That Indian economy is in an utter mess is now obvious to the entire world. The doot (messenger) of this reality is the collapsed Indian Rupee. This collapse, its reasons and the total denial with which Indian leaders are treating it remind us of the complete collapse of North India in 11th century. Read the following excerpts from a 1957 article of an eminent & knowledgeable historian* and judge for yourself whether it matches today’s India:
- “History had no meaning for the Indian kings who presided over the destinies of this woe-stricken land. The repeated warnings of the past went unheeded.”
How applicable is this to the recent collapse of the Indian Rupee? The current 14% collapse from Rs. 53.66 on May 2, 2013 to Rs. 61.10 this week is actually the smallest of the three collapses of the Rupee in the past two years. From its level of 45 on August 9, 2011, it has fallen by 36% to 61.10 this week. This is an unbelievable figure.
How unbelievable? Using $1.7 trillion for India’s GDP, this collapse means India has lost wealth of $612 billion in the last two years. This is a figure that could pay for every social program, every benefit for the poor that Indian society would like to implement.
You could argue that the first collapse in the 4th quarter of 2011 was unexpected. We remember India of summer 2011. Everybody we met was exuberant about India’s future. An elderly man we met in cinema theater told us to watch out because America’s days were over and it was India’s turn. This was the prevalent sentiment. No one we spoke with understood that India, like rest of EM, was experiencing a credit bubble. Utter complacency reigned and that India was singularly unprepared for the bust that was to follow.
How similar was this to North India at in 1,000 CE?
- “At the turn of the 10th century, therefore, there was no generally accepted national focus in the country, as Kanauj had once been, and no military power in North India strong enough to keep the warrior kings in check, or to co-ordinate their activities against any foreign invader. Thus, when Mahmud began his raids, India was ill-equipped for successful resistance.”
The Mahmud of the above quote is the brilliant Mahmud of Ghazni, the first Afghan conqueror of North India. All he faced were isolated kingdoms, none of which had ever seen the sheer ruthlessness & barbarism of Central Asians. Mahmud Ghazni had come to loot and not stay. After securing abject surrender from many North Indian kingdoms and after destroying many fabulously wealthy temples including Somnath, Mahmud beat a hasty retreat before the central Indian armies could reach the North.
India of late 2011 was just as unprepared for the 1st massive raid on the Indian Rupee. And like Ghazni, it was the most spectacular. From its level of 45 on August 2011, the Rupee started falling. It reached 48.63 on October 31, 2011 and then fell in a waterfall decline to 53.71 in mid-December 2011 – a total decline of 19.4%.
When the Rupee began stabilizing in late December, 2011, Indians thought the worst was over. Indian banks offered 1-year and 2-year CDs with 10% coupons. Overseas Indians poured in $5 billion in the month of January 2012 and the Indian rupee rallied 9% from 53.71 in mid-December to 49.20 on March 2, 2012. Happy days were here again and India relaxed.
How similar is this to North India after Mahmud Ghazni’s raid?
- “In spite of the havoc worked by the raids of Mahmud, life returned to normal as soon as pressure disappeared. For instance, within five years of the invasion, … not only rebuilt the Somnath temple on a more magnificent scale, but created the artistic wonders of the Dilwara temple.”
At least the Indian society of 11th century got a real respite until the next invasion. Not the India of 2012. January & February of 2012 were months of Rupee rally and stability. Alas, like North India of 12th century, the Rupee saw a more gradual raid begin in March 2012. In that raid, the Rupee fell from 49.20 on March 2, 2012 to Rs. 57.10 in the last week of June 2012 – another stunning collapse of 16% just a little better than the 1st collapse of 19.4% in 2011.
Once again, Indian leaders heaved a sigh of relief that the worst was over. The Rupee began rallying and by October 2012, it reached 52.15, a rally of 9.5%. There it remained relatively stable in a range until May 2012.
Indian leaders had learned nothing, nothing at all from the first two collapses. And they did nothing, absolutely nothing to prevent strengthen their defenses to prevent another collapse. This is exactly how Indian rulers behaved in the 175 years after Mahmud Ghazni:.
