New Delhi, June 8 -- The Indian economy appears to be entering a phase of heightened macroeconomic vulnerability marked by the simultaneous weakening of some key indicators. Currency depreciation, inflationary pressures, weak private investment and growing capital account stress point to a broader crisis of confidence.

Although recent geopolitical tensions and wars have accelerated the rupee's decline, this had begun much earlier. Weak net foreign direct investment (FDI), sustained foreign portfolio investment (FPI) outflows and tightening global financial conditions have been major factors. A weaker rupee raises import costs, worsens inflationary pressures and increases the burden of external liabilities.

The conventional argument that...