Former Chief Economic Adviser (CEA) Arvind Subramanian has termed India’s current currency dilemma as an almost impossible challenge for new Reserve Bank of India (RBI) Governor Sanjay Malhotra.

In a detailed post on X, Subramanian outlined eight key points on why the rupee’s fall is inevitable and the tough decisions facing the central bank.

Subramanian described Malhotra as a “victim” of an unsustainable political framework and pegged exchange rate inherited from his predecessor, Shaktikanta Das.

During Das’ tenure, the rupee’s volatility was among the lowest in emerging markets, supported by more than $700 billion in foreign exchange reserves. However, Subramanian argued, this policy had reached a breaking point.

“RBI’s own calculations suggest a huge overvaluation,” he noted, adding that the rupee “has to fall much further, especially if the US imposes tariffs.”

According to Subramanian, the RBI has only two options: allow a gradual depreciation of the rupee or accept a sudden and significant fall. Neither option is painless. A slow decline, he warned, risks intensifying speculative pressures, while a modest decline could disrupt businesses and the wider economy.

The rupee recently hit a record low of 86.7025 against the dollar, boosted by foreign outflows totaling $2.7 billion this year, rising oil prices and a stronger dollar. Malhotra, who took over in December, is said in a Bloomberg report to be leaning toward allowing greater flexibility in the currency’s daily fluctuations to address those concerns, breaking with his predecessor’s rigid controls.

However, Subramanian warned of inevitable turbulence. “This will unfold in real time amid the clamor and pain,” he stated.

While exporters have long called for a weaker rupee to improve competitiveness, the RBI remains cautious. India imports 90% of its crude oil, and a weaker rupee directly affects the import bill. Subramanian stressed that navigating these competing pressures would be a formidable challenge for the RBI.