A Capital Idea

The Indian Prime Minister, Mr. Manmohan Singh, recently revived one of the early casualties of India’s bumpy road towards a more efficient economy – full convertibility of the Rupee on the capital account. India’s original roadmap for convertibility, drawn up by Mr. S. S Tarapore, then the Deputy Governor of the Reserve Bank of India (RBI), is believed to be one of the most comprehensive, and most ill-timed, reports on the subject - Mr. Tarapore’s ambitious plans for India’s currency laws were prematurely swept away by the currency typhoon that hit Asian Markets in July 1997, less than a month after his recommendations were made public.
Mr. Singh, himself a former Governor of the RBI, hinted at the possibility of capital account convertibility while releasing a voluminous historical account of his ex-employer. The occasion could not have been more appropriate given that the Prime Minister’s musings could well mark a new chapter in the bank’s history.

Capitalizing on convertibility
The posited arguments for capital account liberalization, primarily greater efficiency of capital allocation and the imposition of macroeconomic discipline, are well documented although the lack of supporting empirical evidence provides ample grist for the skeptic’s mill. However, the validity of theoretical arguments would not concern the RBI as much the very real, and rapidly increasing, stock of foreign exchange it is confronted with. The mounting pile of currency, largely attributable to the RBI-managed “dirty float” of the Rupee, is now beginning to raise a stink among policy mavens who feel that the central bank’s continual interventions to suppress the currency’s upward mobility severely limits the bank’s monetary policy options. The renewed enthusiasm for convertibility is also partly the result of the growing global ambitions of corporate India, which is no longer satisfied with the meager, and often discretionary, concessions offered by what is seen as a restrictive currency regime. Things seem to have come a full circle from the early days of liberalization when the Bombay Club, an informal interest group of leading Indian business houses, lobbied hard, but without success, to stall the fledgling reforms process.
While the Asian Currency Crisis put paid to hopes of an early transition to a liberalized capital account, the government has been slowly steering the economy towards greater openness ever since. Current account restrictions were among the first to go - most transactions on the trade account no longer require government approval. Foreign Direct Investments (FDI) have been liberalized in all but a few “sensitive” sectors, as have the more volatile portfolio investments, now a force to reckon with on Indian bourses. However, while the capital account transactions of external entities are largely free from control, the RBI has been somewhat reluctant to accommodate the desire of Indian residents and corporates to access global markets. The government’s cautious dismantling of investment and borrowing restrictions on corporates has prodded the External Commercial Borrowings (ECB) limit upwards to 500 Million USD and that of foreign investments to 100% of net worth. Individuals must, however, remain content with a rather modest allowance of 25000 US Dollars per annum. Although exemptions from these norms are possible on a “case to case basis”, the numbers would seem to be out-of-sync with the rising wealth, and ambition, of Indians and their business interests.
The key outstanding items of the currency liberalization agenda include enabling a free float of the Rupee, addressing the short term overseas borrowing and investment requirements of Indian corporates and substantially increasing, if not completely eliminating, the overall limits governing access to foreign capital. Mutual Funds, meanwhile, expect that reforms will allow them to look beyond the country’s shores in their search for better investor returns.

Beyond dilemmas
Economic reforms in India, even eminently sensible ones, have struggled to cope with the country’s chaotic, agenda-ridden, and often ill-informed, political process. Seeing through a proposal with as contentious a claim to promoting economic welfare as capital account convertibility would require a satisfactory explanation of concerns on several fronts. The standard argument against currency liberalization is, of course, the experience of South East Asian countries in 1997. Empirical evidence against permitting free capital flows is further bolstered by a World Bank survey of 27 instances of capital inflow surges between 1976 and 1996 in 21 emerging markets – the study found that, in close to two-thirds of the cases, the inflows were followed by a banking crisis, a currency crisis or both. This apparent lack of compatibility between economic stability and freedom of capital movement is believed to result as much from the intrinsic inadequacies of emerging economies (in particular, shallow and non-transparent capital markets, unhealthy banking systems and fiscal laxity) as from sequencing issues such as, for example, the order in which the capital and current accounts are liberalized.
Of more relevance to India, which is largely free of the sort of crony capitalism that plagues South East Asian economies, is the impact of the proposed measures on monetary policy, the exchange rate and exports. A theoretical framework for analyzing the issue is provided by the so-called “Macroeconomic Trilemma” which contends that, of the three objectives of capital account convertibility, a fixed exchange rate and an effective monetary policy, no more than two can be achieved simultaneously. With controls on foreign investment already dismantled, the RBI’s attempt to pin down the Rupee, therefore, comes at the expense of a huge, unproductive reserve of foreign currency which, in turn, is believed to constrain monetary policy. On the other hand, letting go of the Rupee could result in impairing the competitiveness of exports including, in particular, the critical IT Services industry. This cautionary implication for liberalization is compounded by other limiting factors such as the questionable ability of India’s NPL-afflicted banks to cope with the rigors of the international financial system, the potentially inflationary effects of development spending under a free float scenario and finally, the widely feared, yet rather distant, prospect of a South East Asia style currency shock.
With many risks and few obvious benefits, argue some observers, capital account convertibility is neither essential nor desirable. The Indian Left parties, on whose support, the survival of the present government depends, lost no time in expressing their disagreement with the Prime Minister’s opinion which, they felt, was “dictated by (the) World Bank and corporates” and therefore “disastrous”.

