We provide an in-depth analysis of the exchange rate reform program undertaken by India in recent years. The actions of India's central bank, the Reserve Bank of India (RBI), during this key reform period are evaluated in this study as well. In addition, this paper, using a sector price differential model, analyzes the fundamental determinants of the Indian rupee-U.S. dollar exchange rates. Lately, Indian policymakers and Reserve Bank officials appear to have taken steps designed to increase the overall credibility of the exchange rate regime. Our analysis suggests that the reform policies have generally been quite effective. We also feel that the RBI should adopt further liberalization program, being mindful, however, of the potential for severe exchange rate volatility and monetary instability in the face of increasing capital mobility and international integration.