EDITORIAL
Terror, not the way
Terrorism thrives on
terror. Its axiom is the medieval truism that might is
the only right thing. The world at large may not have
given up the element of force. The arms and ammunition
available to the world as well as the high race to
develop and deploy more and more deadly weapons is
testimony to the fact that military might is very much a
part of this world. But the world has certainly come a
long way from that open sanction of might as the very
best of human capabilities, which was the high point of
medieval thinking and action. Two years back when
Pakistan tried to forcibly occupy a part of Jammu and
Kashmir State, the world rejected the action as patently
wrong. Might is still there, the monstrous war machine
being pressed into action by America is high might, but
his world ours would not accept might as a valid means to
effect change. As a preventive yes, as a response to
another action might is allowed, but it simply is not
available as an agent to change the contours of the world
map.
Sixty years ago as soon as
Hitler had consolidated his hold over Germany and put
together a military of some capability he embarked on a
war. Over the past sixty years the countries in Europe
and Americas, in Asia and Africa have been enhancing
their military capabilities. The proclivity of the
nations to engage in military activities has been in
evidence too. All nations from tiny African ones to
superpowers have been indulging in war-like acts. The
'fights' in African Sahara, Brazil's occupation in
Falklands to American intransigence in Grenada have been
but just a few of these instances. And, of course, there
is the high war between Iraq and Iran, not to speak of
the Iraqi invasion of Kuwait that brought about the Gulf
war of nineties. But the fact that the wide world did not
accept those exhibitions of brute power is more
important. It refused to give the force any legitimacy.
It is also high proof that force is not the in-thing in
this world. There may be inequalities in this world,
there may be deprivations, there may be injustices too,
but force is not the instrument to resolve them; it
certainly is not available now.
Yet this is exactly what
the terrorism employs. The high point of terrorism is the
rejection of civilized instruments. There may be a
deficiency or two in the instruments of civilized world.
But the terrorists and those who support them have proved
to be more unjust, more deficient, more exploitative if
not outrightly barbaric. Thus if Russian presence in
Afghanistan was a wrong thing the Taliban takeover has
even more wicked. Without seeking to justify the Russian
presence there, it must be pointed out that the Taliban
have subjected the Afghan people to deprivations that
have been more extensive, in a such more harsh, in a lot
more brutal manner. Nor do the terrorisms anywhere
promise to be any more just or more iquitious. One need
point to the brutalities of Taliban in Afghanistan, nor
invoke the brutalities of Pol Pot to underline the fact;
the depredations of the terror-mongering forces have been
reprehensible and barbaric in all places they brought
under their sway. The progress of the civilization
depends in its ability to eliminate the notion of terror
from the world.
e-Governance yes,
but.....
India is easily one of the
major players in computers on the international e-scene.
She may not be an innovator in developing the computerics
but she certainly has been one of the early exploiters of
the new technology. But the same cannot be said of the
application of computers in our day-to-day life. The 'sea
of information' here is still a paper mountain. Even the
computerized bank branches maintain meticulous ledger
accounts. At other places the computers are not used to
bring in efficiency. Standing in 'computer queues' at the
insurance or telecom offices one can easily notice that
the 'computer' is actually hindering the efficiency of
the work not facilitating it. Of course, it comes through
as a paradox that the machine that is revolutionizing the
work efficiency all over the world should be impeding it
in this 'well computerized' country but it is an
undeniable fact. Those who are actually operating the
machines at banks, pay-counters etc. Piont out that
though computers have been installed due care has not
been taken to train the staff in the operation
techniques. Somehow the departments that have spent lakhs
to buy computers are not ready to invest in a 15-day or
month long course for the operators. Most of the times it
is 'utilization of funds' that makes Government
departments to buy computers, which then lie unused in
the stores.
