Prashant : What is happening is that India's terms of trade with respect to the US is improving i.e. we get more goods/services/assets from the US than we give them. The US dollar is not necessarily weakening. There is plenty of capital inflow into the US, the interest rates in the US is pretty low and inflation is very low and US productivity is moderately increasing. What is happening is the the RBI is undervalueing the rupee by paying more than the market rate. It used to undervalue even more at Re45=$1. But it is now undervalueing it less at Re40=$1. I would arge that they should just let it float. The fact that the Re is strengthening is in effect a vote of confidence from the rest of the world to India that they think that the INdian economy will grow and that the Indian govt. will control inflation of the Re. It is a good development in general!
