Four Devaluations and a Tantrum

On 19 September 1949 the rupee lost 30.5 per cent of its value against the dollar and gold, and nothing at all against sterling.¹ India had not chosen the move: the Reserve Bank of India’s own chronology calls it a “defensive measure consequent to the devaluation by other ‘sterling area’ countries”.²

It was the first of the rupee’s breaks after independence. Between 1947 and the intraday low of 28 August 2013 the price of a dollar went from ₹3.31 to ₹68.85.³ The sharpest moves came in dated steps, each with a government in office and a paper trail.

Following sterling in 1949

The par value India inherited was 30.225 US cents to the rupee, fixed with the IMF in December 1946, or ₹3.3085 to the dollar.⁴ From 19 September 1949 it was 21 US cents, or ₹4.7619, one day after London cut sterling from $4.03 to $2.80. The sterling rate stayed at 1s 6d, or ₹13.33 to the pound.¹

Jawaharlal Nehru was prime minister, John Mathai finance minister, and Benegal Rama Rau had been governor of the RBI for less than three months.⁵ The Bank Rate did not move. It stood at 3 per cent, where it had been since November 1935, and stayed there until November 1951.⁶

The cost fell on the sterling balances India held in London, which carried no devaluation guarantee. Abreu’s archival reconstruction puts the implied loss at £361 mn, or $1,011 mn at $2.80 to the pound, though this rests on a single author’s reading of British files.⁷

1966 and the Bell Mission

The second break was India’s decision, though not India’s alone. On 6 June 1966 the par value went from ₹4.76 to ₹7.50 per dollar, a 36.5 per cent fall in the rupee’s foreign-currency value, and from ₹13.33 to ₹21.00 per pound.⁸ Indira Gandhi was prime minister, Sachindra Chaudhuri was finance minister and P. C. Bhattacharya governor.⁹

The outside pressure is well documented. A World Bank mission under Bernard Bell, whose report is dated 1 October 1965, recommended devaluation and import liberalisation, and the Bank’s president, George Woods, tied the Aid-India Consortium’s non-project aid, estimated at $900 mn a year, to that package.¹⁰ The IMF approved the new par value. Secondary accounts that the Fund withheld about $150 mn in December 1965 are marked unconfirmed.¹¹

Domestic agency is on the record too. T. T. Krishnamachari, finance minister until 31 December 1965, publicly ruled out devaluation on 17 July 1965, while Asoka Mehta and C. Subramaniam backed the package.¹² The literature still argues over how to weigh the two. The repo holds no text of the government’s own stated rationale on the night of 5 June.

The Bank Rate had risen from 4.5 per cent in January 1963 to 6 per cent in February 1965, and was not cut until March 1968.⁶ Total reserves, gold included, were $601 mn at the end of 1965 and $610 mn a year later.¹³ Consumer prices rose 10.8 per cent in 1966 and 13.1 per cent in 1967.¹⁴

Set against the promise, the record is thinner. The repo’s sources record Consortium receipts of $295 mn in 1967-68 and $642 mn in 1968-69, and export subsidies returned in August 1966.¹⁵ When sterling fell 14.3 per cent on 18 November 1967, India did not follow, and the rupee rose from ₹21 to ₹18 against the pound.¹⁶

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1949

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1. 1949

   19 September 1949: the par value goes from 30.225 to 21 US cents, or ₹3.31 to ₹4.76 a dollar, a day after sterling is cut. The sterling rate stays at 1s 6d.

2. 1966

   6 June 1966: ₹4.76 to ₹7.50 a dollar, a 36.5 per cent fall in the rupee's foreign-currency value, after the Bell Mission and US pressure.

3. 1971–75

   1971 to 1975: the gold window closes, the rupee follows sterling down when it floats, and from 24 September 1975 it is pegged to an unpublished basket.

4. 1991

   1 and 3 July 1991: two steps in three days, about 18 per cent in dollar terms by the RBI's own reckoning.

5. 2013

   28 August 2013: ₹68.85 intraday after the Federal Reserve's taper signal. No par value was changed; the annual average on the line is lower.

Annual figures: the 1966 and 1991 values average the rates before and after each devaluation. Source: IMF; RBI; World Bank. Download CSV

Bretton Woods ends, 1971 to 1975

The third episode was a sequence. After the United States closed the gold window on 15 August 1971, the rupee was briefly held at ₹7.50 to the dollar, then re-linked to sterling after the Smithsonian Agreement of 18 December 1971.¹⁷ The central rate usually quoted, ₹18.9677 to the pound, is recorded in the repo from memory of the RBI’s official history and marked estimated.¹⁷

When sterling floated on 23 June 1972, the rupee floated down with it without any announced devaluation.¹⁸ The dollar rate averaged ₹7.49 in 1971 and ₹8.41 in 1975.¹⁹ On 24 September 1975 the rupee moved to a basket of trading partners’ currencies whose weights were never published.²⁰

