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Business Commentary/Ashok Mitra

When the rupee bombs

The domestic compulsions were obviously much too much for Atal Bihari Vajpayee. By doing what he has done, he thinks he has ensured that the Lok Sabha will not be dissolved till the beginning of the 21st century, or at least till the terminal year of the 20th century.

According to an alternative theory, he has actually paved the way for a smashing victory in a snap poll. Five decades of Independence notwithstanding, roughly three-fifths of India's villages are still without a single source of drinking water; the rate of illiteracy in the country persists doggedly at around 50 per cent; amongst women, the rate is still higher.

So what, the urban middle class, at least in the northern and western parts of the country, are in a state of wild frenzy!

The nation, they have not the least doubt, has as good as entered the exclusive nuclear club; how does it matter if one-third of the country's population goes to bed, evening after evening, without enough food in their bellies? The bourgeoisie will see to it that the prime minister, who has dared to defy global public opinion and presided over the blasts at Pokhran, is no longer bothered by the species of J Jayalalitha-Subramanian Swamys.

True, the principal provider of victuals, the United States administration, is incensed. But Vajpayee has, indications suggest, come to terms with himself. To placate the angry Americans, the Indian government is going to sign quietly the Comprehensive Test Ban Treaty; it will not mind if full formal recognition as an august member of the exclusive nuclear club is withheld from it. The prime minister needed this big bang, no less, to survive in power; the kindly Americans must understand that he meant no harm; from now on, they can have his guarantee, India will behave like a lamb. Even on his own ground, through it is a big climbdown for Vajpayee.

As foreign minister of the Janata government, he took the initiative in 1977 to break the China impasse. That was acclaimed as a tremendous feat of statesmanship. The same Vajpayee is now forced to write cringingly to the US president that the latter must, please take cognisance of India's threat perceptions, the yellow peril from across the northern borders looms larger and larger with each day, India simply had to opt for the nuclear option to checkmate its potential number one enemy. The hackneyed phrase is from George Fernandes's prejudice-laden kitbag. But the prime minister has proceeded even further. He has referred to the "aggression" committed by this wretched neighbour against his country circa 1962. This is cheap; China has ferociously lashed back.

Vajpayee has perhaps succeeded in elongating his prime ministerial tenure by such ploys. The respect he had once commanded is however gone; he can no longer be distinguished from the run-of-the-mill bazaar politicians. Meanwhile, problems will climb. The bravado that the threatened sanctions will only mean a temporary strain on resources, to the extent of at most a couple of billion dollars annually, and can be easily put up with, is based on fragile logic. Hope is pinned on the continued steady flow of invisibles on the current account, of around $ 15 billion per annum in recent years. This magnitude, it is being assumed, might even soar in the immediate future.

This is naivete of a high order. The bulk of the incoming remittances is the joint contribution of foreign institutional investors and non-resident Indians. If past experience is any guide, the NRIs are even more devoutly pro-American than the average US citizen. Should the American administration bestir itself to enforce the sanctions to the hilt, the NRIs and the institutional investors could not be far behind, more so if the rupee were to keep falling precipitously. The crucial factor is going to be the external value of the rupee, which has already sunk beyond 40:1.

Some illiterates, a few of them in fact within the portals of power, are undeterred; they are urging full convertibility. They deserve to be ignored. Till as long as western official attitude remains formally stern, the rupee will, in all probability, continue its downward slide. This will not only thwart further ingress of foreign funds; provided import controls are not speedily reimposed, the prospects of a fearsome inflation will also loom very large. The falling rupee will be of no help toward export promotion either unless the covert Western embargo on trade with India is relaxed.

What about that other specter, the one that has done Indonesia in? A bunch of buccaneers could arrive on the scene with, say, a couple of trillion dollars at their command; this breed of unscrupulous speculators may find the environment enormously to their liking; they could decide to blast off the Indian rupee from the international currency board. The country will then face ruination on the scale of Indonesia.

Who knows whether Vajpayee has not chosen the wrong role model to follow? He has been Indira Gandhi's favourite acolyte. Up to a point, he has tried to tread meticulously the course she had taken. The location for the blasts was once more Pokhran, the month was again May. The lone difference is that Indira Gandhi's 'implosion' is substituted by the more explicit 'explosions'.

Heroics of this genre were unable to save Indira Gandhi from the problems that followed: the Emergency and its aftermath. Vajpayee too could discover that his cynic's gambit has come a cropper, and the country could consequently be on the verge of a Holocaust. A flustered prime minister may post the information with the Western governments that, from now on, he will behave like an impeccably good boy; as evidence, he would sign, quietly, the CTBT, without any caveats at all. Things could nonetheless turn extremely difficult if the economy, shorn of investment funds, deteriorates. Even the loyalty of the bomb loving middle-classes could then begin to wobble.

The escape hatch of a Presidential form of government will be a bit of a non-starter. Vajpayee's party was in the past one of the principal opponents to proposals for effecting fundamental changes in the structure of the Constitution; ideological somersaults against the background of a collapsing economy could evoke both derision and resistance. In any event, a presidential format has been unable to keep Suharto out of harm's way.

It is an ill wind which blows nobody any good. Consider a circumstance where the western governments decide to put India through the wringer for a couple of years or thereabouts. An acute balance of payment crisis will be the result. Despite protests from a section of importers and industrialists, a certain cutback on luxury consumption will then be rendered inevitable. Who knows, given such a development, import substitution could once again turn into a respectable-and acceptable-economic measure.

That would, of course, be bad tidings for the thin crowd at the top of the social hierarchy flaunting their cellular telephones. A small injection of wisdom will cause no strain to their psyche; high living and the swadeshi bomb do not necessarily go together.

The overwhelming part of the burden of Vajpayee's folly will nonetheless have to be borne, as always, by the poor. But the worm can turn occasionally. Indonesia's poor have refused to put up with the load of suffering arranged for them by their masters. Suharto's cosy liaison with the International Monetary Fund has been of no avail. It is revolutionary time in Indonesia. India's self-seeking leaders should take a trip to Jakarta instead of Washington DC to learn the relevant lesson. Despite gossip to the contrary, revolutions are not yet an obsolete idea.

Ashok Mitra