Better luck next time
Doomsday prophecies notwithstanding, the ever-increasing stock of foreign currency is a real problem as is the need of Indian corporates for greater access to capital. With investor confidence continuing to soar on the back of rapid economic growth and improving government finances, chances of a large-scale capital flight in the foreseeable future appear remote. In any event, it is hard to see how convertibility would significantly add to the possibility of an investment exodus given that the usual suspect for such events – portfolio investment – is already a well-entrenched feature of the economy.
Free float of the Rupee would, however, pose a more immediate problem. An appreciation of the Rupee, as is widely expected to result from such an action, has the potential to pull the plug on India’s booming exports. The impact would be particularly severe on sectors such as IT services which, thanks to their negligible import requirements, have little use for a cheaper Rupee. Further, with inflation well under control, the need for an interventionist monetary policy in the short to medium term is not very evident. In short, while full convertibility is clearly in the interest of the economy, free float of the Rupee is a bit of a mixed bag. To complicate matters further, although free convertibility in the absence of a market determined exchange rate is theoretically possible, such a move has historically proven to be the perfect recipe for economic disaster.
As with most reforms initiatives in India, it is unlikely that anything will happen in a hurry. The RBI, for its part, was quick to set up a committee to revisit the issue under the stewardship of the same gentleman responsible for the production of the original report. Mr. Tarapore plans to come out with his findings by the end of July and would no doubt be hoping for a better hand from fate this time.

The Temptress

It is not the highest India’s Indian peak – not unless one imposes the rather stringent condition of requiring the recipient of that honor to be “located entirely within the country’s borders”…but Nanda Devi is arguably the most beautiful, and almost certainly the most enigmatic, of India’s many mighty mountains. The Devi’s shadow, cast from an imperious height of 7815 metres, spares few villages in the surrounding districts of Kumaon and Garhwal from its infamous caprices.
As with almost every Indian geographical feature of significance, the Devi has been assimilated into the endless pantheon of Hindu Gods and Goddesses – the locals revere the mountain as a manifestation of Shiva’s Consort, Parvati whose return to her native Garhwal, once every twelve years, sets the stage for the Nanda Raj Jat, an event that rivals the Mahakumbh in its significance for the region. The Jat begins from the village of Nauti and tests the faith of the Jatris with a treacherous 22-day march until the heart-rending formalities of parting are completed in the splendid isolation of the 22,000 feet high mountain pond of Homkund. The extreme emotions and physical rigors associated with the Jat is just one of the examples of the curious mixture of love and reverence with which the locals regard the shapely cone of ice that lords over their destiny.

Lacking the hardiness and resolve of the Garhwalis but as ardently desirous of the Devi’s blessings, I opt for the easier week-long hike from Ghat near Nandprayag to the emerging ski resort of Auli via the Kuari Pass. The route is known as the “Curzon Trail” following a glorious tradition of Himalayan misnomers that goes back all the way to Sir George Everest - Lord Curzon and his serpentine retinue were forced to jettison their hopes of crossing the Pass thanks to an unfriendly reception from a swarm of bees! His Lordship was, however, quite successful in breaking enough Garhwali backs to pave a surprisingly well-preserved trail all the way to the pass.

