A common currency for South Asia to end rupee's woes

Every few years the Indian rupee takes a dive. Every time this happens, there is the usual hand-wringing and the finance minister talking the rupee up.

Invariably, the rupee’s fall triggers the clichéd debate over growth versus inflation, talk of curbing foreign exchange outflows, sucking cash out of the market and a number of other ad-hoc measures. The rupee ‘stabilises’ at a new low. Until it goes for another spin, and the charade is repeated.

It is no different this time with the rupee at Rs65 to a dollar and forecasts of it being headed towards Rs70.

As it stands (or, falls) today, the rupee does little credit to India as a rising power. In fact, the rupee does not look like ever becoming a currency of power.

In the last decade, before the global financial crisis struck, India saw eight per cent growth and Indian capital’s overseas acquisitions suggested that, given the right conditions at home, it had the strength to take big strides abroad. The downturn did not, immediately, sour the climate in emerging economies such as China and India. In fact, the two Asian powers weathered the crisis well, and were considered important for driving the recovery.

Now, the scenario has changed. China, although its economy has slowed down, continues to chug along, ignoring the doomsayers and warnings of a catastrophe.

Unlike China, India is sliding into a crisis while the US and some of the western economies are recovering. The dollar is regaining its dominant role as both currency and commodity even as the Indian rupee is the worst hit among the currencies of emerging economies. 

The falling rupee is treated as a problem of the finance ministry and the Reserve Bank of India, and not as a national crisis; not as an issue that affects India’s self-worth and standing abroad.

Foreign policy and diplomacy are increasingly driven by economic objectives. Curiously, the Indian rupee’s fate never figures in our ‘External Affairs’. The government is able to do nothing to raise the strength and stature of the rupee to match India’s international profile.

At the least, the government should be able to make one other country feel affected by the rupee’s fortunes. Far from that, even Indians are sold on the dollar when they see no future for the rupee.

Yet, this crisis could be an opportunity for India to re-float the idea of a common currency in South Asia. Conditions may not be conducive for the creation of such a single currency, but acceptance of this as an objective may compel South Asian countries, especially India and Pakistan, to end mistrust, jointly fight terrorism and enhance mutual security for greater cooperation and economic integration.

In 2003, Prime Minister Atal Bihari Vajpayee had mooted the idea of open borders and a single currency.  Vajpayee felt that South Asian countries developing greater economic stakes in each other would create sensitivity to shared concerns and promote common interests.

Sadly, though the idea drew responses elsewhere in Asia, including Japan and China, in India itself it has not been debated seriously.

At the 15th ASEAN Summit in Cha-am Hua Hin in Thailand in October 2009, Japan’s call for adoption of a single Asian currency was backed by China. The plans for a single-currency trading bloc aimed to take in all countries of the East Asia Summit, which brought ASEAN together with Australia, China, India, Japan, New Zealand and South Korea.

It is ironic that while other countries are confident of India joining the efforts for creating a common currency area, in India itself the issue is ignored. 

The author is an independent political and foreign affairs commentator based in New Delhi