Express columnist Surjit Bhalla and the chief economic adviser to government of India Raghuram Rajan both agreed that a cheaper currency will not add to India’s growth story.
“India is long past the stage where it could have used it (devaluation) to provide an oomph to the growth story,” said Rajan at the release of Bhalla’s book Devaluing to Prosperity on Monday.
Bhalla criticised the way the Reserve Bank of India has managed the exchange rate of the Indian currency in the past two years, which he said has added to the problems created by the populist policies followed in the past few years by the central government. He said unlike China, the dip in the value of the rupee has been stoked by weakness in the economy and so provided no benefit. “It was unwarranted,” he said referring to the sharp dip in the rupee which has dipped by 27 per cent since December 2010.
According to him, China and South Korea have been able to keep their currencies artificially devalued after growth took off, to siphon off the headroom created to provide cheap capital to local industry. In the process their holdings of foreign exchange soared. But the capital controls and cap on wage rates has now made their domestic demand conditions anemic.
Rajan argued this was like riding a tiger and could retard growth in those economies soon. Bhalla said he expected the Chinese growth rate to decelerate to as low as 5 per cent annually over the next ten years.
The book published by Oxford University Press was released by finance minister P Chidambaram, who described it as a challenging set of ideas.