As far as using computers
to make information available to the people and agencies,
it is simply not being done. Although all the Government
departments are 'accessible' on the web it is almost
impossible to obtain any information from them. The
situation in the State is even more dismal. The sites are
abnormally slow in coming up. And the information is
simply not there. Where it is available, it is not months
but years old. Most of the times it has been put there at
the time of installation and never updated since. That
defeats the very purpose of computerization. Buying
computers to 'utilize the funds' provided by the central
and State agencies is one thing and computerizing the
system is an entirely different thing. It needs taken and
innovation and a culture of work, not the 'funds
managers' who are adept in 'utilizing' the allocations.
Sadly, our system of governance has produced 'fund
managers' not administrators and innovators. In computer
applications we are years behind. We have yet to evolve
an optimal system of computer informatics. Talking of
e-governance in this backdrop is little more than
building another excuse for increasing Government
spending not easing or facilitating governance. The
higher ups of the State, who vexed eloquent on
e-governance at the IIPA meeting in Srinagar, the other
day, would do better to remember this. And remedy it. Let
us do the first things first.
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Artillery
fire will conquer future battlefields
By
Gurmeet Kanwal
The
armys victory against daunting odds
during the Kargil conflict was
underpinned by the overwhelming
superiority of the firepower unleashed by
the guns, mortars and rocket launchers of
the Regiment of Artillery. Over a period
of one and a half months, the sustained
application of concentrated artillery
firepower had systematically destroyed
the enemys defences and,
ultimately, it broke the Pakistanis, will
to fight.
This was
not the first time that the Gunners had
met a challenge head on. Ever since the
concept of causing destruction to the
enemys war machine from a stand off
distance evolved in warfare, artillery
has been a battle-winning arm. In all the
wars fought by the Indian Army since
independence, the Gunners discharged
their onerous responsibilities with
extraordinary efficiency and supreme
dedication. Besides Kargil, the
battlefields of Chushul (1962), Chamb and
Amritsar (1965), Longewala and Sylhet
(1971), among many others, stand in mute
testimony to the fury, zeal and the
unflinching devotion to duty of the
Gunners.
The
tactical function of artillery is to
achieve such fire supremacy on the
battlefield that the enemy can neither
interfere with our operations, nor
develop his own effectively. The
artillery performs this function by
destroying or suppressing the
enemys weapons systems, by causing
casualties to his troops and equipment
and by harassing the enemy continuously
over a period of time, allowing him no
rest. Concentrated artillery firepower
severely degrades the enemys
ability to prepare for battle and
cripples his ability to fight coherently.
The ultimate aim of all artillery fire is
to break the enemys will to fight
and make him capitulate on our terms.
Artillery
fire is directed by observation post
officers from their observation posts
(OPs) that are sited in the forward
defended localities with the infantry
companies. These OP officers accompany
their infantry comrades during an assault
on enemy positions as forward observation
officers (FOOs) and fight
shoulder-to-shoulder with them. These
young OP officers are the eyes and ears
of the artillery. In order to engage
targets deep inside enemy territory, air
borne OPs fly in Cheetah and Chetak
helicopters. Artillery guns, mortars and
rocket launchers are deployed in
camouflaged gun positions. They
communicate with their OP officers and
with the other fighting arms on radio and
field telephone.
Field
artillery consists mainly of field,
mountain and medium guns, mortars and
multi-barrel rocket launchers (MBRLs). In
pre-independence days, the 3.7 inch
Howitzer, made famous by Rudyard Kipling
as the "Screw Gun", was the
main equipment of Indian artillery. The
5.5 inch medium gun and the 7.2 inch
Howitzer complemented it. The 25 Pounder
gun was introduced into service just
before the Second World War and was the
mainstay of the Regiment of Artillery
till the early-1990s. It could fire a
variety of ammunition, including
anti-tank, smoke and illuminating
ammunition besides HE shells, up to a
maximum range of 12,200 metres. Today,
the premier field gun of the artillery is
the indigenously manufactured 105 mm
Indian Field Gun (IFG) and its lighter
version the 105 mm Light Field Gun (LFG).
These guns have a maximum range of over
17 km.
The 155 mm
FH 77B Bofors medium gun, that created
such an impact at Kargil, can fire a high
explosive shell to a range of about 30
km. The 155 mm calibre is likely to be
the standard gun calibre of the future.
