ABSTRACT
Exchange rate policy is intricately linked to trade policy, where the former may have implications for the latter. Therefore, the ramifications of exchange rate movement on merchandise trade must be understood in the context of top import and export commodities for India. This chapter presents evidence that helps identify whether sharp currency depreciation can have a sector specific impact which in turn allows policy makers to adopt a particular stance with respect to exchange rate management based on the impact it would yield on trade in specific commodities of interest. As will be shown herein, trade in labour intensive commodities is more sensitive to exchange rate movements than others.
