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 .....more

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 .....more

Artillery fire will conquer
future battlefields

By Gurmeet Kanwal
The army’s victory against daunting odds during the Kargil conflict was underpinned by the overwhelming superiority of the firepower unleashed by .....
more

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.......
more

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 ...
.more

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

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.

Artillery fire will conquer future battlefields

By Gurmeet Kanwal

The army’s 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 enemy’s 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 enemy’s 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 enemy’s 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 enemy’s ability to prepare for battle and cripples his ability to fight coherently. The ultimate aim of all artillery fire is to break the enemy’s 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 artillery’s contribution to success in future battles will be considerably enhanced in the decades ahead.
Feature

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 India’s 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 man’s.

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

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

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 India’s 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 India’s 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 rupee’s 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 rupee’s 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 country’s 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 Bank’s 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 government’s fisc goes off-balance, as the burden of servicing India’s $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 country’s 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 India’s 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. China’s 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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