- Recently, RBI Governor Urjit Patel warned that the global trade war could escalate into a currency war.
2. Trade wars erupt when countries impose tit-for-tat tariffs on imported goods, to protect domestic manufacturers.
3. Currency wars:
- Currency wars are triggered when nations either allow their currencies to weaken appreciably or devalue them to gain a competitive advantage over trade rivals.
- If other countries react by devaluing their respective currencies to retain competitiveness, this could lead to instability in markets.
- Devaluation is a policy tool to reduce the value of a currency, relative to other currencies, in a fixed exchange rate.
- It is used to set the relative prices of domestic and international goods and services at a new footing.
- Devaluation is different from depreciation, which is a decrease in the currency’s value due to market forces of demand and supply when the exchange rate of the currency is floating.
- Governments may resort to devaluation for any one of three major reasons:
5. To boost exports:
- The lowered value of the domestic currency will make it less expensive for foreign buyers to obtain the local currency to buy locally produced goods or services.
- More goods and services would be sold abroad, helping domestic businesses reliant on export markets such as software services companies, pharma firms and seafood exporters.
6. To shrink a trade deficit:
- Devaluation while making exports more competitive also makes imports more expensive and hence less affordable.
- This helps reduce the volume of non-essential imports thus helping to narrow the trade gap.
7. To reduce the debt servicing burden: nations with significant sovereign debt sold domestically may find it advantageous to let the currency weaken as it helps lower the notional cost of debt servicing.
8. Rupee devaluation:
- In 1966, hit by drought after two major wars (with China and Pakistan), India devalued the rupee by 36.5%.
- Again, in 1991, a Balance of Payments crisis exacerbated by the sharp spike in oil prices in the wake of the Gulf War spurred India to devalue the rupee in “a two-step downward adjustment of 18-19%.”
- Akriti Bhatia, PhD Scholar, University of Delhi, emphasized that rural-to-urban migrant workers are facing dislocation and crisis of identity.
- In India inter-state migrants are facing constant threat.
- Large chunk of migrant labourers shelter and work are deemed “illegal” within
- The 2011 Census pegs the total number of internal migrants in the country including those who have moved within and across States, at a staggering 139 million.
- The author said , it is the responsibility of state to provide migrant workers with proper documents, secure jobs, housing and provisioning of other public utilities.
- However, the state often derecognises them and conveniently brackets them as “illegal”.
- The Smart Cities Mission of 2015 proposed investment allocations to convert 99 Indian cities into smart cities.
- A mere 8% of the intended projects have been completed so far in the past three years, according to the recent report released by Housing and Land Rights Network.
- Many smart city proposals identify slums as a “threat” to the city in their “SWOT” (Strengths, Weaknesses, Opportunities, and Threats) analysis while totally failing to account for migrant labour in the schemes.
- The report documents forced evictions and shelter demolitions in 32 out of the 99 proposed smart cities so far.
- The national obsession with bringing order to international boundaries could also be applied within nation states, cities and neighbourhoods
- The author suggests that the state’s role in ensuring equality, basic dignity, livelihood and providing minimum social security to its people must be upheld before all other priorities.