There's an old adage that goes, "It takes one to know one". In the context of growing up, this would mean that only a grown-up (whatever that is) would recognise and treat another person like a grown-up.

And in this context, the RBI's apparent recent acceptance of higher volatility in the rupee does seem to signal that it recognises that Indian business has grown up or is growing up and doesn't need to be coddled and protected from the realities of life--i.e. the market.

Well-managed companies structure their businesses taking into account likely risks, and business processes are built to be able to manage those risks.

Market risk is measured by the average volatility of the rupee, and if that volatility jumps around dramatically--and an analysis of other markets shows that 20 per cent over the average is a dramatic jump--it is likely to throw the company's planning out of gear, making running a business that much more difficult.

Now, in life, it is clear that if you ever take a beating, the first person to blame is yourself. The second, of course, is the person (or entity) who delivered the beating -- here, you could blame the banks, your advisers, and, oh yes the market. But the market is ultimately a creature of God, and shaking your fist at the heavens is unlikely to provide much solace.

But, this is India, and let's see what blame, if any, can be laid at the doorstep of God's agent in this arena -- the Reserve Bank.

Let's go back again to August this year. The rupee was at 43.50 and the six-month forward was at just about 43.75. Volatility was low -- the rupee seldom moved more than 2 or 3 paise in a day -- and the market had been more or less in this state since the start of the year.

Further, sentiment was for continued rupee strength. A reasonable man, with an eye on his bottom line, could hardly be blamed for responding to the "attractive" offers from his banks that enabled him to improve on the measly forward rate of 43.75 or 43.80. The risk seemed minuscule - he would only stand to lose if the rupee fell below 44.50, which seemed extremely unlikely, given the state of the market.

Well, one of these is happening -- rupee volatility is rising today. Perhaps, the RBI is, indeed, growing up.

My concern, though, is that the RBI's thinking still appears to be liquidity-neutral. For instance, it's back in a liquidity-crunching inspection mode, asking banks to report on and reduce their derivative exposures.

Across the street, the RBI is proud of the "success" of the NDS in virtually eliminating debt market brokers, unconcerned about the negative fallout on market liquidity.