The Reserve Bank of India recently gave a small but revealing lesson in economic policymaking. On August 5, Governor Sanjay Malhotra was asked whether the special FCNR(B) scheme, designed to attract foreign currency deposits from non-resident Indians, might be closed before its scheduled September 30 deadline. He said there was no proposal to do so. Nine days later, the RBI abruptly advanced the closing date to August 31.

There may have been perfectly good economic reasons. The scheme had worked almost too well. Dollar inflows were strong, while the subsidy cost of providing assured protection against depreciation was mounting. There was the mounting headache of liquidity management and future foreign-exchange liabilities. The issue is not whether the RBI was entitled to change course; it is why a categorical assurance was given when the possibility of an early exit was already being discussed.

When Policy Changes Course

Economic policy is full of such U-turns. Some are evidence of agility and learning. Others reflect poor preparation, political pressure or simple unpredictability. How do we tell the difference?

Donald Trump’s tariff policy offers the most glaring example of the latter. Since the “Liberation Day” tariff announcements of April 2025, duties have been imposed, paused, modified, negotiated down, threatened again, and sometimes re-imposed. Firms managing their supply chains have to brace for a tariff now and also pay for uncertainty about what the tariff will be six months later. Policy volatility itself becomes a tax on investment.

India has its own examples of U-turns. The three farm reform laws were enacted with much conviction and then repealed after prolonged political agitation. The ethanol blending programme, pushed rapidly towards E20, is confronting concerns about vehicles, feedstock, water use, and consumer choice and may yet require........

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