|I|

WHEN THE RUPEE STRUCK 60, the lines tethering Mint Road to North Block drew taut. Relations between the Reserve Bank of India (RBI), in Mumbai, and the Ministry of Finance have rarely been without friction, but as the currency fell past a dramatic threshold against the dollar at the end of June, they were frantic and heated. The government in Delhi, already under siege from all sides, faced a new barrage of public criticism as the plummeting rupee touched new lows almost every day.

Six weeks earlier, the US Federal Reserve chairman Ben Bernanke announced that his bank’s third round of quantitative easing, an unorthodox tactic to stimulate the American economy, would soon wind down. Investors who had poured into emerging market nations for juicier yields now started to flee en masse. The retreat stung currencies from Turkey to Brazil, but India was particularly exposed, with a current-account deficit fresh off a record high and increasingly dependent on short-term foreign investment.