The 1966 Devaluation in India A Reappraisal

Pronab Sen This paper re-examines the 1966 devaluationary episode in India in the light of the new theoretical propositions of the 'structuralist' school. An attempt is made to decompose the observed aggregate changesinto those attributable to the devaluation package and those determined by other concurrent parametric changes. It is found, contrary to popular belief that the Indian devaluation was contractionary in terms of aggregate output and consumption, and that there is little evidence of an inflationary outcome. The paradoxical conclusion is reached that the observed expansion of the economy was primarily because of the unprecedented agricultural failure that occurred during the period.