The rupee has been steadily appreciating in the recent past. Over the past six months, the rupee has gained an estimated 14 per cent, currently trading at Rs $4 from an average of Rs 44.48 in December 2006. While this indicates the maturing of the Indian economy, it has covenant difficulties. India relies significantly on dollar-denominated loans from multilateral financing agencies like World Bank and its affiliates. When the rupee appreciates against the dollar, the loan value shrinks. This diminution can hurt badly. Recent press reports indicate that the Mumbai Urban Transportation Project coming up with World Bank assistance is facing adversities. Dollar devaluation has resulted in the World Bank loan value dropping by a significant Rs 300 crore leading to a curtailment of several project components. This is just one of the many cases that will soon come to light.
An important dimension to multilateral agencies funding is that it is availed for social projects—urban transport, water and sewage management, state and rural roads, sanitation etc. Thus, the appreciation in the rupee has an undesirable but unavoidable social cost, in some sense, often resulting in a deprivation of basic amenities that social projects promise. Take the case of World Bank which has been a very active lender to Indian projects since 1944. As of end-June 2007, the Bank had 67 active projects with a total commitment of $14.3 billion. This is a significant amount which, for a frame of reference, is the total foreign direct investment inflows in India in 2006-07.
Assuming that the rupee has appreciated by even 10 per cent between loan finalisation and disbursement, the reduction in World Bank loan value could be a whopping $1 billion. If one factors other loans by multilateral agencies, and even FDI for that matter, the collective impact could be quite serious for an infrastructure-starved country like India.
The rupee appreciation cannot be wished away, nor can the situation be reversed overnight. In fact, the trend is likely to persist. It is said that every adversity has an equivalent seed of benefit. In this context, the seed of benefit lies in creating project-management efficiencies. Striving for timely project completion will definitely result in an overall cost saving, and could very well help in counterbalancing the shrinkage in rupee value of dollar-denominated loans. An appreciating rupee also favours importers as the net outgo in rupee terms drops. Project implementing agencies must expedite their imports in this strong-rupee regime so that the overall impact on the nation is balanced.
Independent of everything, controlling time overruns always offers a reasonable insulation from cost overruns. Rarely does one see an Indian infrastructure project, particularly government-owned, completing in time. In fact, it does not even start in time except perhaps for the timely foundation stone laying ceremony which seldom symbolises commencement of physical work. It is time to realise that a project delayed is a project denied.

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