Delhi – Prime Minister's Private Study, South Block – Early May 1949
The air conditioner hummed quietly in Arjun's study, a recent luxury that made the Delhi heat bearable. His desk was covered with reports about the RBI nationalization implementation and the new pension funds. India's financial system was being rebuilt piece by piece.
But what caught his attention was a diplomatic note from London.
After deducting the cost of the precision machinery Britain had agreed to supply, they still owed India approximately £225 million in sterling debt.
Arjun stared at the document, going through decades of future knowledge in his head. The world was still recovering from the war, and the international financial system was more fragile than it appeared.
And in Britain's case, he knew what was coming. The devaluation of the British Pound Sterling, probably within the next few months, if not earlier. Britain would devalue to boost exports and manage their economic crisis which is slowly but surely getting worse.
The implications were clear and dangerous. India's rupee was still pegged to the pound. When Britain devalued, India would suffer massive losses. The sterling debts still held in London would effectively lose value overnight.
This was a direct threat to India's financial sovereignty, and Arjun wasn't going to let it happen. He needed to unpeg the rupee before the devaluation, on his own terms.
He pressed the intercom. "Please ask Finance Minister Kelkar and Director Pillai to come see me."
Vishwajeet Rao Kelkar arrived first, looking slightly tired from managing India's ambitious economic programs. Sanjeevi Pillai followed quietly, his expression giving nothing away.
"Kelkar-ji," Arjun began, holding up the British note, "I have received a rather troubling news from a trusted source of mine that Britain is going to devalue the pound soon, probably within the next few months."
Kelkar looked genuinely alarmed. "What!? Prime Minister, a sterling devaluation would be catastrophic for us. Our foreign reserves, our trade balance, confidence in the rupee, everything would take a massive hit. How certain are you about this?"
"Very certain. This issue is apparently being discussed behind closed doors in the highest circles of British politics. The devaluation is coming, and we need to be ready for it. And, I think unpegging the Rupee is the best possible path."
"But Prime Minister," Kelkar protested, "even if you're right, unpegging the rupee now carries enormous risks. Our industrial base isn't fully mature yet, no it has barely just started.
Our currency hasn't even established sufficient international confidence outside the sterling system. We could trigger capital flight, market instability, and a complete loss of confidence in our financial institutions. This goes against every conventional economic principle."
"Conventional principles assume we have time to wait," Arjun replied calmly. "We don't. The chaos of being forced to unpeg after Britain devalues would be far worse than doing it now on our own terms. We'll control this process."
He turned to Pillai. "What are you hearing from London? What's the mood in British financial circles?"
Pillai's response was measured. "Prime Minister, our limited contacts in London, mostly through the students we've placed in various institutions, report significant anxiety in Whitehall. The British are definitely trying to delay debt repayment.
They're looking for ways to maintain financial leverage over us. They're uncomfortable with how quickly we're establishing financial autonomy."
"That confirms what I thought," Arjun said. "So here's what we're going to do. We'll send London a formal demand for immediate transfer of India's 275 tons of gold reserves currently held there. Full repatriation to our national vaults by the end of May."
Kelkar nodded slowly. "That makes sense. Get our gold back before the devaluation hits. But what about the £225 million debt?"
"We're not going to demand cash payment," Arjun said.
Yes, that was his plan. But…there was something that has been bugging him this entire time about sterling debts. But more on that later.
Kelkar blinked. "What? Then how do we settle the debt?"
"We offer them an alternative. India will invest that £225 million directly into key British companies. Strategic investments in firms that matter for future technology and industry.
Be it in aerospace, emerging computing firms, advanced manufacturing, and maybe even entertainment companies. We convert the debt into equity stakes in Britain's important industries."
Kelkar stared at him, momentarily speechless. "You want to use the debt payment to buy into British industry? That's... that's actually brilliant. It solves multiple problems at once."
"Exactly. Britain gets to avoid a massive cash outflow that would strain their already weak finances. We get strategic positions in companies that will be valuable for decades. It transforms a debt into a long-term investment and gives us influence in sectors we need to understand better."
"The British won't like it," Pillai observed. "Foreign ownership of their key industries, especially by their former colony, will sting their pride considerably."
"They'll accept it because the alternative is worse," Arjun replied. "Demanding £225 million in cash right now could destabilize their already precarious financial position. This way they can present it as strategic partnership and investment cooperation rather than forced debt payment."
