India, July 5 -- Less than two weeks after assuming office, and even before it has presented the Union Budget, the PV Narsimha Rao government has made a big economic policy decision by a sharp devaluation of the rupee.

The Reserve Bank of India (RBI) has devalued the rupee by more than 20% against various currencies in two back-to-back devaluations over July 1 and 3. As a result of the decision, the dollar has gone from Rs.21.01 to 25.98. The rupee has also been depreciated by a broadly similar magnitude against currencies such as the Pound Sterling and Japanese Yen. The latest devaluation is the sharpest since the 36% devaluation by the Indira Gandhi government in 1966.

RBI's devaluation decision comes in the wake of a serious balance ...