Economic Highlights

New Delhi, 9 May 2015

Rupee Downslide

US BACKDOOR INTRIGUES

By Shivaji Sarkar

Two developments – the deal with Iran on developing Chabahar port and the sudden fall of the rupee – are both significant. The rupee should have ideally appreciated after the deal with Tehran, as India tries to take a leap at self- reliance. Iran has always stood by India and under the US and western pressures India’s go slow on oil purchases hurt not only Iran but India as well.

Even the present rupee fall to a 20-month low of Rs 64.28 on May 7, 2015 against the previous low of Rs 63.54 could well be attributed to the US tactics. All of a sudden, most of the foreign institutional investors (FII) withdrew about Rs 10,000 crore from the capital markets in just four sessions creating a mayhem.

They “blame” this or put the onus on the new tax laws, their “apprehensions” about India’s tax regime and inflation. In this particular case, it does not seem to be the reason. Virtually nothing new has happened during the past few days except creation of one India market through the passing of the GST bill in Lok Sabha. Besides, GST would not impact the share market. Even inflation has remained under check. Why then is this withdrawal?

The answer lies not in the market but in the statement of the US ambassador in India Richard Verma. Even as the deal was in the process of being signed, Verma cautioned against “rushing in” with investments as the nuclear deal being negotiated (by the US and Iran) was not final and said there was need “to maintain the international solidarity that has brought this hard fought diplomatic victory, but we are not over the finish line yet.”

The FII withdrawals coincided with the statement. It hints at backdoor US machinations to discomfort India. It’s no denying that the US does not accept the largest democracy as a natural ally. The US has pumped in over $ 20.6 billion military assistance and aid from 2002 to 2010. Surprisingly, between 1991 and 2001, the US aid the pre-9/11 days, the total economic aid to Pakistan was mere $ 838.52 million. Officially, during this period no military assistance was provided. The post 9/11 has seen almost 500 times jump in annual US aid to the country which has been promoting global terrorism. Indeed it is a peculiar US policy?

Pakistan has instead earned for promoting terrorism and being a so-called facilitator in the US war against Taliban in Afghanistan. It has also sustained the strength of the Pakistani currency as a deliberate but subtle US policy for enabling to stand against India.

The US sanctions against Iran too were linked to its Pakistan policy. It never liked India-Iran ties. It had all through been pressurising India to stop purchase of crude oil in rupee-terms from Iran. Finally, a little over a year back in the name of sanctions it forced India to stop the deal and purchase oil from US firms in Iraq.

Arm-twisting has been a common US policy. The present apparent bonhomie with India is only to have the maximum deals from India on nuclear, insurance, banking, engineering, agricultural and other aspects that benefit US corporates. Its love for India is only to garner profits and  its concern for its development is clearly secondary.

New Delhi thus needs to aptly cautious. It has been too. In a unipolar world, where even the US has along with its western ally been imposing sanctions against Russia, India cannot give up that caution. All the same it has to protect its economic and sovereign interests. The Chabahar deal is of significant strategic importance. The memorandum of understanding (MoU) for building the port and having at least two berths for Indian facilities was signed by Road Transport and Highways Minister Nitin Gadkari and Iranian Transport and Urban Development Minister Abbas Ahmad Akhound. Gadkari on a visit to Iran.

With the signing of this MoU, Indian and Iranian commercial entities will now be in a position to commence negotiations towards finalisation of a commercial contract under which Indian firms will lease two existing berths at the port and operationalise them as container and multi-purpose cargo terminal.

Chabahar located close to the strategic Persian Gulf will impart significant strategic leverage to India giving it access to Afghanistan and to the energy-rich Central Asia bypassing Pakistan. It also cuts down transit time by a third accruing significant time and cost savings. Gadkari stated: “We will complete the port in about one-and-a-half years. The distance between Chabahar and Gujarat is less than Delhi and Mumbai.”

The strategic part of the deal is certainly not to the liking of the Americans. It gives it a free access to Afghanistan and beyond to Central Asia, where the US for its oil, rich mineral reserves and a possible conflict with Russia wants to keep it as its preserve. Growing Indian influence in the region and geo-political economic presence is disliked by the US.

It is keen on countering it not only on the remote borders but also at other frontiers closer home. The FII onslaught should be seen as a strategic US move. It has achieved its objective of hurting the Indian currency. It helps gain trillions of billions by this punitive action for its corporate and a sagging economy.

India has to go beyond the traditional ways to protect the currency that normally RBI does. The government has taken an onerous stand by signing the Chabahar deal. It needs to open up more such avenues. The rupee-trade area needs to be expanded and Central Asia is a potent area for that.

The country also has to draw an immediate short-term strategy to bolster the rupee. A weak rupee makes fuels expensive. Even the mission for solar energy becomes costlier as most equipment is imported.

India, which has invested over $2 billion in Afghanistan, plans to link the Chabahar port with the Zaranj-Delaram road, the garland highway, India built in Afghanistan by upgrading the Chabahar-Milak road, opening alternative access to sea port for Afghanistan’s connectivity to regional and global markets. India has already committed $100 million to develop the port. But it must look at the future and ensure that the rupee doesn’t slide further. Rather, it must look into the factors responsible for it and not shy away from calling a spade a spade. ---INFA 

(Copyright, India News & Feature Alliance)