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ALLOW RUPEE
TO RISE By Anil Selarka (Kalidas)
India is a giant country that has seen the “Best to Worst days cycle” in last 2000 years. India
used to be the largest GDP growth grosser in first 12 centuries. Here is what Mr. Maddison
wrote:
Most people, including Indian them selves, try to analyze the country under telescope and
m icroscope but fail m iserably. They finally give up in despair with ITDC picking up their breath
with cam paign - Incredible India. Nothing hurts or glees the Indians except some false prides at
tim es, and India walks through the global econom ic forest like an elephant unm indful of
adm irers or foes. The Indians worship “Lord Ganesh” the Elephant God in full sym bolization of
the true nature of the giant country.
Rated as the poorest country only 60 years ago, the India has rediscovered itself in last 7 years.
Contrary to populist belief that foreigners robbed India of its true wealth, it is the Indians who
frittered away its glorious wealth to the foreigners. Indians are known to punish them selves -
they do fasting or eat one tim e for 3 out of 7 days in a week, roll them selves on roads to
worship the deities, lash them selves with cords, in m anifestation of religious belief to purify
their souls.
India’s Central Bank - Reserve Bank of India, Prim e Minister Manm ohan Singh, Finance Ministers
Pranab Mukherji and erstwhile P Chidambaram, have robbed India of its real wealth by
constantly devaluing its currency - Indian Rupee - for over 60 years. Ask yourself and after
getting an answer, ask these glorified leaders, why the hell the Indian Rupee should have been
devalued by 90% over last 63 years when its population rose three fold, industrial production
rose ten fold, agricultural production rose twenty tim es in green revolution, its hum an exports in
the form of educated im m igrants rose thirty tim es to western and gulf countries, its brainy
exports (software) rose almost 100 tim es and its GDP rose to the fastest rate over last few
years?
These leaders, som e renowned econom ists, were “classic book type” bureaucrats who applied
their intelligence when com m on sense was required. As result, Indian goods were sold out
abroad dam n cheap and m ade the im ports of essential com m odities expensive to alm ost entire
Indian society.
Look at the following table:
a. Before Asian crisis, the Rupee was at 36/$ level and Thai bahts at 25/$. After the Asian
crisis erupted, the Rupee sank to Rs 48/$ and Thai Baht fell to 56/$ level on 1Jan98.
However, as of today, the Thai Baht has im proved to THB 32/$ whereas Indian Rupee
has rem ained at sam e level of Rs 48/$. Now, ask yourself
(1) W hich is the better and stronger econom y - Thailand or India?
(2) W here is the maximum m oney flow - Thailand or India?
(3) W hich has the most vibrant stock m arket - Thailand or India?
(4) W hich country has higher GDP growth - Thailand or India?
(5) If that was so, why Thai Baht should appreciate by 42% and Indian Rupee
weaken by 2% ?
b. It is absolutely clear that these three musketeers - RBI, SEBI and MOF (Ministry of
Finance) have consistently worked against the broader interest of India and entire Indian
population by devaluing the rupee at all the tim e.
4. India’s Debt Level, Debt Servicing and Effect of Indian Rupee exchange rates:
a. The rupee should have been at Rs 26 to dollar level against Rs 48 to dollar now. That is,
appreciation by at least 50% in norm al course.
b. India’s debt at about US$ 120 Billions translate into Rs 576,000 crores @ Rs. 48/$. Had
Rupee seen the rise by 50% , sam e debt would have been at Rs 312,000 crores (@ Rs
26/$) or about Rs 254,000 crores less than what it is now. The interest borrowing cost of
the governm ent in that case could com e down saving alm ost Rs 25,000 crores annually.
c. India could have used part of its foreign exchange reserve to retire at least 50 Billions of
external debt in phased m anner.
d. To earn $ 50 billions from exports, need increase in Export Revenues by $ 500 billions
(presum ing 10% profit m argin and presum ing that not a single dollar goes bad which is
im possible). $ 500 Billions rise in exports? It is 50% of India’s $1 trillion econom y! Does
India have any m ajor industry that could turn in superlative export turnover of $ 500
Billions? Even if it has, who is going to buy in international m arket which is in severe
recession?
e. By letting the Rupee to rise, the national debt level could be reduced significantly that
would raise the rating of the governm ent of India, and also the entire corporate sector.
f. The stock m arkets could also rise by 35% at least, which can be used by the Governm ent
to sell its stake in m any of governm ent owned com panies to realize the cash from the
m arket instead of levying taxes on its citizens. In fact, governm ent could afford to
reduce the taxes of individuals and corporate sector sim ultaneously. That would propel
the m arkets even higher.
