Like a fiddle: rupee

India’s rupee falls as Pakistan’s economic policies shift, frequent finance minister changes, IMF intervention

"I have sat in governance; I know. The rupee cannot fall this fast in this way. Oh, Nepal's rupee doesn't fall. Bangladesh's currency doesn't fall. Pakistan's currency doesn't fall. Sri Lanka's currency doesn't fall. What is the reason that India's rupee keeps getting thinner? You will have to answer this."

Modi's detractors circulate this video every single time the Indian rupee weakens against the dollar. When he made these comments in May 2013, USD was worth approximately INR55 (Indian rupees), and today it is above INR90. But sceptics did not get his point. It was a comparison with other currencies in the region. USD was worth around Rs98.5 in May 2013, and today it is worth around Rs280. This piece tells the story of how that feat was achieved.

In May 2014, as Modi took over power, the dollar was worth INR58.86 and Rs98.67, respectively. As New Delhi prepared to welcome President Xi Jinping of China, Islamabad was bracing for the long-lasting twin sit-ins of Imran Khan and Tahir Qadri. Word had it that, after India, President Xi planned to visit Pakistan to launch the China-Pakistan Economic Corridor (CPEC), with Gwadar at its heart. Behind the scenes, India was pushing for the Iran nuclear deal (JCPOA) so that sanctions on Iran could be lifted and it could operationalise Chahbahar port to get to Afghanistan before Gwadar came to life. The sit-ins helped, but still, a USD was trading at INR60.50 and PKR101.80. When CPEC was announced, the PTI government in Khyber-Pakhtunkhwa objected to the configuration of the routes. The politicisation of such an important project between China and Pakistan was a first in my memory.

Pakistan's finance minister at that time was Ishaq Dar, and he had cultivated a personal rapport with the IMF, which chose to overlook many of his policy quirks. All of this would begin to change in late 2016. Suddenly, murmurs of dissatisfaction over his dollar policy started reaching us. Almost simultaneously, a whisper campaign against CPEC, where its terms were challenged, also surfaced.

A change had come in America. President Trump was invited to the first Belt and Road Initiative summit in May 2017, boycotted by India. Since he was sympathetic to the Indian cause, he sent his team in his place.

On the day of his election, international markets had tanked - not because of him, but because of Modi's demonetisation policy. While the world was shocked, the Pakistani Senate thought it a capital idea and passed a resolution to demonetise the 5,000-rupee note.

In July 2017, PM Nawaz Sharif was forced out, along with his cabinet, by the judiciary. USD was at INR64.15 and Rs105.30. Miftah Ismail, who succeeded Dar, held diametrically opposite views to his and quickly reversed his policies. The dollar was trading at Rs110 and INR63.86 by December 2017. Before he could stabilise the economy, his term ended, and a caretaker set-up stepped in.

The caretaker finance minister, Shamshad Akhtar, negotiated hard with the Fund for a new package; however, her efforts were restricted by the PM's decision not to make long-term policy. Soon, Pakistan was placed back on the FATF grey list, where it would remain until a month before a major transition in 2022. (Dollar = INR68.68 and Rs122.) It was as if, before slowing down CPEC, it was being ensured that a pivot to the western economy could not be made.

When the PTI took over, it was reported that, due to Akhtar's hard work, the Fund was ready to extend around a $16 billion facility to Pakistan. Within 24 hours of this report, Pompeo came on air and said the IMF should not send the US taxpayers' money to China through Pakistan. Soon, the Fund's chief economist prematurely retired, and Indian-born Gita Gopinath assumed the role (Dollar = INR71.2 and Rs139.5), where she would remain till late August this year. Asad Umar, as the new finance minister, had wasted a lot of time already in attempts to avoid an IMF bailout. The external sector situation worsened. Pakistan joined the programme at far harsher terms. Two trends would now become the norm: extreme micromanagement by the Fund, which continued till this August, and every time a finance minister came close to stabilising the economy, he was replaced.

The Pulwama-Balakot skirmish strengthened Modi's position in the 2019 election. The first voting phase on April 11 had confirmed to him that he would win by a landslide. On April 18, Asad Umar was replaced (USD = INR69.40 and Rs141.40) with Hafeez Sheikh, who, until then, was a partner in the equity firm New Silk Route, which had significant investments in the Indian economy. If the expectation was that he would sabotage the economy, they did not know him. He tried to right the ship only to be forced out by a dramatic Senate vote loss in March 2021 (USD = INR72.50 and Rs155), which triggered the first vote of confidence. Shaukat Tarin took his place, only to be removed along with the PTI government through a second vote of confidence, or no confidence, in April 2022 (USD = INR76.23 and Rs182.49).

Miftah returned, only to be replaced by Dar in September 2022 (1 USD = INR81.58 and Rs234.65). Dar refused to negotiate with the Fund, and in the end, PM Shahbaz Sharif saved the day by snatching a standby agreement from the jaws of a dying external fund facility. Soon, Akhtar was back as the caretaker finance minister, but Gita Gopinath's presence made it hard to stabilise the economy. She was asked to reverse Dar's checks on the dollar. The dollar was now worth INR82.90 and Rs294, respectively. When Gopinath joined the Fund, the USD was worth Rs139.5, and when she left, it stood at Rs283

I have provided the scaffolding. You can fill in the colour. Clearly, Modi got what he wanted. For our side, I have some questions. The first one is for Pakistani pundits who feed you with various juicy scandals daily. How did they forget to tell you this story? Now that Modi is taking some heat for a weakening INR, the talk of an overvalued PKR has returned.

The second and more important question is, while Modi did what he thought was good for his country, why did we let it happen? I do not think we are ready to ask these questions.

There is more on culture, democracy and national security. But for that, you will have to wait for my future pieces.