By M.V.Ramakrishnan

Friday, July 12, 2013

When India Adopted Dollar-Rupee Dual Currency System!

During the past couple of weeks, the value of the Indian Rupee vis-a-vis the American Dollar has hit the rock bottom, at $ 1 = Rs. 60+.

Which reminds me of a humorous article I had written in the Shankar's Weekly 40 years ago about the intriguing obsession we Indians were having with the U.S. $ in the 1960s and '70s (which, by the way, we are still having in the 2010s, for different reasons!).

Those were tough times when there were very severe restrictions in India on converting the native Rupees into foreign currencies on Indian soil (even in the context of people going abroad legitimately, whether for very short periods as guests or tourists, or for longer stays as students or professional visitors).  And there was a huge premium for the US $ in the black market.  Now read on!

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Glossary/Annotations (in same order as in text)

Returning to India  --  This was pure imagination! Actually I went abroad for the first time only many years later.

Sa'ab  --  Conversational form of 'Saheb', a respectful Hindi expression, meaning 'Sir' in this context but having several other connotations also.

Dollars  --  So far as we Indians are concerned, 'Dollar' always means only American Dollar, unless specified otherwise.  It was so 50 years ago, and it's still true today!

1o c. / Re. 1  --  In 1972, the conversion rate was 7.5 Rupees to a Dollar.  So 10 American Cents were equal to 75 Indian Paise, or 0.75 Rupee. Bonus of 33 % made it Re. 1.

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Shankar's Weekly
26 Nov. 1972
The Indian Dollars

I returned to India recently after an extended stay abroad, and I had no ideas of the latest developments here, as these weren't fully reported in the foreign Press.

As soon as I got into a taxi, I noticed two meters ticking away.  I asked the driver about it.

"Did you not know, Sa'ab?"  he said.  "We have two meters now.  One is in Dollars and the other is in Rupees."

"Is there any difference in the fare?"

"Yes, Sa'ab,"  the driver said.  "The fare is the same as before if you pay in Dollars,  It is one-third more if you pay in Rupees."

I still had some foreign exchange with me, so I paid him off in $.  And he accepted my dime tip with a big smile.

There were other surprises awaiting me in the city.

On the way to the office I dropped in at the coffee house for a cup of good old Indian coffee.  It tasted the same as ever.  The surprise came when the waiter brought the bill.

It said:  "10 c. or Re. 1, as the case may be."

I didn't care to ask the waiter for an explanation.  I just put 20 c. on the saucer and waved him off. and he  seemed delighted.

The real revelation of the day, however, came in the office.

As soon as I had settled down at my desk after meeting all my colleagues, my personal assistant came in and gave me the day's mail.

The first letter I saw was from a local supplier.  It contained quotations for a tender advertised some days earlier by the office.  I thought the rates looked the same as usual, till I saw the last paragraph of the letter.

"The above offer"  the para said, "is subject to payments being made in Dollars.  If you pay in Rupees, our rates will be increased by 33 %."

After some time my P.A. came in and gave me a blank form to fill up and sign. 

"What's this for?"  I asked.

"It's the income tax option form, Sir."

"What income tax option?  Have  they given us a choice not to pay our taxes?"

"Oh, no, Sir!  But they have allowed an option for paying income tax in Dollars or Rupees."

"I see.  And there is some difference in the rates, of course?"

"Yes, Sir.  The tax is the same as before if you pay in Dollars.  It is 33 % more if you pay in Rupees."

"But how can anybody get Dollars here for making tax payments?  It's just a new surcharge, of course!"

"Not really, Sir!"  the P.A. grinned, obviously amused by my total ignorance.  "We have this other thing, Sir  --  the pay option."

"What pay option?"

"Everybody is allowed to draw his salary either in Dollars or in Rupees.  Here, take a look at this other form, Sir.  You have to declare an option."

"I see.  Is there any difference in the salary if you opt one way or the other?"

"Yes, Sir.  You get the same pay as before if you take it in Dollars.  You get 33 % more if you opt for Rupees."

"That doesn't make any sense!  Everything here seems to cost 33 % more now if you pay in Rupees.  So what's  the difference whether you get your pay in Dollars or 33 % more in Rupees?"

"It does make a difference, Sir!  Probably you haven't found out yet, but there's already a 40 % premium on Dollars in the market."

"What's that supposed to mean?"

"It means you can get a bonus of 7 % if you take your pay in Dollars and convert them into Rupees, Sir.  And they say the premium is likely to go up again soon!"

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PostScript, 2013

The foreign exchange scenario in India today is spectacularly different from what it was 30/40/50 years ago, and there's no shortage of any foreign currencies now.  But even so, we Indians haven't lost our fascination for the American Dollar, for various reasons.  I have some interesting stories to tell about the old times, and some important impressions to convey about recent trends.  So let me follow this up later on!

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