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India has recently gone through the crisis of sharp depreciation of rupee and depletion of foreign exchange reserve resulting into inflation, demand recession and slow down of economic activities. The paper examines issues related to management of both domestic and external sectors of Indian Economy in a Globalized world. The paper first examines the operation of open economy- the interconnectivity developed through exports and imports and capital flows. Then, an analysis is carried out on long period movements of the exchange rate in the regime of full Current Account and Partial Capital Account convertibility of rupee.
The statistical analysis on the association of exchange rate movements with various components of capital inflows and Current Account deficit has been done. The last section analyses, the crisis period until Sept. 2013, measures to manage the crisis and turnaround of the external environment of Indian economy in the framework developed in the paper.