As Modi regime is continuing with its no holds barred rhetoric on “Amrit Kaal” and “Viksit Bharat”, IMF, the postwar neocolonial economic arm of US, and global corporate agencies like Bloomberg have already come out with their predictions on a sharp drop in India’s GDP in the days ahead. And, specifically related to this negative trend, that is comparable to the pandemic days, is the ongoing unprecedented rupee depreciation, which as of now, has crossed 86 per dollar. According to Hong Kong-based Gavekal Research, the Indian rupee is likely to fall past 90 per dollar in the coming months, and it has even predicted a bigger depreciation taking the Indian rupee to 95 per dollar in 2025, an eventuality that Gavekal identifies as “not out of question”!
The Indian rupee reached ₹86.63 on 15 January 2025. While official think-tanks and policy-experts justify the rupee’s plunge as an unavoidable correction of overvalued rupee and indispensable for boosting Indian exports and for facilitating export-oriented development, the same was not Modi’s approach when rupee was falling under Manmohan regime. Modi, who was the then Gujarat chief minister, sarcastically interpreted it as a competition between Congress and rupee as, “who will fall lower, that is the competition.” He also said: “It is our country’s misfortune that the rulers in Delhi are neither worried about the country’s defence nor about the falling value of the rupee.” When the rupee depreciated further and reached ₹ 64 against a dollar during August 2013, lambasting the “incompetence” of the Centre for not taking any steps to strengthen the currency against the USD (US dollar), Modi noted: “The rupee has fallen rapidly in the past three months. But the government has not taken any steps in the last three months to strengthen the rupee against the US dollar. If the rupee keeps falling like this, other countries will start taking advantage of India.”
However, when Modi took office as prime minister in 2014, the rupee-dollar exchange rate was ₹58.58 to a dollar, as unlike today, the Manmohan government still had some leverage by which the RBI could intervene in the foreign exchange market to reverse the trend towards depreciation. However, as the rupee continues its plunge reaching 86.63 today, and Modinomics and the entire fascist regime is being exposed as more “incompetent” and several-fold far-right neoliberal than Manmohanomics, the corporate-saffron media is camouflaging the whole issue under its Hindurashtra campaign on the one hand, even as government spokespersons are repeating so called gains associated with rupee depreciation in an “export-led” development scenario. In this context, some clarifications on the exchange rate policy under Modi regime that leads to the historic plunge of the rupee would be in order.
Even after demolishing the Nehruvian state-led development paradigm including its concomitant controls over exchange rate, India under Manmohanomics was still following a “crawling peg system” that combined aspects of both fixed and flexible exchange rate systems allowing the RBI to set a predetermined range of rates within which the rupee can fluctuate. This also created a situation where the government could gradually adjust the currency value over time. It also combined methods of currency appreciation or depreciation, though different from devaluation under the fixed exchange rate system that prevailed under the Nehruvian model. Thus, it was the ‘crawling peg’ system that gave some manoeuvrability to Manmohan government for apparently reversing the trend towards depreciation in 2013, which also enabled it again to bring back the exchange to ₹58.58 = $1 in 2014, on the eve of Modi’s ascendance to power. However, this option is not available to Modi regime now on account of total surrendering of its grip over Indian rupee coupled with its extreme reliance on USD.
With the ascendance of far-right neofascist Modi government in 2014, as manifested in such moves as dissolution of the six-and-a-half decade old Planning Commission and as part of liberalising and deregulating the economy together with State’s merger with corporate capital, it unleashed a regime of fully flexible or floating exchange rate system in which the RBI became a mere spectator amid volatile or fluctuating exchange rate. This allowed US-based currency speculators and manipulators (including their Indian junior partners like Adani and Ambani) to have a field day while India became totally exposed to international financial and trade shocks. It aggravated pressures on rupee value thereby intensifying crises in the foreign market-oriented productive sectors with unpredictable repercussions. In brief, the present plunge of the rupee in relation to dollar and its after-effects should be seen in the context of Modi government’s altogether abandoning of crawling peg system which, in spite of its limitations, had given Manmohan government some manoeuvrability to periodically adjust the exchange rate avoiding its large and sudden decline contrary to the current situation under Modi regime.
In this context, it is very pertinent on the part of all working and oppressed peoples of the world to have a grasp on how US-led postwar neocolonialism is maintained by pegging the currencies of dependent neocolonial Afro-Asian-Latin American countries to the USD which is kept as the international reserve currency. While imperialist powers from EU, China and Russia have already broken this shackle, India and other neocolonial countries of Asia, Africa and Latin America are still manacled by the dollar tyranny superimposed on them when Second World War was coming to a close. And, though groupings like BRICS have already started earnest discussions for a de-dollarisation – that entails significant reduction in the use of USD in global trade and finance, an example of which is oil trade where non-USD currencies are increasingly used now – and creation of an alternative global monetary system to circumvent the dollar hegemony, quite often, the Modi regime is acting as a blackleg within.
