Opinion When the rupee crumbled
Stealth and secrecy surrounded Indira Gandhis decision to devalue the currency
Although Indira Gandhi carried the can for it,the decision to devalue the rupee had been taken in the time of Lal Bahadur Shastri. In fact,he would have liked to clinch the issue before leaving for Tashkent for talks,under the Soviet auspices,with President Ayub Khan of Pakistan to bring peace back to the subcontinent after the 1965 War between the two countries. But he had some difficulty. We have the testimony of I. G. Patel,then chief economic adviser to the government and a key figure in the decision to devalue,that L. K. Jha,Secretary to the prime minister,and P. C. Bhattacharya,governor of the Reserve Bank,had convinced Shastri that devaluation was not possible for as long as T. T. Krishnamachari,a brilliant but stubborn man,was finance minister.
This advice,adds Patel in his book Glimpses of Indian Economic Policy,was not unwelcome to the prime minister. Yet,it was only 48 hours before leaving for the Central Asian city that Shastri could ease TTK out. He told his aides that on return home he would settle the devaluation question. Who could have foreseen that he would come back in a coffin?
Indira Gandhi was open to the idea of devaluation being pressed hard by the World Bank,the International Monetary Fund (IMF) and,of course,the United States but needed time to make up her mind. Her top advisers,including L. K. Jha who she had inherited from Shastri; and two trusted ministers,Asoka Mehta and C. Subramaniam,were for taking the plunge. B. K. Nehru,a distinguished economic administrator and Indiras uncle then serving as ambassador to the US,joined their ranks. Her own knowledge of economics,at that point of time,being rudimentary,she was influenced by the expert advice.
Barely eight weeks after being sworn in as prime minister,Indira Gandhi paid an official visit to Washington where not only the World Bank president,George Woods,but also President Lyndon Johnson urged that devaluation should be hastened in Indias own interest. She heard them patiently,even regally,but made no commitment. However,on returning home she realised that a decision could not be delayed for long. So,she gave the green signal. At this stage,Shastris choice of Sachin Chaudhuri as TTKs successor,proved to be of great help. Patels description of him an outstanding lawyer,a thorough gentleman with impeccable manners and in economics,complete illiterate is difficult to improve on. Chaudhuri was happy to do whatever he was told. After the event,when devaluation was under trenchant attack from across the political spectrum,from the extreme left and the extreme right,CPI leader Hiren Mukherji said that the finance minister was like a man who carried a big drum round his neck that only other people beat.
Indira Gandhis go ahead signal had to be followed by very detailed and painstaking negotiations with the IMF with a relatively large number of ministers and civil servants taking part in them to determine the exact extent of devaluation amidst complete secrecy. To their credit and to the surprise of the country at large the secrecy was maintained even though the time-differential between Washington and Delhi as well as the primitive state of the Indian telephone system made life difficult. However,there were some anxious moments. For instance,on the critical night before the decision to devalue was announced,Jha and Patel were called out from a dinner at the then cabinet secretary,Dharam Viras house,to take telephone messages received from J. J. Anjaria,Indias executive director at the IMF. Patels wife,Alaknanda,a very shrewd observer,grew suspicious and tersely asked her husband: Are you devaluing? He gave her a cock-and-bull story about sudden Chinese troop movements on the border.
Before the devaluation of the rupee could be announced,the meetings of the IMF board in Washington and the cabinet in New Delhi had to be synchronised. As soon as word came from Anjaria,the finance minister,at a dinner arranged as a deliberate diversion,was asked to go to All India Radio to broadcast the message already written out for him. The time was past nine on the night of June 6,1966. Some numerologists were quick to point out that 6-6-66 was an ominous combination. But they could have spared themselves the trouble. For,well before they spoke,Indira Gandhi had received a clear and thundering warning of the storm that was about to hit her.
Her cabinet had endorsed devaluation earlier in the evening,with Manubhai Shah alone dissenting. Only at the eleventh hour did it strike the prime minister that she must also consult the powerful Congress president,K. Kamaraj. According to R. Venkataraman,then a member of the Planning Commission and later President,who was acting as interpreter because Kamaraj spoke only Tamil,the Congress president hit the ceiling and told her that she was courting disaster. Kamaraj also muttered to RV: A big mans daughter,a small mans mistake. However,it was too late to change the process already set into motion.
What actually followed underscored that even Kamarajs warning was an understatement. The nationwide fury against the sellout was reminiscent of the national mood after the debacle in the 1962 border war with China. This,combined with the power struggle within the Congress party,brought about a profound change in Indiras policies that switched from the pragmatist to the populist. That,however,is a separate and long story.
For the present there is only one more point to be made about the devaluation drama. The press corps was greatly peeved because it hadnt got even a whiff of the brisk goings-on in the corridors of power,and tried to piece together the exact course of events. Until one of the insiders gruffly said to some of us: Why are you making so much fuss? The story is simple and consists of two Gujaratis and a single word of their language. From Washington,Anjaria rang up and asked: barobar? In Delhi,Patel replied: barobar. And the deed was done.
The writer is a Delhi-based political commentator
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