India’s exchange rate policy is said to have imposed some costs. Last fiscal (2009/10), the rupee appreciated by 13 per cent in nominal terms but by as much as 19 per cent in real terms because of the inflation differential between us and our trading partners.
This has implications for our external competitiveness at a time when world trade is recovering and concerns about protectionism are resurfacing. Also, if we have a flexible exchange rate, and if other countries which are our trading partners or competitors for the same export markets have a fixed exchange rate, we get disadvantaged. 20.