Though little appreciated by most Indians, one of the most important actions taken by the Japanese government of Shinzo Abe in support of the New Delhi regime he is wooing was to save the rupee in the fall of last year.
Already fading from public memory, it should be recalled that the Indian rupee fell off a cliff between May and August last year. It fell from about 56 to the dollar to nearly 69, its lowest ever value against the greenback. Forward markets were flashing red, talking about the rupee falling to a hundred to the dollar by year’s end.
This was noticed in Tokyo where the Abe government was already fashioning a policy for the strategic pairing of India and Japan. The central bank of Japan wrote a letter in late August to Raghuram Rajan, at that point the chief financial advisor of the finance ministry, offering to help India save the rupee. Before he could accept, Rajan was elevated to the governorship of the Reserve Bank of India. But one of his first actions as RBI head was to send a note to his Japanese counterpart, Haruhiko Kuroda, accepting this offer of help.
The actual act was simplicity itself. At the St Petersburg G-20 summit in the first week of September, Prime Ministers Manmohan Singh and Abe agreed that a small existing currency swap would be expanded to $ 50 billion. In effect, India was being allowed the right to tap Japan’s massive three trillion dollar foreign exchange reserves whenever it felt the need — the $ 50 billion limit was a consequence of Indian regulatory caps rather than Japanese unwillingness to offer more.
As a Japanese official said, the currency swap killed the growing tide of bearish sentiments against the rupee and the speculation that was developing in favour of a further rupee slide. While the rupee’s fall had been partially arrested by Rajan’s unusually policy-heavy inaugural statement as central banker — hitting the ground running is something he shares with Kuroda.
The actual currency swap was not formalised until January this year by the two central bankers. More noteworthy, it has never been used by India. A suitable reminder of how speculation and market sentiment is very much a game of the mind, the very idea of the currency swap and Japanese backing scared of speculators. This in turn gave Rajan the type of breathing space he needed to enact the policies to swing the rupee around.
New Delhi’s ruling circle, who like to presume India can do everything on its own and without foreign assistance, have been relatively mealy-mouthed in giving Japan its due. And the Japanese are too pilot and too strategically minded to make a noise themselves.
Singh, an ardent admirer of Japan, might have felt some deja vu. After all, in 1991 when the Indian economy faced meltdown, the emergency international funding that helped Singh affect a turnaround was led by $ 300 million from Tokyo.
Japan’s Prime Minister Shinzo Abe will be India’s Republic Day guest this weekend. Traditionally this is an invitation the Indian government extends only to countries that it sees as friendly, to leaders who are not seen as controversial and to reflect relationships over whom there is a broad consensus at home. Read more
A number of foreign policy commentators in India, including most notably the National Security Advisor Shiv Shankar Menon, have argued that the open international economic system backed by the US and the West in general has begun to become less open. And that the change is being driven by the West itself. Read more
The second Manmohan Singh government had a relatively ambitious neighbourhood policy, a goal of a peaceful periphery that it understand as previous governments had was a necessary prerequisite to India being able to play a more proactive role in the international system. Read more
As happens a two or three times a year, I was invited to a state banquet on Thursday. This was being held by President Pranab Mukherjee for his newly elected counterpart from the Maldives, Yaamin Abdul Gayoom.
My sense was that this was a necessary bit of confidence building for the two countries. Gayoom making sure India was the first country he would visit. New Delhi getting a chance to remind him of what India saw as its interests in this scattered archipelago nation, strategically athwart the Indian Ocean.
After all, the Maldivian presidential election was far from controversy free. The incumbent had come to power by a quasi-coup. The election had been repeatedly postponed by a Supreme Court known to be composed of Gayoom loyalists with the purpose of the eventual winner being able to strike a deal with the number three candidate.
All a bit murky, definitely legally questionable, and all very Maldivian given the deep personal divisions that mark the politics of this tiny — population wise — nation. Said one ex-ambassador to Male, “Some 26 families run the whole country.”
I was number 40 in the order of protocol when the assembled guests were lined up in the Ashoke Hall to shake the chief guest’s hand. Gayoom smiled and said, “Happy New Year,” when I murmured welcoming noises.
Mukherjee, during his toast, made the normal nice noises that are made at state banquets. But I noticed that more than a few lines were about Indian Ocean security and included un-banquet like language like “maritime domain awareness” and “naval surveillance.” I conjectured that it was being underlined to Gayoom that the naval understandings India had struck with the Maldives and Sri Lanka in the past were things New Delhi expected policy continuity.
A number of Indian businessmen were seated at the banquet. Anecdotally, I got the sense that especially infrastructure and housing firms tended to cluster in an area ranging from Sri Lanka to Ethiopia and East Africa, a wedge of the Indan Ocean littoral area.
Inevitably, the Andhra infrastructure firm GMR was well represented. Though GMR seems set to exit the Male airport, this will take some untangling. New Delhi has ensured that both sides have taken it to arbitration. But the Maldivian government is caught in a cul de sac.
If it wins the arbitration case, it will need to compensate GMR a whopping sum of money — which the Maldives doesn’t happen to have. The Maldivians claim they can the run the airport. But few believe this. This could mean, the Indian system worries, a third party coming in and possibly loaded with much renminbi.
Rashtrapati Bhavan food is not the greatest, though the Goan fish curry was passable. President Mukherjee is know to roll out an excellent Bengali repast when he travels around the country. However foreign guest seem to get a pan-Indian spread where variety tends to overwhelm the quality. But state banquets aren’t about culinary stuff, they are about pomp, circumstance and a chance to get a bit of capitol gossip.