When desperation becomes a masterstroke.

666 is the number of the Beast according to the Book of Revelations. We, Indians do not have any such number but 6.6.66 was a very significant day for us because on that day the rupee was devalued by 57%, from Rs 4.76 to Rs 7.50 against the dollar. Since then it has been on a downward course until today when it has reached about Rs 67 to the dollar. As the rupee loses value it loses its buying power, so imports become more expensive, which means we have to spend more on our shopping. In 2013, India imported 144.3 million tons of crude oil, the cost of which will keep increasing as the rupee becomes weaker. The increasing price of crude is passed on to customers, which increases transport costs and hence the cost of goods. That leads to inflation. Since independence we have been running retail inflation at above 5% with drops into deflation in 1968 and 1975. Constantly increasing prices means that the buying power of the rupee is getting eroded, which is manifested in its exchange value against the dollar. On 28 August 2013, it fell to 69, creating absolute panic in markets and among politicians. If all this information is available to all surely our politicians should be using every effort to bring retail inflation down to low levels which will help the poor by keeping prices low? The problem is that price rises can be controlled either by reducing demand or by increasing supply. To increase supply means a huge increase in manufacture, which will need massive investments in infrastructure, such as electricity, roads and ports. Unfortunately, building infrastructure costs a lot of money and the benefits are obtained after many years, much before the term of the government ends. Politicians in India have understood that elections are won by distributing handouts to the poor and not by making the nation stronger. So, they spend government revenues on handouts, without increasing output, which leads to an explosion in prices, the rupee falls, which is when panic sets in and expenditure is severely cut to reduce fiscal deficit and interest rate is raised to control inflation. Having dropped to 4.83% in March retail inflation jumped to 5.39% in April and is expected to be higher in May. In his latest policy statement the Reserve Bank Governor held interest rate at 6.5% because of uncertainty about the inflation level. " We will have to figure out ways to attain 5% target set for Jan 2017," he said. Bond yields are also predicting a high inflation level. Why do we not learn from the past? Because a lot of people are dependent on sycophancy to politicians for their status. Some find the devaluation of the rupee by Indira Gandhi a "masterstroke". No matter that inflation rose from 5.8% to 6.7%. Depends on whether you are looking up, or down, isn't it?