The 130 mm medium gun, that entered
service just before the 1971 war with
Pakistan, is a close second. This
reliable Russian gun has proved its
mettle in all types of terrain and
climatic conditions, including at Siachen
Glacier and the Bomdila-Towang sector in
Arunachal Pradesh. The Grad BM-21 Russian
MBRL is an immensely potent weapon that
can cover a large area of ground with its
inherent dispersion of fire. A battery of
BM-21 MBRLs can fire a salvo of 240
rockets on an unsuspecting enemy locality
in just 20 seconds and reduce it to
rubble.
Besides
these, a number of other weapons are also
in service. These include the
mule-portable 120 mm high-trajectory
mortars with light regiments and the 160
mm heavy mortars that pack a solid punch.
Field artillery regiments normally have
18 guns and are organised into three
batteries of six guns each. The Regiment
of Artillery also mans the
Surface-to-Surface Missiles (SSMs) of the
Indian Army. Missile groups of the
Regiment are equipped with the Prithvi
missile and, in due course, are likely to
man other SSMs that may be entrusted to
the army.
Before
enemy guns and mortars can be effectively
destroyed or neutralised, their exact
location has to be accurately determined.
This task devolves upon the Surveillance
and Target Acquisition (SATA) branch.
SATA units are equipped with Stentor
long-range Battlefield Surveillance
Radare (BFSRs) and cymbeline Mortar
Locating Radars. Remotely Piloted
Vehicles (RPVs), also called unarmed
vehicles (UAVs) have also been introduced
into service recently but not yet in
large numbers. UAVs are excellent
reconnaissance vehicles for specific
search of areas where enemy presence is
suspected.
From a
supporting arm with the limited role of
neutralising large area of the ground
with its inherent dispersion of fire the
Indian artillery has graduated to an arm
of decision on the modern battlefield.
This was amply borne out by its
performance during Operation Vijay in the
Kargil district of J&K in 1999. Its
role is now that of the purveyor of
destruction in defensive as well as
offensive operations.
In future
too, the Indian artillery will play a
leading role in the successful execution
of integrated land-air opearations on the
nation's battlefields. The emerging
philosophy of employment of artillery
firepower visualises the synergised
orchestration of all firepower resources
across the entire battlefield to cause
firepower resources across the entire
battlefield to cause destruction,
systematically degrade the enemy's
fighting denying them the ability to
operate effectively. The concentrated
application of massed artillery fire and
the use of precision-guided munitions
will disrupt the enemy's cohesion and
ultimately break his will to fight.
It can be
truly said that the artillery is now a
co-equal partner with the infantry and
the armoured corps in the successful
execution of firepower and manoeuvre. In
this era of strategic uncertainty, it
would be prudent to invest further in
building up artillery capabilities. As it
continues to modernise and qualitatively
upgrade its capability, the
artillerys contribution to success
in future battles will be considerably
enhanced in the decades ahead.
Feature
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IAF
and asymmetric war
By
Sharad Dixit
Eighth of
October, The Air Force Day, approaches
again. The ceremonials planned had been
grand. Events of Black Tuesday
however, cast a shadow. The preoccupation
of much of the world with possible
repercussions caused the cancellation of
the proposed Fleet Review, a-la the
Navy. Celebrations nevertheless would
proceed as normal, with much painting of
trees and towns - red invariably.
The
occasion could also be one of
introspection, of assessing where we have
been and are headed. Of our objectives,
our capabilities, our plans and their
compatibility.
We read
much about our modernisation - the SU-30,
The MiG- 21 upgrade, development of
missiles, fighter aircraft, helicopters,
un-manned vehicles, communication systems
and a plethora of gizmos. We also hear of
acquisitions including mid- air refueling
capability, Airborne Warning And Control
System (AWACS) or its variants, jet
trainers, long-range radars, anti-
missile systems etc.
Despite
our complaints of lack of resources, we
are sinking a lot of money into military
hardware, its development and
acquisition. The specifics of military
spending, however, is not the focus here.
