A Review of the Rupee Trade

Summary

Dr. Jayashekar, a Jawaharlal Nehru University faculty member, audits India’s two-decade experience under the Rupee Payments Arrangement with the Soviet Union and Eastern Europe. He marshals trade data from 1970-71 through 1981-82 to show that although the total turnover of Rupee trade rose more than five-and-a-half times, its compound growth lagged India’s trade with hard-currency partners, and its share in India’s foreign trade fluctuated wildly between roughly 9 and 23 per cent. The pamphlet argues that this instability, combined with India’s persistent trade surplus in non-convertible roubles, has converted Rupee trade from a development asset into a structural drag on India’s exports and industrial choices.

The argument is organised around four critiques. First, the secrecy surrounding India’s Rupee dealings denies citizens the data needed to evaluate the gains, with Jayashekar bluntly observing that ‘Rupee trade rivals defence matters’ in opacity. Second, the static and dynamic gains-from-trade analysis fails on India’s side: economies of scale and technical change in agricultural-heavy export baskets are negligible, and switch trade, high rouble exchange rates, and rising import content of exports compound the losses. Third, the terms of trade have moved against India because cash crop prices have stagnated while machinery and oil prices have multiplied, with Soviet data suggesting India is the cheapest or near-cheapest supplier of most commodities into the Soviet market. Fourth, the Soviet response to India’s changing development needs has been ‘reluctant, tardy, and inadequate,’ offering instead pressure to absorb obsolete Soviet machinery and unwanted textile equipment.

In the closing ‘Proposal for Modification’ section Jayashekar calls for progressively switching Rupee surpluses into convertible currencies, diversifying the export basket so that 70 per cent of exports to the Rupee Trade Area consist of manufactured goods within five years, resisting Soviet dumping of unwanted equipment, insisting on global tenders, building Soviet-US Grain-Agreement-style commodity ceilings, and treating any continued surplus as an interest-bearing loan at 2.5 per cent. He frames the moment — falling oil prices, a widening Soviet deficit with India, and India’s own industrial maturation — as opportune for India to move to convertible-currency trade with the Soviet Union. A short table appendix (Tables I-III) supplies the balance-of-trade and export-composition figures that underpin the polemic.

Key points

• Total India-Eastern Europe/Soviet trade turnover rose from Rs. 589.9 crore in 1970-71 to Rs. 2,782.6 crore in 1981-82, but compound growth in Rupee trade lagged India’s trade with hard-currency partners.

• India accumulated a Rupee-trade surplus in ten of the twelve years since 1970-71, with cumulative surplus exceeding 1,145 million roubles in India’s favour — a ‘phenomenon that ought not to have come about under the Rupee trade system’.

• Jayashekar attacks the secrecy of Indo-Soviet trade, arguing it ‘rivals defence matters’ and denies citizens the data needed to assess gains, leaving even researchers to make ‘impressionistic’ judgements.

• Static and dynamic gains-from-trade are weak on India’s side: export baskets are concentrated in agricultural raw materials and cash crops whose prices have stagnated, while imports (machinery, oil) have appreciated.

• Surplus production in Soviet capital-goods industries — driven by planning inconsistencies, technological obsolescence, and frequent policy shifts — has led the USSR to dump unwanted machinery and obsolete textile equipment on India.

• Soviet aided projects such as BHEL, HEC, MAMC, IDPL and Instrumentation India Ltd ‘languished for long periods’ before being made viable through Western technology infusion.

• Jayashekar proposes converting Rupee surpluses into convertible currencies, diversifying exports so 70 per cent become manufactured goods within five years, charging 2.5 per cent interest on any continuing surplus, and adopting Soviet-US Grain-Agreement-style commodity ceilings.

• He frames the present moment — falling oil prices, widening Soviet deficit with India, India’s industrial maturation — as the opportune time to switch to convertible-currency trade with the Soviet Union.