As long as neocolonial countries are relying on USD as a reserve currency, medium of exchange for international transactions and a unit of account, as proved since the 1944 Bretton Woods Agreement when USD ascended to the position of primary reserve currency of the world, US Department of Treasury has been capable to use it as a mighty economic weapon against dependent countries in manifold ways. Among them, forced devaluation/depreciation of the currencies of dependent countries like India against USD has been the most effective weapon frequently used by US imperialism to carry forward its ruthless plunder and exploitation of neocolonial countries. The immediate impact of superimposing devaluation/depreciation on a country is a huge neocolonial drain of the wealth of the country which is subjected to it.
For instance, even during the quarter century of international Keynesianism that yielded a so called ‘golden age for capitalism’ led by State intervention and dominance of public sector at a global level and when fixed exchange rate system was the norm, US imperialism was successful in superimposing even huge one-shot devaluations upon dependent neocolonial countries by pressurising the regimes there. A horrific instance was the 57.5 percent devaluation of the Indian rupee in 1966 that resulted in an on-the-spot appreciation of the value of USD from ₹ 4.75 to ₹ 7.50. The decision was taken based on the 1965 Report of the Bell Mission appointed by World Bank as per US diktat. It was done for facilitating unfettered penetration of US capital into India by pushing down the prices of India’s resources and labour power (that is, when the exchange of value of Indian rupee goes down, less amount of USD is required for getting more goods and resources from India). When Ashok Mehta, the then Deputy Chairman of the Planning Commission claimed that “devaluation will open Indian economy so that the womb of mother India will be impregnated by the dynamic foreign capital”, the then parliamentary opposition characterised it as “rape of India”.
The next important one-shot devaluation of the rupee took place in 1991 in the context of Rao-Manmohan government’s embrace of neoliberal globalisation and complete abandonment of Nehruvian state-led development paradigm. This time too, the pressure for devaluation came from Fund-Bank Combine (IMF and World Bank) and US neoliberal centres that advocated a 22 percent devaluation of the rupee along with a whole set of macro and micro-economic structural and sectoral adjustment programs. This sky-rocketed the profits of currency speculators by facilitating cross-border hot-money flows, further intensifying the economic drain out of India, by pushing down the prices of India’s labour and resources. Of course, as part of liberalisation and globalisation of India’s external sector, the fixed exchange rate system also gave way to a ‘crawling peg’ system, giving only minimum scope for RBI intervention, as already noted.
However, under the far-right neofascist Modi regime today, a qualitative transformation has taken place. Now, India has become a flourishing example of close integration between corporate capital and neoliberal State where policy decisions are taken in corporate board-rooms, while parliament is increasingly becoming a spectator. The role of the State is like that of a corporate-facilitator, and major component of the economy is speculation than production. Currency sector is no exception to this general rule. Compared to the previous governments at the Centre when the Central Bank had at least namesake intervention in the case of rupee under the ‘crawling peg system’, since 2014, and more specifically under Modi.3, the RBI has completely lost its grip over Indian rupee, as today, India is having a full-fledged flexible or floating exchange rate system where the exchange rate is determined by global corporate-speculative forces.
As a result, compared to the occasional government-led devaluations under previous regulated system, today, instead of any announced devaluation, market-driven depreciation has become an unhindered and continuous process. Its manifestation has been the steep fall in rupee-dollar exchange rate from ₹58.58 to a dollar in 2014 to ₹86.63 per USD as of now. At a time when even international research institutions are predicting about the extreme vulnerability of Indian rupee which is still tied to the apron strings of USD, the far-right government led by Modi, who as Gujarat chief minister had equated the value of the rupee to the honour of the nation, is now diverting the issue by putting baseless claims on India becoming third largest economy under Modi.3. In fact, compared to one-shot devaluations of yesteryears, though the undeclared depreciation under Modi regime leads to a systematic and deep-rooted drain of wealth from India by continuous outflow of real wealth and increasing its all-round external payments burden – in the form of increased debt repayments, more exports of goods and services for a given volume of imports, intensified profit repatriation by MNCs, etc – it is less noticed too. And this neoliberal-neocolonial drain is more complex and multifaceted and hence more horrific than the colonial plunder elucidated by Dadabhai Naoroji in 1867 in his well-known “Drain Theory”.
Today, while the ruling regime and saffron media are boasting about Indian ‘growth miracle’, on account of a host of factors such as US stock market manipulation, Federal Reserve’s monetary policies, speculative-capital flight from India, India’s growing debt burden, increasing trade deficit, etc., Indian rupee is in a downward spiral. However, the irony is that the USD itself is becoming weaker compared to other currencies like Euro and Yen. According to reports, share of USD in world money reserves has fallen by more than 10 percent during the past one decade, more specifically since 2016, and many countries are planning to find alternative means including that of digital currency in the days ahead. At this critical juncture, as Indian rupee is systematically depreciating against USD, it is high time to take urgent and appropriate steps to terminate the pegging of Indian rupee to the depreciating USD and free it from its clutches altogether.
Courtesy: Countercurrents. org
