Another excellent point made on this board is the price of oil. Average Indians will pay less to fill up their cars and Hero Hondas. Lets take a closer look. For e.g., let us assume that if the RBI were to let the rupee float, then the exchange rate would be Re30=1$ (I dont know what it will be exactly, only that it will lower than the 40Re now). What the RBI is currently doing is paying greater than the market rate i.e. it paying Re40 instead of Re30 to those who sell their dollar. It is this a Re10 discount to dollar sellers. It is in effect a Re10 discount to buyers of Indian software services in the US and Infosys/Wipro get the benefit of this discount int he form of greater profits. But where does that Re10 come from? The govt. either pays it out from tax money or just prints this money. If it pays it out in tax money, this money comes from all Indians, whether they are involved in exports or not. For e.g. doctors dont export their services but they pay taxes so do bus drivers, retails business owners etc etc. The govt. thus taxes all Indians for the benefit of those in the export sector. (The conclusion is the same if the govt. prints the money, the tax is in the form of inflation). This is really stupid. Why should the govt. rob the poor bus driver and pay it to the rich Narayana moorthy and the rich software engineers!! Let the market do its job!
