Slice of History: Rupee devaluation of 1966
Mid-sixties was a period of severe economic and political stress. The monsoon had failed in 1965 and 1966 but revived well in 1967. Food grains production declined from 89 million tonnes in 196465 to 72 million tonnes in 196566.
Industrial production was also down. Money supply was increasing at unprecedented rates. The budget deficit was high and the current account deficit was higher still. All these weak macro-economic indicators led to the devaluation of the rupee in 1966. The rupee was devalued by 36.5%.
IG Patel, then economic advisor to the government, has an interesting narration of certain developments in relation to this major policy decision in his book Glimpses of Indian Economic Policy: An Insiders View , excerpts of which are reproduced in one of the volumes of RBIs history. He says how the war of 1965 with Pakistan had somewhat forced policy makers to make this tough choice. Adding to the difficulties was the then finance minister TT Krishnamachari.
Hence the government chose to replace him by Sachin Chaudhari, a distinguished lawyer from Calcutta. His appointment had surprised many for his inadequate experience in the area. However, he goes on to point out that it was nevertheless a clever move by the government as he was a thoroughly pleasant and agreeable professional with impeccable manners, he would be pliable and do what he was told by the prime minister and by his advisers.
To add to all this, he was a personal friend of P Bhattacharya, the governor of the Reserve Bank. He would be pliable not just to the PM but to the RBI governor as well, it was assumed. He narrates an incident . . . Within days of his joining the ministry, I was asked to join Bhattacharya on a visit to Washington. I was given hardly a day to get ready.!
I was to catch an Air India flight from Delhi and Bhattacharya was to join the same flight from Bombay. A few hours before, I left Delhi, Chaudhuri himself handed over to me a small envelope when no one else was present. If I remember right, I was sitting in my car on the North Block ramp and he drove up to me to give the brief which I was to hand over to Bhattacharya on the plane in Bombay.
I was not told what the brief contained or what our mission was about. I learnt about it from Bhattacharya on the plane.
Industrial production was also down. Money supply was increasing at unprecedented rates. The budget deficit was high and the current account deficit was higher still. All these weak macro-economic indicators led to the devaluation of the rupee in 1966. The rupee was devalued by 36.5%.
IG Patel, then economic advisor to the government, has an interesting narration of certain developments in relation to this major policy decision in his book Glimpses of Indian Economic Policy: An Insiders View , excerpts of which are reproduced in one of the volumes of RBIs history. He says how the war of 1965 with Pakistan had somewhat forced policy makers to make this tough choice. Adding to the difficulties was the then finance minister TT Krishnamachari.
Hence the government chose to replace him by Sachin Chaudhari, a distinguished lawyer from Calcutta. His appointment had surprised many for his inadequate experience in the area. However, he goes on to point out that it was nevertheless a clever move by the government as he was a thoroughly pleasant and agreeable professional with impeccable manners, he would be pliable and do what he was told by the prime minister and by his advisers.
To add to all this, he was a personal friend of P Bhattacharya, the governor of the Reserve Bank. He would be pliable not just to the PM but to the RBI governor as well, it was assumed. He narrates an incident . . . Within days of his joining the ministry, I was asked to join Bhattacharya on a visit to Washington. I was given hardly a day to get ready.!
I was to catch an Air India flight from Delhi and Bhattacharya was to join the same flight from Bombay. A few hours before, I left Delhi, Chaudhuri himself handed over to me a small envelope when no one else was present. If I remember right, I was sitting in my car on the North Block ramp and he drove up to me to give the brief which I was to hand over to Bhattacharya on the plane in Bombay.
I was not told what the brief contained or what our mission was about. I learnt about it from Bhattacharya on the plane.
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