Blessing in disguise

What happens when something is underpriced for long? Well, it gets over-consumed till a price correction, which is often quite sudden, happens. This certainly holds true for the rupee's exchange rate. Between April 2004 and July 2011, the dollar's value, despite occasional bouts of weakening, remained virtually constant at Rs 44 or thereabouts. During the same period, however, the wholesale price index of all-commodities rose by nearly 55 per cent, generating a contradiction between the rupee's steady erosion of purchasing power at home and its apparent rock steadiness against an external measure of value — the dollar.

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