g. Lower interest rates, higher rupee, lower im port costs of m ajor inputs such as oil and
coal, lower com m odity prices in rupee term s due to higher rupee reducing the inflation
and higher rupee savings in the hands of individuals and corporate would raise the GDP
to unbelievable double digit level surpassing even China, and also m aking huge am ount
available for key infra structure projects. It will be a “W in-Win” situation for all in India -
Individuals, Corporate and Governm ent itself.
envisages.
iii. India’s refineries will welcom e the lower rupee. Its purchase cost would be
trim m ed with the result its working capital requirem ent will go lower. The
m argins will widen that would generate positive cash flow for further investm ent.
iv. Nation’s oil explorers like ONGC, GAIL, PETRONET, RIL/Essar can m ake m ore
strategic acquisitions overseas with stronger rupee. Their cost of acquisition
would com e down by alm ost 50% resulting into higher inflow of feed stocks at
cheaper prices. Such benefits could also usher in the era of falling oil prices for
next 10 years in India to the glee of Indian consum ers, Dom estic Airlines and
Auto m anufacturers who would see higher dem and for their vehicles.
v. Indian debt level m ay reduce in rupee term s. Its external debt servicing cost m ay
com e down by 30% at least.
vi. The budget will turn to black with this m aster stroke of changing the
Rupee policy. The governm ent can now think of reducing taxes, rather
than increasing them , getting it desired votes from all consum ers.
vii. There would be no need to pursue the policy of appeasem ent to Scheduled Tribes,
Scheduled Casts and Backward Tribes by following reservation policy any longer.
If they do not vote, other higher ups will vote. Further, the governm ent will have
m ore disposable funds to help those backward com m unities with real fund based
help, rather than displeasing the vast urban com m unity with unfair reservation
policy. The m erits will begin to take hold of every corner of Indian society.
viii. Governm ent of India will becom e one of the richest governm ent in the world.
(1) It holds and controls m ore than 200 state owned enterprises m any of them
are listed entities. No governm ent in the world, including USA, own that
m any listed enterprises.
(a) It was Jawaharlal Nehru who started the industrial revolution by
setting up m assive State Owned enterprises, such as SAIL, Oil
India, ONGC, MMTC, IOC, BPCL, HPCL, HMT, SBI, BHEL etc.
(b) It was again Jawaharlal Nehru who set up the four units of IIT
(Indian Institute of Technology) that created the hotbed for
m assive IT Sector we see in action today. It is significant to note
that while Nehru created 4 IIT without palpable resource, India’s
subsequent governm ents could create only one m ore unit in last 60
years even with hundreds of thousands of crores.
(c) That is why we call Jawaharlal Nehru as “visionary”. He was the
single m ost person credited with providing m ost affordable school
and higher education. The modest guys like Narayanm oorthy of
Infosys would not have existed without cheap education in his tim e
that was the greatest gift of Nehru.
(d) It was Indira Gandhi, daughter of Nehru, who converted petty sm all
private banks into massive 16 nationalized banks as we see them
today. Count the market cap of all nationalized banks and that of
SBI; you will know what she had created.
(e) Nehru’s vision and book “Discovery of India” should be re-
christened “Rediscovery of India”.
(f) Even Gandhi will sm ile broader than his ghost looking sm ile seen
on Indian Rupee. His dream of uplifting of poor m asses could be
truly realized after 60 years if the currency note on which he is
sitting is allowed to appreciate.
(2) The doubling of stock m arket from present level, influenced by lower
interest rates, higher GDP growth and lower taxes, would alm ost treble the
m arket cap of its controlled enterprises.
(3) It can now afford to dilute its stake and privatize them at m uch higher
prices than now. The budget surplus will simply grow beyond wildest
im agination helping governm ent to reduce the incom e Tax below 16%.
Surcharge on incom e tax or service tax will no longer be necessary.
ix. Roads, Railroads, Ports, Water dam s, Power plants will now be built at m uch
lower cost than ever before. The real prosperity will travel from the coastal areas
to hinterland the way the Chinese econom y has prospered from outside to inside
core.
x. India can then afford to have free float of Indian Rupee to m ake it as m ost
indispensable currency in the world. It could be used as “world’s safest currency”
due to enough backing of gold in India. It is the English speaking country after all
with open dem ocracy. All benefits of open dem ocracy will now be felt with m ore
consciousness than ever before. RBI will have m ore role in m anaging m onetary
policy than inventing econom ic policy which is the core function of the
governm ent or law m akers.
Let India put at rest its disastrous policy on Indian Rupee for good. Let new sym bol start its
journey with the position of strength. Sorry, RBI - this article m ay not be to your taste, but
then, som eone has to bell the cat. Kalidas is honored to do that job.
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