It is a glance at our concept of war in
the foreseeable future.
The
dominance of ideas/ideals propagated by
the elite - be it national or
international - is widely accepted. So it
is in the field of warfare. The more
publicised recent conflicts (Korea
onwards) have all involved the US and
other developed nations. Other conflicts
though more savage, bizarre and
unrelenting have got less footage for
want of an affluent media. The concepts
that have evolved from the Ware
with Fanfare, invariably highlight
Human Rights, Innocent
Civilians, Collateral
Damage etc. This is because the
military and intellectual elite of the
developed nations would like us (the
third world) to fight future battles on
their terms.
The
explanation lies in the societal
organisation of the developed capitalist
countries. The states are ruled not by
the Bushes and the Blairs. Nor are they
ruled by the people. The power lies with
the major corporations whose
representatives form governments and
pursue their economic interests.
These
would not always coincide with the
interests of tranquility and stability.
Wars are lucrative business. Witness the
killings made by several petrol pump
owners in the wake of the WTC bombings,
The claims on governments by airlines and
insurance companies, the uncertainty in
the oil market and of course the
machinations of the wily Musharraf, who
has already manoeuvred sanctions, has
been promised aid, gained importance as
the sole interlocutor and marginalized
India while grossly multiplying the
threat to the latter.
The people
in the rich nations however, are not
power-less. Public opinion and the
Justice System are effective checks on
the wilder schemes. Thus the loss of
their military personnel in distant lands
for unknown causes is no longer
acceptable. They are not really
interested whether sub-human multitudes
in places with unpronounceable names
massacre each other or not. Remember
President Bush during his election
campaign? He did not know who
Indias PM or his counterpart in
Pakistan was. Hence the compulsion of the
US (in particular) to fight antiseptic
wars. Their concept as verbalised
recently was 'to launch a $2
million missile to destroy a ten dollar
tent and kill a camel". They cannot
justify human losses. The projection of
Humanity and avoidance of
Collateral Damage follows.
Naturally they expect the victims to
mimic the same route and get slaughtered.
Human
Rights are similarly eulogised.
There is much talk of Iraqi children not
having private toilets or a tap in their
house. Legalities of holding criminals
and terrorists are debated.
Proof is sought to question
subversives. It would be impossible to
explain the dichotomy to children in
India or Bangla Desh, who have no house,
let alone access to drinking water.
Some in
the Third World have recognised this.
They send shivers down rich spines.
Saddam terrorised the West with, hostages
meant to create human shields. He
threatened Chemical and Biological
warfare. He pursued Ecological Warfare
while setting Kuwaiti oil wells afire.
Terrorism was an official policy of the
government, enunciated by Tariq Aziz.
Milosevic neutralised all the allied
plans by bribing a French official and
anticipating attacks. He embarrassed the
US hugely by colluding with China to send
disinformation regarding the Chinese
consulate. The US is still paying in
diplomatic terms for its faux pas of
bombing the (empty) building.
He
esculated the war in Kosovo the moment
coalition attacks began, creating a
nightmare of disaster control.
The
premise therefore is that war cannot be
partial. Each side must fight
as beet as it can. With the weapons it
has on terms of its choosing, at the time
and place of its choosing. India needs to
recognise this. The jargon is
Asymmetric Warfare. We have
suffered for decades at the hands of
sponsored terrorists, indigenous
dissidents and plain crooks. The enemy
loses little as he is financed by
narco-terror that costs him nothing,
Indian finances diverted through
coercion/subversion of government
servants and politicians, and by
extortion. The governments lose little as
the casualties do not form a substantial
vote bank. Individuals in power can be
won over through a host of delightful
means. The loss is inevitably the
Services, and the common
mans.
Future
wars that we may expect would not be
W.W.-II types with an identified enemy.
We would need to fight unconventional
ware with appropriate responses, or
rather initiatives. Modern third world
combat trends exploit society. They claim
the benefits while undermining its
structure. The culpability cannot then be
restricted only to those physically
acting. The ideologues, promoters,
harbourers, beneficiaries and even
accessories who fail to report
anti-national activities must be severely
punished. The state must not indulge this
criminal element by housing and feeding
it for years at public expense. Else
every poor man may find this a convenient
method for comfortable survival.
