Money Never Sleeps!

Money Never Sleeps!


The present clamour from small garment exporters and the like who hope to pressurise the RBI to continue softening the resurgent Rupee is unjustified. They can, as their bigger brothers have always done, go in for a spot of forward buying of the Dollar, Yen, Euro or Pound, and thereby hedge nicely against currency fluctuation. If the clamorous ones find, despite this, that they are priced out of the export market, they can always turn their attention inwards, towards domestic retail, or work out value addition strategies with their foreign buyers.

Many other exporters who first import items, value-add to them and then export, most notably in the diamond trade, acknowledge that a strong rupee reduces their import costs. And that cheaper imports help them make more money than they lose from stiffer exchange rates. Besides, in the larger picture, a country like ours, at this juncture, is not as dependent on exports as China or the other Asian “Tiger” economies. Instead, we are busy modernising everything; we also buy oceans of petroleum; acquire companies abroad and are upgrading infrastructure with rampant imports. A strong rupee puts much more change into our pockets than a weak one as we set about doing all this.

Artificially pegging the Yuan to a competitive exchange rate with reference to the US dollar certainly helped China’s export juggernaut, driving her economy to over 10 per cent growth. She put her nearly one trillion in foreign exchange reserves to work, because export was the thin edge of the wedge she used to find her place in the sun. While much smaller in absolute economic terms, India too is poised on the brink of double digit growth, provided we can coax our agriculture to double its rate of growth from two to four per cent and simply hold the candle steady on the rest of the economy at present levels. And even if we wanted to manipulate the currency, in imitation of China, it is doubtful if RBI could sustain an assault for any prolonged period with only a couple of hundred billion dollars in reserves. And it would become even more difficult as the Indian economy grows.

So, when India decides to finally abandon the idea of an “administered” currency, and assuming that the interaction of global influences continues to go in our favour; we can look forward to a reduced import bill, greater FII and FDI, reduced inflation and a higher GDP as just desserts. And all this, inclusive of exports based on calculations befitting tomorrow’s world rather than yesterday’s. A strong currency is a necessity, seen both as a symbol and symptom of national vitality even in an interdependent world. A strong rupee, many percentage points stronger than it is today, will only engender support and investment interest worldwide.

And a strong rupee will also give us the confidence to go fully convertible on the capital account in the not too distant future. The very strength will axiomatically see to it that there’s no running off with the money. Instead, a strong rupee will result in a gush of inward flows. But even in the midst of this vision of future perfection, it is nostalgia, for a tightly “administered” economic reality that many people long for. The truth may well lie in the opposite direction, but many are having a hard time getting used to it, from the power-slipping-through–my fingers politician to the itinerant landless labourer with no fixed address.

But pursuit of the obsolete, if history is one’s guide, leads to total loss – of empire, of riches, and much too often, of one’s head too! It happened to Princely India after the British left them in the lurch. There they were, muttering to themselves in disbelief, fingering the curlicues on their suddenly useless individual treaties promising “eternal protection”.

The need of the day therefore is to develop an enhanced appreciation for our relatively new found “economic freedom”. We need an urge to learn how to play with its bells and whistles at the earliest. There is no going back. The recent installation of Nicolas Sarkozy as France’s President denotes that one more bastion of socialism in the “free world” has fallen. This too is symptomatic of the times.

We will, after all, need a lot of money for all those state-of-the-art nuclear power stations from Sarkozy and also for all those planes, guns, tanks and ships for defence, and those bio-engineered inputs we need to modernise agriculture, for industry, roads, ports, airports and so on. The scale of our appetite for the best the world has to offer in a plethora of fields is indeed gargantuan – some of the biggest economic opportunities for world business, recognised by all, including China, in fact.

The chances of our exports alone growing sufficiently to take care of this kind of import bill is very remote. So it is domestic demand that is the cause and domestic consumption that will become the effect. India will suck in large draughts of the world’s investible funds and relentlessly strengthen the rupee all the while. But as it stands, even a fifty per cent appreciation from present levels can do nothing to harm us given our agenda and the length of time it will take us to execute it.

Currency, this medium of barter between people and nations, is indeed a strange thing. It fattens on anticipation of productivity and expenditure, as it has begun to do in India’s case, and loses weight over stagnation and inefficiency, particularly in a relative sense. In this process of give and take, it is possible that one day the Rupee may become too strong for its own good but that day seems somewhat distant given the amount of catching up we have to do. Meanwhile, we can take comfort from a celebrated quip from Gordon Gekko, that rapier sharp fictional cult hero from Oliver Stone’s 1987 rendition of “Wall Street”. Gekko is about to come back for a Fox Studios sequel. Michael Douglas, now 62, will play Gekko again. The name? It’s unchanged, and straight out of the Gekko Gospel of twenty years ago. It’s “Money Never Sleeps”. Not even the Rupee.

( 1,042 words)

By Gautam Mukherjee
Monday, 14th May 2007