Content

1. Letting the rupee slide isn’t the answer 
2. High-quality education needs trust between State and institutions

Letting the rupee slide isn’t the answer 

Why in News?

• Recent editorial in The Indian Express argues against RBI’s policy of allowing rupee depreciation as a tool to manage external shocks.
• Context:
  • Persistent rupee volatility amid global monetary tightening.
  • Debate on RBI’s exchange rate management strategy, FX reserves usage, and inflation-growth trade-offs.
• Relevance amplified by:
  • Rising imported inflation risks.
  • Declining global capital flows to emerging markets.
  • RBI’s balancing act between exchange rate flexibility and stability.

Relevance

GS III – Indian Economy

• Exchange rate management
• Inflation control
• External sector stability
• Capital flows & FX reserves

GS II – Governance

• Role of RBI as an independent regulator
• Credibility of monetary policy institutions

Practice Question

• Letting the rupee depreciate is often presented as a natural adjustment mechanism for external shocks. Critically examine why excessive reliance on currency depreciation can undermine macroeconomic stability in India.(250 Words)

Core Argument of the Editorial

• Letting the rupee depreciate is not a sustainable macroeconomic solution.
• Excessive reliance on depreciation creates long-term structural and credibility risks.

Key Issues Highlighted

Limits of Rupee Depreciation as a Policy Tool

• Depreciation may:
  • Temporarily support exports.
  • Reduce pressure on FX reserves.
• But:
  • India’s exports are import-intensive → weak competitiveness gains.
  • Trade balance response is limited and delayed (J-curve effect).

Imported Inflation Risk

• Rupee depreciation:
  • Raises cost of oil, fertilisers, electronics, defence imports.
  • Directly fuels cost-push inflation.
• Inflation transmission:
  • Undermines monetary policy credibility.
  • Forces tighter domestic financial conditions.

Corporate Balance Sheet Stress

• Many Indian firms have:
  • Unhedged foreign currency exposure.
• Sharp rupee fall:
  • Inflates external debt servicing.
  • Weakens balance sheets → investment slowdown.

FX Reserves Are Not Just a Stockpile

• Reserves serve:
  • Confidence anchor for investors.
  • Buffer against sudden stops.
• Excess volatility:
  • Increases precautionary reserve demand.
  • Ironically raises pressure on FX reserves instead of reducing it.

The “Equilibrium Exchange Rate” Fallacy

• RBI’s implicit assumption:
  • Market will find a “fair value” if intervention is limited.
• Editorial’s critique:
  • Equilibrium exchange rate is unobservable and unstable.
  • Global savings-investment dynamics are shifting unpredictably.
• Risk:
  • Overshooting and self-fulfilling depreciation cycles.

Volatility vs Flexibility Trade-off

• Limited two-way volatility:
  • Encourages hedging.
  • Disciplines speculative positions.
• Excess volatility:
  • Discourages trade and investment.
  • Raises transaction costs.
  • Hurts small and medium enterprises disproportionately.

Capital Flow Dynamics

• In EMs like India:
  • Capital flows are pro-cyclical.
• Currency overshooting:
  • Triggers outflows instead of correcting imbalances.
  • Creates feedback loops between currency and capital markets.

What Should RBI Do Instead?

1. Managed Flexibility

• Allow gradual adjustments, not sharp slides.
• Prevent disorderly movements via calibrated intervention.

2. FX Reserve Utilisation

• Use reserves to:
  • Smooth volatility.
  • Anchor expectations.
• Not to defend a fixed level, but to avoid destabilising overshoot.

3. Encourage Hedging, Not Speculation

• Stable currency environment:
  • Promotes long-term hedging.
  • Discourages short-term carry trades.

4. Policy Credibility over Tactical Gains

• Prioritise:
  • Inflation control.
  • Financial stability.
  • Predictability in macro framework.

High-quality education needs trust between State and institutions

Why in News?

