There is an important policy conundrum here.

The rupee touched its highest level against the US dollar in 17 months on Wednesday. The Indian currency has rallied against the greenback since the beginning of this year. So have many other emerging market currencies despite the increases in interest rates by the US Federal Reserve. India has also in recent months seen strong capital inflows that have been in excess of what it required to fund a modest current account deficit. These capital inflows have pushed up the value of the domestic currency.
There is an important policy conundrum here. The Reserve Bank of India (RBI) has not tried to prevent the recent rise of the rupee even though it now seems overvalued in real terms. The real effective exchange rate against a basket of 36 other currencies was 118.38 in February-one of the highest levels in many years. Even though Indian exports have recovered in the past few months, it is sobering to remember that currency overvaluation has most often led to higher current account imbalances in the medium term. What happened between 2010 and 2013 is the most recent example.