Monday, April 9, 2007


Now that I'm moving to India in a few weeks, I find myself reflecting on the fifteen or so years I have spent in the US. When I left India in 1991, it was a country that bears little resemblance to the country I will return to next month.

The most apparent changes are the superficial ones: glitzy shopping malls (there were none in 1991) and the profusion of cable TV networks (there was no cable TV in 1991), among others. There are deeper changes too. The one that strikes me more than anything else is the sense of possibility and confidence I see in today's high school and college students. When I was in high school, the limitless possibilities that follow from rapid economic expansion was not something we really conceived of in any meaningful manner.

A nice little illustration of all this can be found in the foreign exchange situation then, and now. In 1991, right was I was getting ready to leave for the US, India's balance of payments weaknesses suddenly caused a crisis. The government was close to defaulting on its debt, and foreign exchange reserves had dropped to about three weeks worth of imports - about $6 billion. As part of a package of reforms, India moved from a fixed to a floating exchange rate, which immediately caused a severe devaluation. I remember my father being quite upset, as my education in the US suddenly became 50% more expensive than it had been a month before!
(If you're interested, you can read more about the 1991 currency crisis in this IMF paper).

Contrast that to today. For those of you who deal in India-US cross border issues, you're probably already aware of the rupee's appreciation against the dollar over the last six months. In fact, the rupee is at an at an 8-year high against the dollar.

Take a look at this exchange rate chart from Oct 06 to today:

The rupee has appreciated from 45.7 per USD in October last year, to 42.6 per USD currently. Foreign exchange reserves have ballooned to almost $200 billion today. It's a world away from 1991.