I tried putting this, more of some kind of musings, to some publications. For some reason, they were polite but held they may not want to publish this. None of them said it is infirm, that the arguments are not in order, etc. , etc. So, putting it here, where I am the writer, editor, publisher and all.

                With the Rupee touching a high of 72.03 for a dollar, there is panic in some sections. It may be that such fall in the value of our currency against the dollar is a cause for hurt in sentiments and the news of the fall may not lead to a buoyant mood among the people.

                Well. It is important that one places on record, and records are worth some effort, that a falling rupee need not cause panic all the time when it happens. There are situations, or conditions – the term Piero Sraffa (1898-1983), among the eminent economists of the last century would insist using here – where a falling value of a nation’s currency against the dollar could cause immense benefits to its economy and must be welcome.

                So, it is important to note that issues in economics such as the value of the rupee against the dollar are dealt with by economists and are held immune from sentiments and feelings of pride and prejudice arising out of it. Let me recall that we had, in 1966, a government ordained devaluation of the rupee against the dollar.

                On June 6 that year, then Prime Minisnter Indira Gandhi ordered devaluation of the Rupee by 57 per cent; from Rs. 4.6 to a dollar to Rs. 7.5 to a dollar. Drawing flak for her decision, Indira and her associates held out that it was a decision that the government before her headed by Lal Bahadur Sastri had committed to. There was truth in it. Sastri had asked his Finance Minister then, T.T.Krishnamachari, to quit the cabinet in December 1965 before embarking to Tashkent.

                The pressure on India to devalue came from the US regime than and the grains under PL 480 to feed the people in the famine affected regions then from the US were tied with this as conditions. TTK, as he was and is known then and now had his reservations and Sastri asked him to quit in the event. TTK did leave the cabinet and Indira did express worries over the move against TTK to her friend Dorothy Norman. But then Sastri passed away in Tashkent and Indira ended up in his chair and also carried out the decision to devalue – and a pretty much steep devaluation indeed – in June 1966.

                It was only after the decision was taken and the effects of it began trickling in that Indira as well as others in her circle realised its implications were adverse in the given condition. Sraffa, whose immense contribution to economics came with his intervention that models and theories ought to be tested in the specifics of the conditions that prevailed and no sense assuming all the right conditions, was not arrived in our academia as important as he should have been then.

                Well. I must add that Sraffa is not held with the importance he deserves in the curriculum in most universities where degrees in economics are commonplace. This remains a substantial deficiency as much as is the fact that macro-economics or economic history is either not taught as full papers or is given the short shrift by including some of it in short modules in our syllabus. That, indeed, is what makes our economist end up with building models and game theories while entrusted with tasks in departments to plan and postulate.

                Sraffa, if invoked in June 1966, may have helped the regime then to exercise caution; for the condition in 1966 was that we as a nation were not big exporters and hence such steep devaluation of the Rupee was going to deny us the advantage that it would have to us by way of a substantive increase in the Rupee earnings of our own industries that produced/manufactured for exports. In other words, devaluation of the nation’s currency against the dollar would facilitate higher earnings to the nation in Rupee terms and thus incentivize manufacture for export and cause an expansion of production/manufacture.

                This, indeed, is why I had stated at the outset that the Rupee falling against the dollar need not and shall not be seen through the prism of sentiment or pride as did such men like Chetan Bhagat or the likes of him in the past. Well. They all were deprived of reading such eminent thinkers like Sraffa and the blame should lie at the doors of those who taught them in prestigious institutions that the IITs and the IIMs are. I guess that Bhagat went to both these institutions (going by the fictions that he published and those that ended up bestsellers) and yet has had no clue to economics or many other disciplines of importance in the making of a complete man! No issues.

                Meanwhile, there were two such instances, both within days between each, in 1991. The then Government, however, brought it with some structural changes in the trade policy; from a highly restricted norm hitherto the trade policy regime was adjusted to allow tradable EXIM scrips allowing exporters to import 30 per cent of the value of their exports. The global system then was buoyant and a devalued Rupee was not a bad scheme where exports from India would grow and with the altered trade regime it helped growth in some sectors.

                There were sensible people who warned that the buoyancy was only a bubble and that bubbles, as is the norm, will burst one day or another. Such of those were condemned as nay-sayers then and there are some who continue to wish things do not go wrong this way. The devotees of global capitalism continued to hold that things are not bad and that India was on the spring board to bounce back. 

                The low that was witnessed in the value of the Rupee since then was a bad idea only from the sentimental point of thinking and not that bad insofar as economics was concerned. Sraffa, again, helped realise that we gained out of a condition where we as a nation found market for our goods in other countries. This, indeed, was the boom that we witnessed in the 1990s and was celebrated as a success story here, there and everywhere. However, conditions, that Sraffa would insist, changed across the world sometimes in 2006.

                The sub-prime crisis in the US and the slowdown since then in the ‘developed’ world was for all to see but many refused to see. The point is the Rupee falling is a a consequence of yet another ‘condition’ and it makes sense to call Sraffa (though he died in 1983, his works are available to us) to underscore the contingency that determine the success and the failure of every model in economics. In other words, it warrants suggestions from economists trained in the ‘macro’ aspect of the discipline to be sought rather than let models to prevail.

The plain and simple truth that economics and history teaches us is that there is no magic wand that could have put the rupee on the high vis a vis the dollar. The crisis that was looming post-the sub-prime crisis called for considered response and there was no way a messiah could do the wonder.