The Axioms
For as long as I can remember, some things have been accepted as axiomatic by all of
us: the "original" NRIs (non-resident Indians), the "other" NRIs (not really
Indians, also known as RNIs – resident non-Indians), RRIs (resident real Indians),
R2Is (returned to Indians), and the rest.
If I may paraphrase Thomas Jefferson, I would say, "We the people hold the following
truths to be self-evident: That the Rupee will always depreciate against the
Dollar." (US Dollar naturally – is there any other kind?) That the inflation rate
will always be higher in India than in the US. That the job market will always be
better in the US than in India. That the standard of living will always be higher in
the US than in India."
So accustomed are we to accepting these premises without question that we have
thoroughly internalised them – we no longer consider these as overt externally
introduced assumptions, but treat them as immutable laws of life, like Newton's
three laws and Maxwell's four equations.
But now things have gone topsy-turvy in this land of India that is Bharat. As Marc
Antony said, "Oh what a fall was there my countrymen!" Just consider the following
facts:
The Rupee
After depreciating steadily against the US Dollar (from 31.37 to the Dollar in 1991
to 49.07 to the Dollar in 2001), the Rupee has now appreciated against the Dollar,
and is now at 48 to the Dollar. In fact, but for active intervention by the Reserve
Bank of India (RBI), the Rupee would appreciate by another 2.5 per cent against
major currencies, including the US Dollar.
India's foreign exchange reserves, which hit rock bottom at less than $ 1 billion
back in 1991, are now at $ 68.5 billion and climbing steeply. Too steeply, as a
matter of fact. If the RBI did not "sterilise" these massive Dollar inflows, the
Rupee would appreciate even faster than it is at present. The "merchandise" trade of
India shows a deficit only because the Indian government perversely insists on
counting India's massive software exports of $ 8.2 billion under a strange head
called "invisibles". Its outdated rationale is that, since no material changes
hands, software exports cannot be counted as "merchandise".
But for this and other such accounting quirks, India would show a merchandise trade
surplus.
Similarly, our strange way of counting foreign direct investment (FDI) substantially
understates the amount of money that the Indian economy is able to attract. A recent
issue of 'Business World' points out that, if we were to use the norms published by
the International Monetary Fund (IMF), India's FDI in 2001 would be $ 8 billion, not
$ 2.2 billion, which is government's official figure. (As an aside, using the same
IMF norms, China's FDI falls from $ 40 billion to $ 22 billion.) In any case, India
is now showing a current account surplus.
In contrast, for many years the US economy managed to get away with a huge trade
deficit, since the other countries of the world turned right around and invested
their trade surpluses in the US. This gave the US a huge surplus on the current
account, even if it had a trade deficit. But now the trading partners of the US are
no longer automatically willing to re-invest their surpluses in the US. This is one
of the reasons why the current economic slump in the US has been so
prolonged.
The Indian Inflation Rate
The inflation rate in India has been hovering between two per cent and four per cent
per year for the past several years. With salaries increasing at a much faster rate
(especially, but not exclusively, in the software sector), the real incomes have
been increasing at a very healthy rate.
Coupled with the rapid drop in real estate values (possibly because most of the
black money has already been invested in this sector), this implies that the
disposable income, especially in inexpensive metros like Hyderabad, has just been
going through the roof. This is why there is such an increase in the number of
restaurants and entertainment outlets.
