We examine three economic myths associated with India’s independence on the occasion of Republic Day 2018
One Rupee = One Dollar in 1947 or 1950
This is not true of either 15th August 1947 when India became independent or 26th January 1950, when it became a republic. As this DNA report points out, the rupee was pegged to the British Pound till 1966 at Rs 13.33 to a pound. The Pound itself was pegged to the US Dollar at $4.03 dollars to a pound. This makes the exchange rate roughly Rs 3.3 to 1 US Dollar in 1947.
In 1966, the Indian rupee was devalued and directly pegged to the US Dollar at Rs 7.50 to a dollar. However one should also remember that foreign exchange was tightly controlled in the license raj era and hence the exchange rate was not as meaningful as it is today.
India was deeply indebted to foreign nations
This is also not true. In fact, India held a large positive balance (1.13 Billion Pounds) of British Pound Sterling at independence, with the Bank of England. This balance had accumulated as a result of British imports from India during World War II. The money was used to pay for India’s development spending in the initial years after independence.
Everything was cheap
Prices of many years ago look cheap without actually being cheap, simply because of inflation. In its early years after independence, India was reeling from Partition and the shortages created by World War II. A Mint article compared how much things cost in 1947 with 2017. We’ve worked out the inflation in each of them from this data. Have a look.
|Item||1947 Price (Rs)||2017 Price (Rs)||Annual Inflation|
|Petrol per litre||0.27||67.5||8.2%|
|Ticket (Del to Mum)||140||6788||5.7%|
|Gold (10 gm)||88.5||31,100||8.7%|
The table also gives you a good idea of how gold performs as an investment over very long periods. It manages to keep up with inflation in most articles but does not create spectacular wealth.