The IAF
must redefine its role in this context.
The creation of a monolithic monster that
is meant to serve its Personnel,
Administrative, Logistical and other
supporting staff must be replaced by an
effective, lean, mean fighting machine.
Quantity must be replaced by quality and
synergy. Weapon systems should of course
be capable of dealing with the
conventional threat.- Their efficacy
however must be ensured through the
creation of the necessary infrastructure,
maintaining the volume and quality of
manpower required, devolving power rather
than centralising, and most importantly,
acquiring task specific weapons. The
doctrine must be reviewed to make it
decisively offensive. We must not need
weeks to react in support of the Army in
future Kargils. We must be able to act
punitively, perhaps more importantly, in
non-conventional situations. This would
require specialist weapons and
critically, the political resolve to
accept Collateral Damage,. This
would never be acceptable to devious
politicians.
The
resolve therefore will have to be
forcibly extracted through aggressive
persuasion, coercion and punishment of
individuals reluctant to act decisively,
willing to sacrifice the law abiding, the
conscientious and the duty-bound to
expediency.
The IAF
has weathered many storm. It has the best
wishes of the people of this country-
well, many of them anyway. We ardently
wish that it forces issues and creates a
resurgent culture that would best serve
the nation.
PTI Feature
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India
must be on its guard
By H L Kapoor
The United States
of America has declared war on terrorism. The
killing of 7,000 people and destruction and
demolition of the World Trade Towers and part of
the Pentagon were acts of unprecedented terrorist
crime. The US is consolidating its position and
seeking support from friendly countries to tackle
terrorism. It is expected to strike as soon as
Osama bin Laden's whereabouts in Afghanistan are
pinpointed. On the other hand, Afghanistan under
Taliban has spoken in unequivocal terms of waging
a "Jehad" (holy war) against USA, if it
goes ahead with retaliatory strikes against its
people.
Before a month was
out, a suicide bomber of Pak-based
Jaish-e-Mohammad blew himself up at the Jammu and
Kashmir Assembly building. The attack has taken a
toll of over 30 people, including 14 security
personnel.
Tension is
building up with every passing moment. In case of
conflict, India has reasons to fear wore attacks
and cannot lower its guard. It will have to
remain in a state of complete preparedness and
there cannot be any room for complacency. While
the Army, which is the backbone of the country's
defence, is expected to assume responsibility
along the borders, the police and other
paramilitary forces must prepare themselves to
maintain internal security and law and order so
that anti-national forces do not exploit the
situation.
Our top priority
should be protection of vital installations
throughout the country. These include our nuclear
plants, dams, water reservoirs, power houses,
telecommunication systems etc. The Central
Secretariat, Rashtrapati Bhawan, Prime Minister's
House and the Parliament building are some of the
places which need special protection, apart from
the security of the WIPs.
Likewise, State
capitals throughout the country should be on the
priority list of respective Governments to ensure
proper communication systems on the spur of the
moment with the Centre and their counterparts in
various states.
Water resources
must be continuously kept under watch.
Anti-national elements usually destroy the
reservoirs to create chaos or mix poisonous
substances in water to cause maximum damage.
Terrorists trained and armed by Pakistan's ISI
are hellbent on killing innocent people to create
a serious situation in the country.
We are already
facing a proxy war at the hands of Pakistan.
Those arrested have not hidden the fact of
Pakistan's complicity. There are credible reports
that top military officials have been responsible
for training terrorist outfits to undertake
subversive operations against India.
Terrorists main
objective is to aid and abet anti-nationals, help
secessionists, create disorder, kill innocent
people and generate a fear psychosis. They are
also intent on disintegrating the country,
creating communal disturbances by damaging
religious places or by killing members of a
particular community. They have been indulging in
kidnapping of important people.
