- Indian rupee plunges to historic low of below 64.52 against US dollar, RBI helplessForeign institutional investors turn net sellers of Indian shares for AugustICICI Bank raises fixed deposits rates by up to 0.75 pct, mum on home loan interest ratesRBI saved banks from logging Rs 30,000 cr mark-to-market loss: ICRA
Some 25 years ago, I had the privilege of being part of a group of persons who had a candid conversation with the late LK Jha, former RBI Governor. Some of us were complaining about the licence-permit raj, the closed economy, lost opportunities and the silly Indian commitment to socialism, which was not helping India’s poor—in fact, prolonging their poverty. In his quiet, understated way, Jha asked us if we really wanted to know how India became the most-controlled and lowest-performing economy in Asia. As an observer and a participant, he was intimately acquainted with the historical and epigenetic processes that had resulted in our miserable state.
Jha told us that the common assumption that draconian import controls, foreign exchange restrictions and industrial licensing were due to an overarching ideological commitment to socialism was quite wrong. He wondered aloud whether there ever was a commitment to any ideology.
By the mid-1950s, a serious balance of payments problem had developed. There was criticism of the government for having “frittered away” the large sterling balances of a decade earlier by importing “frivolous and unnecessary” goods. There was concern that the country may end up in external default.
It was this practical problem, rather than any ideological consideration, Jha opined, that led to import restrictions and foreign exchange controls. Since setting up industries involved the import of capital equipment, industrial licensing became a logical corollary. Incidentally, export pessimism was so deep-rooted that nobody wondered whether the rupee was overvalued. In fact, India became one of the few countries in the world to impose export duties on items like tea which were then a very important part of our export basket, thus indirectly encouraging countries like Kenya to become tea-exporters—an outcome clearly detrimental to our own tea industry.
As one reads the newspapers today, one feels that we are back in the 1950s as described by Jha. We have a rising current account deficit. And what are we planning to do about it? We are planning to introduce high duties on the import of “frivolous and unnecessary luxury goods” so that we do not “fritter” away our foreign