Today I read an interesting article regarding first devaluation of Indian Currency by late Mrs. Indira Gandhi, Prime Minister of India. It took me through interesting decision making process and how the policy decisions are taken in the Government setup. It is not that this process is new for me. Having worked in the Government in senior position, I am well aware about how policy decisions are made. However the conduct rules in Government prevent me from spilling the beans :) .
One word which has been used in today's article on devaluation carries interesting meaning. The word used is 'Barobar'. In straight forward sense, it means OK. But if the same word is pronounced differently as 'Baarobaar' would mean bypassing some one. So in that context to say that two Gujaratis in Indira Gandhi Government took the decision to devalue Indian Currency 'Baarobaar' would have meant that late Indira Gandhi took the decision bypassing Kamraj and others as 'Baarobaar'.
Fun aside, few days ago I received one interesting mail which said if the Rupee exchange rate could be fixed by the Government (Till the time liberalization was introduced, it used to be 1 Dollar = 8 Rupees) and if the exchange rate is fixed at say Rupee 1 = Dollar 1, what would be the scenario? Has any body thought about it? So BMW will be sold in India for Rs. 50000, Best quality Laptop will be sold for Rupees 1200...... and so on. But this will not come true as the moment BMW is available for Rs 50000, people would queue up for bookings of the car and soon the demand supply will take the price back to say Rs. one million. Which would also mean that same BMW will be sold in US for one million dollars. and therefore, the good old ford Pontiac will be sold for 300K dollars! In short, if the rupee can ever appreciate ,the affordability of cars and goods for people in India will go up and correspondingly affordability of cars and for the same reason that of other consumer products will go down for people from US and rest of the world. Extending the same logic in respect of currency of all developing countries, one would be tempted to conclude that just by varying the currency exchange rate, countries can change affordability for their citizens and their poverty status. Sounds so simple! is n't it?
If this were so simple, there would have been no world order. The fact of the matter is countries can not manipulate their currencies so easily. The simple explanation is that exchange rates are determined on the basis of strength of their external trade and balance of payments situation. So if there is one country with very strong balance of payment scenario and favorable balance of payments situation on a sustainable basis, that country can definitely readjust its currency and force a different world order. So how do we define such scenarios and can we have standard defined parameters to explain strength of such countries?
Yes we can. I call that unknown variable as Economic Entropy of the nation. I will explain concept of Economic Entropy in next post. 'Barobar ne'.
One word which has been used in today's article on devaluation carries interesting meaning. The word used is 'Barobar'. In straight forward sense, it means OK. But if the same word is pronounced differently as 'Baarobaar' would mean bypassing some one. So in that context to say that two Gujaratis in Indira Gandhi Government took the decision to devalue Indian Currency 'Baarobaar' would have meant that late Indira Gandhi took the decision bypassing Kamraj and others as 'Baarobaar'.
Fun aside, few days ago I received one interesting mail which said if the Rupee exchange rate could be fixed by the Government (Till the time liberalization was introduced, it used to be 1 Dollar = 8 Rupees) and if the exchange rate is fixed at say Rupee 1 = Dollar 1, what would be the scenario? Has any body thought about it? So BMW will be sold in India for Rs. 50000, Best quality Laptop will be sold for Rupees 1200...... and so on. But this will not come true as the moment BMW is available for Rs 50000, people would queue up for bookings of the car and soon the demand supply will take the price back to say Rs. one million. Which would also mean that same BMW will be sold in US for one million dollars. and therefore, the good old ford Pontiac will be sold for 300K dollars! In short, if the rupee can ever appreciate ,the affordability of cars and goods for people in India will go up and correspondingly affordability of cars and for the same reason that of other consumer products will go down for people from US and rest of the world. Extending the same logic in respect of currency of all developing countries, one would be tempted to conclude that just by varying the currency exchange rate, countries can change affordability for their citizens and their poverty status. Sounds so simple! is n't it?
If this were so simple, there would have been no world order. The fact of the matter is countries can not manipulate their currencies so easily. The simple explanation is that exchange rates are determined on the basis of strength of their external trade and balance of payments situation. So if there is one country with very strong balance of payment scenario and favorable balance of payments situation on a sustainable basis, that country can definitely readjust its currency and force a different world order. So how do we define such scenarios and can we have standard defined parameters to explain strength of such countries?
Yes we can. I call that unknown variable as Economic Entropy of the nation. I will explain concept of Economic Entropy in next post. 'Barobar ne'.
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