- “No realistic adjustment, no far-sighted approach to the problem which had stared them in the face for centuries and threatened their very existence, no improvement in outlook, no elevation of political vision from their petty jealousies …. and consequently no preparation for a concerted defense commensurate with the extent of the danger – these were the conspicuous traits of the Indian rulers … of the 12th & 13th centuries.”
You could possibly excuse those Indian rulers. But no excuses can be found for today’s Indian leaders.
Prime Minister ManMohan Singh has a Ph.D. in economics from Oxford. Finance Minister Chidambaram has an MBA from Harvard Business School. Their imported adviser, Raghuram Rajan, worked at the IMF, taught at the University of Chicago and is reputed to be an expert in monetary policy.
How could this brain trust be so utterly blind and deaf to what was coming? Rajan should have known that the Quantitative Easing of US Federal Reserve was a temporary tactic. Rajan should have seen that the U.S. economy was recovering. Surely Rajan saw and understood the unprecedented stimulus poured into the financial markets by both US Fed & European ECB. Rajan should have expected the tapering of QE that was first voiced by US Fed Chairman Bernanke in May 2013.
This is utterly elementary. So why didn’t Rajan alert the Indian cabinet and why didn’t the esteemed Singh-Chidambaram duo take steps in late 2012 and early 2013 to protect India from another damaging collapse in the Indian Rupee?
Why? Because like their counterparts in India of 1000-1200, today’s leaders of India know only one pursuit, only one objective – internecine warfare against other Indians and wasting India’s resources. This again is eerily similar to the Indians of 1000-1200:
- ” … at a time when the country was threatened with grave peril, the rulers of the land devoted the best part of their energies in mutual fighting. The enormous wealth of the country was spent in building and enriching the temples which they prove
d unable to protect, whereas the most appropriate use of these resources should have been to organize a common defense against the invaders, backed by a national effort.”
Now you understand why we consider Singh-Chidambaram-Rajan as nothing but carbon copies of Indian leaders of 1000-1200?
The 3rd and most recent raid on the Indian Rupee began on May 2, 2012. So far, it has been a fall of 14% from 53.66 on May 2 to 61.10 this week. The level of 39.10 of January 2008 is as far away in history as the glory of India in the 1st millenium CE.
Yet, India remains the same pathetic India. We don’t see any interest at all in Indian leaders, Indian thinkers or Indian Media in demanding sensible fiscal policies. They all seem more eager to shout and engage in hyperbole against their opponents. That is partly because they skim so much of the top that they hardly feel any pain from India’s financial collapse. The only people who suffer are the majority who have no choice but to suffer in “pitiable acquiescence”.
How similar is today’s Indian majority to their counterparts in the last several centuries?
- “The degraded level to which the majority were pushed down made them indifferent to country-wide dangers…This alone made possible the woeful situation that while the invaders swept the country, the masses mostly remained alert. … No public upheaval greets the foreigners, nor are any organised efforts made to stop their progress. Like a paralysed body, the Indian people helplessly look on,… They look staggered, only to sink back into a pitiable acquiescence to the inevitable …”
The invaders sweeping today’s Indian majority are severe inflation and teeming unemployment. And India’s leadership remains supremely indifferent to them except for delivering false promises and empty rhetoric to get their votes.
So is the collapse of the Indian Rupee in the last two years eerily similar to the collapse of North India in two centuries at the turn of the 2nd CE millenium? We think so.
Invasions and raids cannot be sustained for ever. The main force of the current Rupee collapse is dissipating, in our opinion. That is because rally in the U.S. Dollar is beginning to weaken. Our own expectation is that Chairman Bernanke will be more dovish in his actions than his earlier rhetoric warned. This should act as a tail wind for the Indian Rupee and it might enjoy a respite, even a rally, in the near term.
But any such respite has to be used to strengthen India’s fiscal condition and to introduce sensible economic policies that don’t rely on foreign capital coming in. Unfortunately, that is only a hope and not our expectation.
* The excerpts above are from a foreward written in 1957 by Dr. K.M. Munshi, the founder of the Bharatiya Vidya Bhavan. Those were the post-freedom heady days when Indians had confidence in their future and their leaders.
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