ALLOW RUPEETO RISE

By Anil Selarka (Kalidas)

Indian Rupees's new symbol

80% of India's economic problems will be automaticallyresolved if Government of India and Reserve Bank of India abandone their 60 years old policy of deliberatelyweakening the Rupee and allow it to rise in its natural course.

In fact, Indian Rupee with solid backing of gold from the Indian population has potential to becomeWorld's leading "Reserve Currency" as alternatechoice to US Dollar and gold backed Swiss Francs

Indian Rupee is already used by 1 Billion

people- about 15% of world's population -

Article Ref: 10-006 of 1 August, 2010

India is a giant country that has seen the “Best to Worst days cycle” in last 2000 years. Indiaused to be the largest GDP growth grosser in first 12 centuries. Here is what Mr. Maddisonwrote:According to economic historian Angus Maddison in his book

The WorldEconomy: A Millennial Perspective,

India had the world's largest economyfrom the first to eleventh century, and in the eighteenth century, with a (32.9%)share of world GDP in the first century to (28.9%) in 1000 AD, and in 1700 ADwith (24.4%).[8]Most people, including Indian themselves, try to analyze the country under telescope andmicroscope but fail miserably. They finally give up in despair with ITDC picking up their breathwith campaign - Incredible India. Nothing hurts or glees the Indians except some false prides attimes, and India walks through the global economic forest like an elephant unmindful of admirers or foes. The Indians worship “Lord Ganesh” the Elephant God in full symbolization 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 whofrittered away its glorious wealth to the foreigners. Indians are known to punish themselves -they do fasting or eat one time for 3 out of 7 days in a week, roll themselves on roads toworship the deities, lash themselves with cords, in manifestation of religious belief to purifytheir souls.India’s Central Bank - Reserve Bank of India, Prime Minister Manmohan Singh, Finance MinistersPranab Mukherji and erstwhile P Chidambaram, have robbed India of its real wealth byconstantly devaluing its currency - Indian Rupee - for over 60 years. Ask yourself and aftergetting an answer, ask these glorified leaders, why the hell the Indian Rupee should have beendevalued by 90% over last 63 years when its population rose three fold, industrial productionrose ten fold, agricultural production rose twenty times in green revolution, its human exports inthe form of educated immigrants rose thirty times to western and gulf countries, its brainyexports (software) rose almost 100 times and its GDP rose to the fastest rate over last fewyears?These leaders, some renowned economists, were “classic book type” bureaucrats who appliedtheir intelligence when common sense was required. As result, Indian goods were sold outabroad damn cheap and made the imports of essential commodities expensive to almost entireIndian society.

Look at the following table:

The table illustrates thefigures since 1973.

In 1950, the exchange ratewas Rs. 4.7619 against Rs47.61 today - 90%devaluation

In other words, the Indiancommodities were sold outalmost free of cost.

Vital commodities like Oiland coal were priced almost100% higher raising petrol,diesel, fertilizer,transportation, electricity,cooking gas, kerosene andATF for airlines.

How India imports inflation by devaluing Indian Rupee?

1.Most of the commodity prices are denominated in US Dollar. After years of paper tradingthrough derivatives to lower the commodity prices, the financial crisis brought them to halt,and in fact they have started surging. The continued devaluation or proactive suppression of appreciation of rupee by RBI intervention, what they call “sterilization operation”, the highercommodity prices in the international market translate into higher prices in Indian rupee.This forces the local producers of those commodities to raise the prices, resulting into higherthan expected inflation.a.

EXAMPLE 1

: if steel or metal prices rise in international market in USD terms, the effectis felt more in rupee terms due to weaker rupee. As result, the local producers raise theprices. The real estate prices also rise due to higher input of these commodities such assteel, cement, copper and aluminum.b.

SEBI’s Role in flaring up inflation

: SEBI introduced the futures and options incommodities at most inopportune time. Most of the commodity contracts are “nondelivery based” and “cash settled” in rupee terms (what they call “badla”). For instance,a contract of commodity A (say, steel, sugar, corn or soyabean) is cash settled withoutany delivery. A speculator is encouraged to “paper trade’ and bid up the prices on theMCX with the hope to settling the trade on “difference” basis on settlement date. Due tohigher paper prices of such commodities, the physical market too gets fillip to get higherresulting in higher inflation. These commodities are of daily necessities and form largepart of inflation index.c.

RBI’s role in propping up inflation

: RBI too promotes inflation by deliberatelydevaluing the rupee or restraining its natural rise.i.When the foreign funds bring in the dollars and try to buy in advance Rupee fromthe free market, the RBI restrains them and give them better “off market rates” to avoid their buying rupee from local markets. As result, the Rupee that shouldhave gone higher due to foreign funds inflow, turns lower or remains stable at themost.ii.RBI’s so called “sterilization measure” interfering in free market mechanismrestrains the Rupee appreciation that causes inflation by letting dollardenominated commodity prices quoted higher in rupee terms. It encouragesspeculators to engage into non deliverable commodity contracts with passiveparticipation of SEBI, that causes the local markets to boost those commodityprices, resulting in double digit inflation.2.

Oil Prices - major inflationary factor encouraged by RBI:

Large part of the India’simport is due to higher oil prices. When the oil prices rose by 100% in $ terms, and Euroalso rose by 90% (from 0.84 to 1.60 sometime back), the effective rise in oil prices in localcurrency (euro) in euro zone was significantly subdued resulting in low inflation and also lowinterest rates.a.However in India, due to RBI’s reckless policy of intervention in the name of sterilization,caused Rupee to fall from Rs 39 (during BJP time) to Rs 48 at present (devalued by RBIunder Congress government by 23%). The rise in oil prices were inflated more by 23% inrupee terms, necessitating in higher Petroleum subsidy running into Rs 200,000 crores inlast 4 years.