• Recent editorial in The Indian Express discusses structural reforms in Indian higher education in the context of:
  • NEP 2020 implementation
  • Proposed Bharat Shiksha Adhisthan Bill, 2025
  • Expansion of Viksit Bharat @2047 vision
• Highlights tensions between:
  • State regulation vs institutional autonomy
  • Scale vs quality in higher education.

Relevance

GS II – Governance

• Role of the State in education
• Regulatory reforms
• Cooperative institutional governance

GS III – Human Capital & Growth

• Education–productivity linkage
• Innovation ecosystem
• Skill and knowledge economy

Practice Question

• Critically examine why trust between the State and higher education institutions is essential for achieving quality and global competitiveness in Indian education.(250 Words)

Central Thesis

• High-quality higher education cannot be achieved through control-heavy regulation alone.
• It requires:
  • Trust-based governance
  • Academic autonomy
  • Outcome-oriented accountability, not micromanagement.

Key Arguments Explained

NEP 2020 as a Structural Shift

• NEP marks a transition from:
  • Rigid degree structures → flexible, multidisciplinary pathways
  • Rote evaluation → holistic, competency-based assessment
• Introduction of:
  • Multiple entry–exit options
  • Academic Bank of Credits
• Success depends on institutional freedom, not uniform templates.

Role of the State: Enabler, Not Controller

• International evidence (esp. US, Europe):
  • Strong state funding + low academic interference → global excellence.
• Indian challenge:
  • Tendency towards procedural compliance, approvals, inspections.
• Editorial argues:
  • State should set outcomes and benchmarks, not dictate processes.

Regulatory Overlap and Fragmentation

• Existing system:
  • Multiple regulators (UGC, AICTE, councils)
  • Overlapping mandates → delays, uncertainty.
• Bharat Shiksha Adhisthan Bill, 2025:
  • Proposes unified regulation covering:
    • Institutions
    • Standards
    • Accreditation
• Welcomed as reform, but:
  • Risk of centralised overreach if trust deficit persists.

Differentiated Institutional Roles

• Not all HEIs should be treated alike.
• Editorial stresses:
  • Research universities
  • Teaching-focused institutions
  • Liberal arts colleges
  • Vocational & skill institutions
• Uniform regulation:
  • Suppresses diversity
  • Penalises innovation.

Innovation Requires Academic Freedom

• World-class research thrives on:
  • Freedom to design curricula
  • Interdisciplinary experimentation
  • Risk-taking
• Excess approvals and reporting:
  • Reduce faculty creativity
  • Discourage global collaboration.

Global Competitiveness Gap

• India’s strengths:
  • Large youth population
  • Rising GER
• Gaps:
  • Few Indian universities in top global rankings
  • Weak international faculty & student mobility
• Root cause:
  • Limited autonomy + procedural regulation.

Science Education: Excellence with Gaps

• While elite science institutions excel:
  • Undergraduate exposure
  • Laboratory access
  • Experiential learning remain uneven.
• Emphasis needed on:
  • Hands-on learning
  • Research-based pedagogy
  • Institutional capacity building.

Trust as the Missing Institutional Capital

• Trust deficit manifests as:
  • Excess audits
  • Over-regulation
  • Suspicion-driven oversight
• High-performing systems operate on:
  • Trust + accountability
  • Outcome audits, not input control.

Way Forward Suggested

Outcome-Based Regulation

• Shift from:
  • Permission-based → performance-based oversight
• Focus on:
  • Graduate outcomes
  • Research output
  • Global engagement.

Graded Autonomy

• Expand autonomy to:
  • Proven institutions
  • With transparent disclosures.

State as Capacity Builder

• Invest in:
  • Faculty development
  • Research infrastructure
  • Digital & blended learning ecosystems.

Trust + Transparency Framework

• Replace micromanagement with:
  • Public disclosure
  • Independent accreditation
  • Social accountability.