Abstract
Global factors like tightening of global financial conditions, soaring crude oil prices and the Ukraine-Russia war have resulted in a considerable depreciation of Indian rupee against the US dollar since the beginning of this year. Government has adopted a few temporary measures to contain the free fall in the value of Indian rupee. However, these measures may not be very effective and tangible in stabilizing the rupee. It is here that India can learn a few important lessons from China. The Chinese Yuan has always been stronger than the Indian rupee with respect to USD. Whereas China has built up its foreign exchange reserves through current account surplus, a relatively large part of India’s foreign exchange reserves comprises volatile foreign portfolio investments. China has obtained this trade surplus mainly through a spectacular export performance on one hand and the development of the domestic capabilities to manufacture the import substitutes on the other. This in turn, has been achieved through developing a strong trade infrastructure (especially the ports), cutting down the rates of tariffs, gaining from the increasing fragmentation of production across countries and managing its inflation effectively.
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