Rupee fall result of US backdoor intrigues

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

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 even as the US pressure on India to go slow on oil purchases hurts not only Iran but India as well.

Even the present rupee fall to a 20-month low of Rs 64.28 on May 7 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. It never liked India-Iran ties. All the same it has to protect its economic and sovereign interests.

The Chabahar deal is of significant strategic importance. 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 India 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.

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.

By Shivaji Sarkar