The trek begins with some hard hiking through rugged forested slopes but the Devi is not remiss in doing her bit to alleviate her devotees’ physical travails - lusty mountain streams, diaphanous waterfalls, lissome peaks, virgin woods, and bounteous maize-fields pass by in a pageant of visual delights that charm the senses into transcending pain…But these titillations are no more than feeble distractions dogging the pursuit of the more pristine beauty that lies beyond the Pass – the Devi’s Grace, shielded by the outstretched flanks of her gargantuan sentinels…

….The handsome triple-mount of Trishul (7120 metres) keeps a watchful vigil for most of the 4 days that it takes to clamber up to the Pass. At its foot lies the lake of Roopkund, the hideous contents of which have made significant contributions to the fascinating repertoire of Himayalan folklore - scattered around the lake and bizarrely complementing its snowy-white fringes, are a few hundred human skeletons! This icy morgue was until recently attributed to the Devi’s fury descending on the Dogri General, Zorawar Singh’s rapacious army. However, the remains have since been proven to have resulted from a Raj Jat Party losing its way while traversing the treacherous route to Homkund. Curiously, an anthropological analysis of the skulls revealed that the party was most probably a group of Konkanashta Brahmins from Maharashtra!

Another recent example of the mountain’s bloody appetite is the poignant tale of Nanda Devi Unsoeld. Willi Unsoeld, her mountaineer-father had named her for a peak he had fallen in love with as a young man. Nurtured on a daily diet of the mountain’s glory, it is not hard to understand Nanda Devi’s desire to meet her namesake. But her wish was granted rather too literally – she died from cold and exhaustion in her father’s arms, at the foot of the mountain. It is hard to resist the sentimentality of concluding, as the locals did, that Goddess was, after all, only reclaiming her own….

Mercifully, I had no such claims on the Devi’s affections…The trek from the camp at the foot of the Kuari Pass turns out to be a straightforward one - an hour’s hike with no more than a hint of oxygen-deprivation leads to a saddle-top which, in terms of effort-to-reward, must rank as one of the best bargains in the Himalayas! Although the Devi herself has yet to make her entry, a phalanx of white knights, led by the imperious façade of Dunagiri (7066 metres), stands guard over the northern and western horizons. My impatience for the Devi’s darshan urges me on to the 5000 metre high spur of Pangerchuli but she is in no mood to grant me an audience just yet – the veil drops, followed by a tempestuous fit …The mountain’s sanguine history weighs too heavily on my mind for me to even think of testing her will any further – the rendezvous will have to be on her terms.

She relents eventually at Chitrakanta, the last camp before Auli, just minutes after the Sun releases her from his passionate embrace…but her next suitor is already around the corner and as the sky slips into an inky drape, the Devi succumbs to the silvery luster of her night-watchman. The ethereal sight of this celestial union sends the mind on a strange journey to the other end of the sub-continent – to the green rice-fields and majestic gopurams of Tanjore, where one of the Goddess’ staunchest devotees lavished his unbounded love on what must be the most cherished of her followers’ countless tributes. It is unlikely that Syama Sastri ever visited Uttaranchal but his faith must have opened up splendorous vistas, of which my unseeing eyes absorb but a fraction. How else does one explain the uncanny appropriateness of his musical masterpiece in describing the glory of this vision whereas my own labored words flounder hopelessly, utterly unequal to the task?

“Saroja Dala Netri Himagiriputri Ni Padambujamule”
(Fold me into your Lotus Feet, O Lotus-eyes One, Daughter of the Snows)

My benediction is complete and gives my watery knees, the strength to take on the grueling descent to the grassy alpine meadows surrounding Auli. Whenever they do groan a little, all I need to do is turn around and bask in the Devi’s mischievous, yet indulgent smile…and I know I would gladly suffer another million painful steps for that beautiful sight…

The Wailing Woods

The intrepid explorer is something of an endangered species – there’s been enough digging and poking, seafaring and mountaineering, over the last few centuries to render wannabe Columbuses and Cooks about as relevant as their astrolabes. But even to the jaded traveler, sick to his stomach from feasting on wildebeest lunches at the Serengeti, the mention of Borneo, and the attendant vividness of Conradian imagery, is enough reason to pull out some of those old Bartholomews and Langenscheits from the clutches of dust and disuse….

Hemmed in by a cirque of islands - Sumatra and Java to the west and south, and the chaotic mess of the Celebes and the Filipino archipelagoes to the east – this cloistered Eden was used to a certain indulgence from Father Time…but even that Gentleman’s considerable influence could do little to shield the island’s chastity from the ravenous tides of commerce that swept across 17th century Asia. As the colonial powers lavished the Orient with all the craft they could muster, the fate of the East Indies hung on the outcome of an unholy barter between the two dominant powers in the region – the English and the Dutch. The exchange proved somewhat ambiguous in its implications for Borneo’s pedigree - with neither side willing to forswear the island’s charms, it was carved to pleasure the appetites of both masters. The Dutch part of this mixed legacy emerged as the Indonesian province of Kalimantan, while the English share made way for the Malaysian states of Sabah and Sarawak.

