India, May 19 -- The rupee is once again under siege. The trigger this time is the Iran conflict which has sharply escalated global crude prices. Brent crude, which was trading at $72 a barrel when the strikes began, has surged to nearly $110 this week, sharply inflating India's import bill and putting enormous pressure on the external account. The rupee, meanwhile, has weakened from Rs.91 to Rs.96 to the dollar - a depreciation of over 5% in barely eight weeks.

Yet, to see this as merely a crisis caused by oil would be to miss the deeper story. The rupee has, in fact, been under pressure for the past several years because of persistent capital outflows driven by both push and pull factors.

The push factors are domestic. Strong inflows ...