Indira Gandhi was prime minister throughout. Y. B. Chavan was finance minister until October 1974 and C. Subramaniam after him; S. Jagannathan was governor at the 1971 re-peg and K. R. Puri at the basket peg.²¹ The Bank Rate went from 5 to 6 per cent in January 1971, to 7 per cent in May 1973 and to 9 per cent in July 1974, the year consumer inflation reached 28.6 per cent.⁶¹⁴ Reserves rose, from $1,246 mn at the end of 1971 to $2,325 mn at the end of 1974.¹³

1991: two steps in three days

The fourth break came in a crisis that spanned two governments. In May 1991 the caretaker ministry of Chandra Shekhar, with Yashwant Sinha as finance minister, sold 20 tonnes of confiscated gold through the State Bank of India to UBS for a reported $200 mn.²² Press accounts put reserves before the election at under ₹1,000 crore or at $1.3 bn to $1.5 bn; the repo keeps both, as they differ in date and definition.²³

P. V. Narasimha Rao and Manmohan Singh took office on 21 June 1991, with S. Venkitaramanan at the RBI. On 1 and 3 July the rupee was devalued in two steps, which the RBI’s chronology puts at “about 18 per cent” cumulatively against the dollar.²⁴ On 4 July the Bank Rate went from 10 per cent, its level since July 1981, to 11 per cent, and on 9 October to 12 per cent.⁶ The same day, 46.91 tonnes of RBI gold began leaving for London, pledged to the Bank of England and the Bank of Japan for a reported $400 mn.²⁵

The IMF approved a $2.2 bn stand-by on 31 October 1991. On 27 November the Minister of State for Finance, Rameshwar Thakur, told the Rajya Sabha that reserves had “gone to more than Rs. 6700 crores”.²⁶ The dollar averaged ₹17.49 in 1990 and ₹22.71 in 1991.¹⁹

A dual rate, then a single one

A change of regime followed. In March 1992 the Liberalised Exchange Rate Management System set an official rate alongside a market-determined one, as a transition step; in 1993 the two were unified.²⁷ One research note dates unification to 1 March 1993; the RBI-sourced row gives only the year. C. Rangarajan had become governor on 22 December 1992.²⁸

Reserves rose from $9,539 mn at the end of 1992 to $14,675 mn at the end of 1993 and $24,221 mn a year later.¹³ The rupee averaged ₹31.29 to the dollar in 1993.¹⁹ Current-account convertibility followed in August 1994.²⁷

2013: a tantrum, not a devaluation

No par value was changed in 2013. After Ben Bernanke signalled on 22 May that the Federal Reserve would taper its bond buying, foreign investors pulled a net $7.2 bn from India in June.²⁹ The RBI under Duvvuri Subbarao reset its marginal standing facility at 10.25 per cent from 15 July and imposed the “80:20” rule on gold imports; customs duty on gold rose from 4 to 10 per cent in three steps during the year.³⁰ On 28 August the rupee touched ₹68.85 intraday, a fall of 3.7 per cent in a day.³¹

Manmohan Singh was prime minister and P. Chidambaram finance minister.³² Raghuram Rajan took over the RBI on 4 September and opened swap windows for FCNR(B) deposits and bank borrowing that raised about $34 bn by 30 November.³³

The stated aim of the gold curbs was to cut the current-account deficit. The World Bank puts that deficit at 5.0 per cent of GDP in 2012 and 2.6 per cent in 2013.³⁴ Reserves were $300.4 bn at the end of 2012 and $298.1 bn at the end of 2013, and consumer inflation was 10.0 per cent.¹³¹⁴ The RBI’s Bank Rate chronology stops in 2002; the IMF’s discount-rate series averages 8.96 per cent for 2013, a figure the repo marks as estimated.³⁵

The FCNR(B) deposits of 2013 fell due between September and November 2016, and the RBI met them from its forward book. How much was repaid is still a blank in the repo’s record.³⁶

Footnotes

1. Rupee par of 21.00 US cents from 19 September 1949; sterling parity unchanged. Economic Weekly, “Devaluation of the Rupee”, 1 October 1949; RBI chronology 1935-49 (market_flashpoint, verified). The Economic Weekly prints “Rs 3.23” for the old rate, a misprint for ₹3.31. ↩ ↩²

2. Reserve Bank of India, chronology 1935-49, as quoted in the repo’s 1947-1957 research notes. ↩

3. ₹3.3085 in 1947: Economic Weekly, 1 October 1949 (verified). ₹68.85 intraday on 28 August 2013: Business Standard / Reuters, 28 August 2013 (reported). ↩