Historical places
like the Red Fort, Jama Masjid, Taj Mahal, some
gurdwaras in Amritsar, Anandpur Sahib, Paonta
Sahib; Sisganj and Rakabganj gurdwaras in Delhi
as well as Durgiana temple in Amritsar are
targets of the terrorists. Some of the churches
are also on their list.
Important dams
like Bhakra Nangal and bridges too call for
vigil. Other places on their list are airports,
fire stations, police headquarters, hospitals and
high - rise building, including that of newspaper
offices throughout the country.
Religious fanatics
are at the forefront of this campaign. It is of
utmost importance that the potential communal
agitators are kept under watch as also the
anti-social elements. Minority communities
authorities and ambulance vans must be kept on
maximum alert to provide prompt medical aid to
the affected people.
The causes behind
communal disturbances must be carefully studies.
To combat such disturbances, police ought to know
the factors responsible for these. Any incidents,
howsoever innocuous looking, involving members of
different communities, must be attended to at a
senior level from the very beginning. Communal
tensions usually erupt from objectionable
speeches and writing, dispute over places of
worships and their desecration.
The intelligence
machinery must be geared up. Collection of
intelligence through under-cover sources and
information about the plans of subversive
elements is the prerequisite for any successful
operation.
Terrorist outfits
in the name of Jehad have been able to enlist the
support separatists. The Lashkar-i-Toiba found it
easy to whip up communal trouble and create a
sense of insecurity. L-e-T terrorists are more
sophisticated in their training and as such more
ruthless. They are better armed and have set up
their own intelligence network in the Valley to
have an upper hand on Indian intelligence units.
It is, therefore,
imperative that police and security forces should
be armed with latest weaponry and their
intelligence system be improved. It is a matter
of serious concern and as such adequate measures
need to be taken to counter the espionage and
sabotage activities of outfits like
Jaish-e-Mohammad and L.e.T in J&K.
Further, the
intelligence agencies must work in unison. None
of these should try to eclipse the other.
Terrorists and subversives are trained by vested
interests to create chaos in big cities and State
capitals. They choose such areas, as it is easier
to whip up communal trouble there.
Terrorists usually
buy information and with the help of their chosen
people mix with ordinary folks for sometime
before implementing their nefarious plans. It
will be imperative to keep an eye on potential
trouble - makers. Their list should be ready with
the police. And all places like hotels, sarais,
guest houses, houses of dancing girls etc. must
be kept under constant vigilance. Well prepared
is well armed.
-- CNF
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Currency
devaluation: A risy proposition
By S. V. Vaidyanathan
The rupee-dollar
parity has breached all time records -- Rs. 48.16
equal to one US dollar. There is a great debate
whether this is good or bad for our economy. One
school of thought feels that it will enhance
Indias competitiveness in exports. However,
it is well-known that countries do not gain by
way of devaluation of currencies in the long run.
At best, exporters gain on the foreign exchange
holdings stashed in banks or on amounts yet to be
repatriated. Any other expected gain is
neutralised by the reduction in the prices of
export goods and/or by the rise in the prices of
inputs used in such goods.
There is another
school of thought that feels that the rupee
should be defended at all cost. The greenback
that had a bull run recently, rising to 120 per
cent its real value in trade-weighted average
terms, is coming down against the euro and other
major currencies. The euro gained over 10 per
cent against the dollar this year. The rupee is
tied to the dollar and, thus, has depreciated
too.
The recent slump
in Indias exports is purely because of the
sluggishness in the US and the consequential
impact on other economies. Exports plummeted not
just for India, but also in South-East Asia.
Countries such as Taiwan and Singapore that
depend on electronics exports are facing severe
economic problems.
Devaluation
(implicitly supported by the central bank),
therefore, is a wrong remedy, as it will not
boost demand. Further, an analysis of the export
basket shows that devaluation will not help in
such import-sensitive goods as gem and jewellery,
where value addition is 10-15 per cent.
Similarly, software exports do not depend on the
rupees value, but on the quality and
reputation of products. For other items too,
overseas markets will not respond significantly
to a depreciated rupee.
