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EDITORIAL
Free
the Fall
The
RBI should stop acting the rupee's overprotective mama
In
May 1999, the forward market had estimated that the value of the dollar
exactly a year later would be Rs 45.74. We are in August 2000 and the
rupee hasn't breached the mark. Yet there is such a furore over the dollar
fetching Rs 45.30. This despite the fact that the rupee's slide is endorsed
by economic rationale. Interest rates in the US and other countries have
tightened.
 Every
currency in the world -- barring the yen -- has seen double digit depreciation
against the dollar, while the rupee has slid by less than 7 per cent.
But such has been the nervousness in the market over every decimal point
fall of the rupee that one would almost assume the rupee symbolises the
loc. And the nervousness is not just among the corporates or the market.
The RBI too has got into the act. On July 21, as the dollar touched Rs
45, the central bank unleashed a series of measures aimed at compelling
alleged speculators out of the market. It raised the rate at which it
lends money to banks and also increased the amount they have to keep in
reserve. Expectedly this didn't work. The word in the market is the RBI
now plans to adopt a fixed exchange-rate band. Worse, there is also speculation
about capital controls. This is a regressive step that has failed the
world over. The RBI must simply shun the temptation to adopt quick fixes.
It is imperative that it limit its intervention to curb volatility, not
play into the market's hands and let the rupee find its level. Even if
it is Rs 50 to the dollar. The fall would be short term but the gains
would be long term. It would force exporters to bring in hoarded moolah,
it would make Indian stocks very attractive, it would help Indian industry
by rendering imports expensive and exports competitive. Of course, this
would push interest rates northwards. That wouldn't be so bad either.
It might just force the Government to mind its erratic ways.
Triple
Whammy
It
may be time for another State Reorganisation Commission
Amid the usual theatrics this past week, the Lok Sabha voted to create
the states of Jharkhand, Uttaranchal and Chhattisgarh. Other than the
obvious implication of redrawing India's internal boundaries, this decision
recognises the parameter of ethnicity -- as opposed to merely language
-- as a determining factor in the forming of states. Nowhere is this better
illustrated than in south Bihar, where tribal Jharkhandis live amid 40
per cent of India's mineral resources but in abject poverty. Their condition
is a result of unremitting exploitation by a basketcase called north Bihar.
In Uttar Pradesh too the freeing of the hill districts will offset the
psychological damage of mass emigration and an economy subsisting on money
orders.
 Yet
when the euphoria of a wish fulfilled disappears, what will the new states
be left with? The cost of setting up a new capital, building a new secretariat,
installing a new civil-service cadre will be bad enough. Doubts about
viability will be worse. Take the case of Uttaranchal -- annual tax collection:
Rs 179 crore; annual development allocation: Rs 650 crore. The crux of
the problem is that state formation in India has been governed by knee-jerk
acceptance -- or rejection -- of emotional outbursts. In 1948, Justice
A.K. Dar was asked to head a commission on state reordering. His report
stressed administrative rather than linguistic criteria; it was promptly
rejected. In 1955 the State Reorganisation Commission (SRC) made language
the operative principal. India's polity has evolved since. Primordial
loyalties have given way, at least partly, to rational calculations of
development. This has to be married with regional aspirations from Vidharba
to Bodoland. The time is ripe for a second SRC.
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