The Hindu Business Line : The love-hate story of the rupee and the $

Chennai, Jan. 18 The slide on the screen showed $40 = Re 1. The year – 2050. There was a gasp from the audience followed by applause as the realisation of what was coming sunk in.

The session was a talk on the rising rupee, given by Prof. P.C. Narayan, IIM-B, at “Samanvay”, the annual management festival, organised by the Department of Management Studies (DoMS) of IIT Chennai last week.

In a lecture, that provided the theoretical background to fluctuating currencies and recent developments on the rupee-dollar front, Prof. Narayan said that India was getting it right with its policy options now.

Arguing that the rising rupee was a reality that everyone had to come to terms with, he drew the parallel of the Japanese yen which moved from 260 to a dollar to 110 per dollar in just about a year in the mid-eighties and yet Japan survived.

He also pointed out that in the recent past other currencies such as the Thai baht and Indonesian rupiah had appreciated more. (The Thai baht had moved from 55 to 34 per dollar and the Indonesian rupiah had moved from 18000 to 9000 per dollar in the same period that the Indian rupee had moved from 44 to 39 per dollar).

Challenges

Discussing the challenges facing the RBI and the Government, Prof. Narayan said the Government had to encourage capital outflow and curtail capital inflows since the current policy of investing the surplus in US dollar securities was giving a very low return.

He also cautioned “if the rupee is constantly rising, we are giving a signal to the whole world that the rupee is a one-way bet!