Hazy Outlook

The traveler’s dreamy vision of a pristine tropical paradise descends to a sobering touch-down at Kota Kinabalu’s bustling airport, which turns out to be substantially better endowed than the desolate landing strips of jungle lore. Sabah’s capital, with its pulsating malls and flashing neon lights, is emblematic of Borneo’s throbbing quest for a communion with the global marketplace, as it yanks itself out of its primeval womb, sawing feverishly on the cords that oppress its flight into the first world….

The impact on Borneo’s precious burden is alarmingly predictable - its handsome stands, relieved of their impregnability by the machinations of technology, struggle in vain against the suffocating grip of concrete creepers and the marauding armies of Caterpillars they support, blighting nature’s viral profusion with the regimented ugliness of palm oil plantations…The statistics are, for once, damningly truthful – the island’s forest cover has been plundered at a rate of 2 Million Hectares per year (half the size of the Netherlands); the proud denizens of this once-pristine domain, including the Orang-utan, the Sumatran Rhino and the Javan Tiger, have been reduced to the abjectness of squealing for mercy from the cardboard cut-outs of conservation campaigners. The oblivion of many lesser life-forms is exceeded only by our own awareness of their existence….

Smoke signals, warning against this scandalous exploitation, emerged, quite literally, from a devastating forest fire in 1997, one of the worst in recent times. As Borneo reeled under the resultant haze - a persistent feature of the island’s meteorology ever since – the authorities finally found the vision to rescue the few remaining feral oases from their impending despoliation. It is in one such measly strip of relatively unmolested forest that I decide to seek solace…

Monkey Business

The Sungai Kinabatangan, drains into the Sulu sea, following a leisurely meander from its origins in the mountains of Western Sabah. About 270 acres of secondary forest along the lower reaches of the river have been set apart by the Malaysian Government in a belated effort to avoid the ignominy of having to write off the country’s most prominent wildlife mascot – the Orang-utan. The ride up the river – in an antediluvian watercraft, salvaged from condemnation by the addition of a strident outboard motor – is not quite the journey into the Heart of Darkness I had come looking for. But while romance is in short supply, the promised wildlife sightings are not – I get my first glimpse of our tree-dwelling host well before I crawl into my hut at Uncle Tan’s marshy campsite. Alas, the preponderance of the giant ape in the area merits only half a cheer, for it is attributable as much to the effectiveness of conservation efforts inside the sanctuary as to habitat-loss elsewhere in the island.

The routine at Uncle Tan’s follows a well-trodden path, paved to perfection by 50 years of ecotourism in “Jungle Camps” around the world – a boat ride at the crack of dawn, a scramble across the jungle to work up the appetite for lunch, a second nautical drill in the evening to see off the sun, a nocturnal stroll to soak in the moonshine and so on...My multi-modal wanderings are frequently punctuated by visitations of the many brutes that pop out of the park’s colorful brochure - the Orang-utan, literally the “Man of the Forest”; the Proboscis Monkey of the pendulous nose and ponderous belly; the more conservatively designed Long-tailed Macaque; Kingfishers, Darters, Herons and a bevy of other feathered friends whose Latin names, chirped in a lilting Malay accent, dredge up dark memories of high school biology! I am unlucky with the rare Sumatran Rhino but considering that mammal’s density in Bornean forests, finding a needle in the proverbial haystack would probably fetch better odds.

Lesser Evil

For the time being, Borneo’s rainforests remain a well-kept secret that offers a great wildlife experience without straining the wallet or the nerves. Rampaging Land Cruisers haven’t checked in yet and 5-star tents are unlikely to be rolled out in a hurry…but the excesses of mass tourism are not of immediate concern to Borneo’s wildlife, given the far stiffer challenges posed by the palm oil and logging industries. Indeed, it is worth considering whether greater tourist interest, despite the unwholesomeness of its collateral baggage, might not command a better valuation for Borneo’s priceless ecological assets than competing claims have so far come up with. The abasement of Borneo’s magnificent forests with the tinsel garb of safari circuses is hardly a heartening prospect…but preferable, nevertheless, to the shame of complete denudation.