AN EMPIRICAL ESTIMATION OF EXCHANGE RATE DETERMINATION IN INDIA : SINCE 1980- 2011

The Historical perspective of foreign exchange Rate determination in India concludes that the Par value system of Exchange Rate was fixed at 4.15 grains in terms of gold with the pound sterling as the intervention- currency under the time period 1947-1971 in India. In 1998 foreign exchange management ACT (FEMA) was enacted which takes into account improved economic liberalization and improved foreign exchange Reserve position during the period (1980-2011). Indian exchange Rate policy has seen a "gradual shift" from a par value system to basket-peg exchange rate system; and further to a managed floating exchange rate system in India.The study reveals that a stable exchange Rate may be maintained in the market. For this situation Necessary for the macro economic stability of the economy. The experience in foreign exchange management in the post reforms years the policy of maintain the flexibility of the exchange Rate in avoidance with market forces of Demand and Supply without undue volatility as adopted by the RBI, has stood the test of time in case of India.Exchange Rate Management policy of the RBI supported with sterilization Intervention in the face of Heavy capital inflows in the recent year also considerably served to the bias in current account besides limiting undue volatility in the exchange Rate.For ensuring Economic Stability, we have to remove the temporary shocks, increase capital mobility and control the Inflation in the economy. The exchange Rate Policy should also facilitate the convertibility of Rupee in the Market. Any economic enterprise or person should be able to convert their holdings of Rupee into any foreign currenciesThe result arrived with the help of annual data present a clear picture of Exchange Rate determination in India under the period of the study. This implies that PPP theory in India in the long run. . ——————————  ——————————