The Reserve Bank of India recently delivered a small but revealing lesson in economic policymaking. On 5 August, RBI 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 30 September deadline. He said there was no proposal to do so. Nine days later, the RBI abruptly advanced the closing date to 31 August.

There may have been perfectly valid 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 growing headache of liquidity management and future forex liabilities. The issue is not whether the RBI is entitled to change course but why give a categorical assurance to the contrary when the possibility of an early exit is already being discussed.

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

Donald Trump’s tariff policy is the most glaring example of the latter. Since the ‘Liberation Day’ tariff announcements of April 2025, duties have been imposed, paused, modified, lowered, threatened again and sometimes re-imposed. Firms managing supply chains have to brace for a tariff now and for uncertainty over the tariff regime six months down the line. Policy volatility itself becomes a tax on investment.

India has its own examples of U-turns. The three farm reform laws, for example — enacted with an iron hand and then repealed after a determined pushback from farmers. The ethanol blending programme — rushed towards E20 as the default option and then backtracking in the face of mounting evidence of its effect on vehicles and other........

© National Herald