tax?

A. On the robot tax, the broader point is that technology-led innovation cannot mean a simple replacement for tasks that can be performed by humans. You are a labour surplus economy; you have to push back against mindless automation. Mindless automation in labour surplus economies of the Global South is a question that we need to handle head-on.

 

We have seen growing inequality, which is visible. We have seen a K-shaped recovery. Both from a static perspective and a dynamic perspective, we have seen inequality rise. And this is not just a problem with India; it's a problem across the world. Something like a wealth tax has to be brought in across the board to kind of address this inequality. It is becoming a huge challenge across the country, and that is impinging on growth.

 

The inequality is very peculiar. The really poor are protected by the free food scheme. But if you move just above that – into the lower middle income tier, which is actually very low as a threshold in India, the squeeze is really hard there. If you look at food-adjusted incomes for the really poor, they are protected. But the affordability hits are really coming in the lower middle class and slightly better than the really poor categories. We need to look at inequality in a much more granular way and look at different percentiles.

 

Inequality is certainly a problem at the low middle level, compared with the very rich. Something needs to be done about it. We cannot just keep saying that it will stifle innovation; it will stifle investment. Companies will stand to benefit from it. If you reduce inequality in mass markets, you will actually start to recover. Mass market recovery has been a problem for so long.

 

Q. The West Asia war yet again exposed India's vulnerabilities, especially its energy dependency. What structural changes do you think we need to make to avoid yet another crisis? 

A. I do not think we need to do anything very dramatic.

 

The ethanol shift is controversial. I would not like to pass judgment on whether it is actually good or bad. So much of it has to do with geopolitics. We need to participate in the construction activity that is happening to find alternatives to the Strait of Hormuz and the Bab-el-Mandeb. We also need to reconfigure our refining capacities so that we can refine more crude. We should also encourage electric vehicles and facilitate more charging points. We must also seriously rethink our diplomatic relationships with the West Asia, which is now becoming multipolar. The control of oil is becoming far more complex.  End

 

US$1 = INR 95.60

 

Edited by Akul Nishant Akhoury

 

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