4. IMF par fixed December 1946. Economic Weekly, 1 October 1949 (market_rate, verified). ↩

5. Wikipedia lists of prime ministers, finance ministers and RBI governors (polity_tenure; confidence: reported). Rama Rau took office on 1 July 1949. ↩

6. Reserve Bank of India, Chronology of Bank Rate, rbi.org.in/scripts/his_chrobankrate.aspx (verified). Changes on 28 November 1935, 15 November 1951, 3 January 1963, 17 February 1965, 2 March 1968, 9 January 1971, 31 May 1973, 23 July 1974, 12 July 1981, 4 July 1991 and 9 October 1991. ↩ ↩² ↩³ ↩⁴

7. Abreu, TD 643, as summarised in the repo’s 1947-1957 research notes (peer-reviewed grade, one author; underlying Treasury files not seen). ↩

8. IMF, The IMF 1966-71, ch. 23; FRUS 1964-68 vol. IX (market_flashpoint; confidence: reported). ↩

9. Wikipedia lists of prime ministers, finance ministers and RBI governors; Ministry of Finance list (polity_tenure; confidence: reported). ↩

10. World Bank archives, Bernard R. Bell papers (trade_policy, verified); FRUS 1964-68 vols. IX and XXV. ↩

11. fiftytwo.in, “Shortfall” (external_obligation; confidence: unknown). Not confirmed against IMF Executive Board minutes. ↩

12. the1991project.com timeline (heterodox institutional; confidence: reported). ↩

13. World Bank, World Development Indicators, FI.RES.TOTL.CD, total reserves including gold, end-period (verified). ↩ ↩² ↩³ ↩⁴

14. World Bank, World Development Indicators, FP.CPI.TOTL.ZG (verified). ↩ ↩² ↩³

15. Aid receipts: FRUS 1964-68 vol. XXV doc. 349 and a Srinivas lecture (market_flashpoint; confidence: reported). Export subsidies: the1991project.com timeline (confidence: reported). ↩

16. IMF par-value records; IMF International Financial Statistics (confidence: reported). ↩

17. FRUS; IMF history 1972-78 (reported). Smithsonian central rate: RBI History vol. 3, not re-checked (confidence: estimated). ↩ ↩²

18. Wikipedia, “Exchange rate history of the Indian rupee”; Encyclopedia.com (confidence: reported). ↩

19. 1971: World Bank WDI, PA.NUS.FCRF (verified). 1975, 1990, 1991 and 1993: Federal Reserve Bank of St Louis, FRED series DEXINUS, annual averages (confidence: estimated). ↩ ↩² ↩³

20. MoSPI, Statistical Year Book, ch. 40 (confidence: reported). ↩

21. Ministry of Finance list; Wikipedia list of RBI governors (polity_tenure; confidence: reported). ↩

22. RBI; parliamentary answers, 1991 (market_flashpoint; confidence: reported). ↩

23. Indian Express, “In fact: how govts pledged gold to pull economy back from the brink”, 5 April 2017; Business Standard, “Two months that changed India”, 2 July 2011 (both reported). ↩

24. Reserve Bank of India, chronology 1991-2000, rbi.org.in/commonman/english/history/Scripts/Chron1991to2000.aspx (verified). Tenure dates: Wikipedia, “1991 Indian economic crisis” (reported). ↩

25. ThePrint, citing C. Rangarajan; The Quint (confidence: reported). ↩

26. Rajya Sabha debates, 27 November 1991, archive.org scan rsdebate.nic.in.233991 (verified). ↩

27. Reserve Bank of India, chronology 1991-2000 (verified). The 1 March 1993 date is from the repo’s monetary notes (reported). ↩ ↩²

28. Wikipedia, “Governor of the Reserve Bank of India” (polity_tenure; confidence: reported). ↩

29. Business Standard, 2 July 2013, from SEBI and NSDL data (confidence: reported). ↩

30. Monash IMPACT; Business Standard, 16 July 2013; TaxTMI customs notification summary (all reported). ↩

31. Business Standard / Reuters and Al Jazeera, 28 August 2013 (confidence: reported). ↩

32. PMO list; DEA list of finance ministers, as recorded in the repo’s 2007-2017 research notes (reported). The repo’s tenure table currently ends Manmohan Singh’s premiership at 2009; the notes carry it to 26 May 2014. ↩

33. SPJIMR, “The 2013 RBI FCNR(B) Swap Window: Review and Takeaways”; Ministry of Finance, Status Report 2013-14 (verified). ↩

34. World Bank, World Development Indicators, BN.CAB.XOKA.GD.ZS (verified). ↩

35. IMF International Financial Statistics discount rate via FRED, INTDSRINM193N, annual mean of monthly values (confidence: estimated). ↩

36. SPJIMR; Business Standard, 3 September 2016 (external_obligation; confidence: reported). Redemption amount not recorded. ↩