Determining
exchange rate on the basis of inflation figures
is a risky proposition. Chinese Yuan (Y 8.28 =
1$) has been stable for over a decade, though the
inflation rate in China over the last decade has
crossed 60 per cent. Chinese industries have,
however, created unbeatable competitive
advantages, especially in low-cost and flexible
manufacturing , to lure businesses there. India
too must resort to a similar strategy to create
sustainable competitive advantages in certain
commodities and industries to beat the impact of
any slowdown.
The future of
exports lies in moving up the value-chain with
higher intellectual input in products and
services, where India can excel. A strategic
framework is required to constantly scan, review
and extend such advantage(s). Major mncs, such as
GE, are coming to India to establish research
centres. If the right conditions were created for
such corporations (that source their products
globally) to establish hi-tech manufacturing
facilities for exporting goods from India, the
industrial base would grow stronger. While in a
free market, currencies move both ways (sometimes
by as much as 20 per cent, as it recently
happened with Indonesian rupiah), the Indian
rupee moves only southwards, as the RBI virtually
offers an umbrella protection against any
significant appreciation.
Therefore, the
depreciated rupee always stays lower, even when
the market conditions improve. International
financial markets hold wide currency movements in
contempt, as they are taken as a sign of weakness
of the counties economies. They also wipe
out years of hard work for economic growth.
Looking at the history of the rupees
devaluation, the currency depreciated by over 11
times versus the dollar since 1966, and by over
50 per cent since 1991 not a very
encouraging sign.Devaluation comes with other
risks as well. There is a flight of capital from
the stock market that brings down the value of
assets, and depresses the overall market
sentiments. Then interest rates may need to be
hiked, raising the cost of capital, leading to a
tighter money market and a consequent fall in
investments. Economic growth rate then goes
southwards.
Currency
devaluation raises the prices of petroleum
products that have a cascading effect on prices
of most commodities, raising overall prices of
goods and services in the market. Workers then
start demanding higher wages.
This spiral effect
further puts the currency under pressure, with
exporters lobbies raising their heads once
again. The countrys international image too
suffers, as the GDP figure goes down causing
uncertainty and making it a less attractive
destination for investors.
Larger number of
people slide into the "poor" category,
in terms of the World Banks measure of
poverty at $1 a day. More money moves in to
unproductive savings, in the form of gold, and so
on. Capital flight through route also catches up
as local savings are transferred to safe
tax-heavens by those who can. The
governments fisc goes off-balance, as the
burden of servicing Indias $90-billion
foreign debt goes up by over Rs 8,000 crore, for
a fall of every rupee in the value of dollar.
In the days of
run-away budget deficits, it is extremely
difficult for the government to raise taxes and
pay for the additional burden of repayments on
dollar debt. Once the countrys finances
suffer, foreign direct investments take a further
beating, bringing more pressure on the currency.
In an uncertian environment, foreign investors
would seek better terms of entry and higher
return on their investments, thus, eliminating
some soft investments.
The long-term
remedy for boosting exports lies in improving the
infrastructure and competitiveness. Only when
there are fewer potholes on major highways, less
frequent disruption in power and faster
turnaround at ports, will Indias image
improve. A liberal regulatory regime for foreign
investment and substitution of century framework
of industrial regulations with a modern
investor-friendly institutional mechanism will
create a healthy industrial climate for higher
production.
The real solution
lies in moving the productivity engine that will
give India an edge and competitive advantage in
world markets. In a study, the MIT economist
guru, Prof. Paul Krugman, noted that only
productivity growth has a one-to-one co-relation
with export growth. This, he termed as 45-degree
hypothesis: Productivity growth guarantees higher
exports. Devaluation , in fact, chokes the
productivity growth, as upgradation of the
imported plant, machinery and equipments become
costlier. Consequently, the goods and services
produced also become costly and that further
depresses the market size. It is difficult to
establish markets for new goods or expand the
market for existing goods. Chinas
consistency in currency management is a strong
reason why the middle kingdom is attracting
investments of over $40 billion a year.
Therefore, devaluation of the rupee must be
eschewed at all costs. INAV
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