Kelkar was warming to the idea. "And once we have our gold back and these investments secured?"
"Then we unpeg the rupee from the pound. We'll establish an independent currency system, pegging to the dollar instead. United States has the strongest, most stable economy in the world right now. Their currency is backed by gold, and their industrial base is unmatched. Oh, and they're not facing the kind of financial crisis Britain is dealing with."
'At least not yet'
Kelkar frowned, considering this carefully. "Prime Minister, switching from pound to dollar peg does reduce our immediate devaluation risk, but we're still dependent on another country's currency. If the dollar faces problems, we face problems.
Have you considered a managed float instead? Or pegging to a basket of currencies rather than just the dollar?"
"I've considered it," Arjun replied. "But a managed float right now would create too much uncertainty. Our institutions aren't mature enough to handle that level of complexity.
And a currency basket sounds good in theory, but it's administratively complicated and the markets won't trust it from a newly independent country."
He leaned forward. "The dollar peg is the practical choice. America is the dominant economic power and will remain so for the foreseeable future. Their currency is stable, widely traded, and increasingly becoming the global reserve currency. Pegging to the dollar gives us stability, international credibility, and access to American capital markets."
"But it also makes us economically dependent on America," Kelkar pointed out. "We're trading one master for another, in a sense."
"Not quite," Arjun countered. "The difference is that America doesn't have direct colonial history with us. They don't have the same psychological need to maintain control over our economy. And frankly, they're more interested in having India as a stable democratic partner against communism than in extracting economic concessions. That gives us more room to maneuver."
Kelkar nodded slowly, still processing. "What about convertibility? If we peg to the dollar, we'll need sufficient dollar reserves to maintain the peg."
"We'll build those reserves through our export earnings," Arjun said. "Our low-cost manufacturing exports to America are already generating dollars. That will only increase. And we'll maintain strict capital controls initially to prevent speculation and reserve depletion."
"But…won't the capital controls limit the foreign investment," Kelkar warned.
"In the short term, yes. But we need stability more than we need foreign capital right now. Once our economy is stronger and our institutions are more robust, we can gradually liberalize. For now, the dollar peg with capital controls gives us the stability we need while protecting us from the pound devaluation."
Kelkar was quiet for a moment, then nodded. "It's not perfect, but given the constraints and the timing, it's probably our best option. Better than being caught in the pound devaluation, certainly."
"The logistics of moving that much gold will be complicated," Pillai noted. "And the international reaction when India takes significant stakes in major British companies will be interesting."
"Our SS Jala Usha will handle the gold transport," Arjun said. "As for international reaction, let them be. We need to demonstrate that we're not just economically independent, but also actively playing a strategic role in global industry."
Kelkar nodded slowly, still processing the implications.
"What about the companies, Prime Minister?" Pillai asked. "Do you have specific targets in mind for the investments?"
"I've prepared a preliminary list," Arjun said, pulling out a document. "Kelkar-ji, your team will need to refine this, but here's what I'm thinking."
He spread the paper on the desk. "First category: Automotive and Industrial Vehicles. Companies like Leyland, Austin, Rover. They're export-hungry, privately managed, and have low political sensitivity. We get access to vehicle technology and production networks. The return on investment will be substantial over time."
"Second: Chemicals and Materials. ICI, GKN, Courtaulds. These are industrial export companies, and Britain desperately needs foreign capital in this sector. We can negotiate technology sharing and licensing agreements. This gives us access to fertilizers, polymers, industrial chemicals that are critical for our industrial development."
"Third: Heavy Engineering and Power Equipment. English Electric, GEC. They're focused on postwar reconstruction, not strategic military control. We get access to turbines, power equipment, industrial know-how that we need for our own infrastructure development."
Kelkar was taking notes, nodding as Arjun went through the list.
"Fourth: Shipping and Maritime. British India Steam Navigation Company, port facilities, shipyards. These are commercial operations rather than military, so less politically sensitive. But they give us maritime control, logistics expertise, and early influence in global trade networks."
"Fifth: Manufacturing Estates and Industrial Real Estate. Private industrial estates in the Midlands and around London, warehouses, production facilities. Long-term asset growth, and we can use them as training facilities for our engineers and managers to learn British production methods."
"Sixth: Consumer Goods and Textiles. Companies like Coats and Courtaulds' textile divisions. Lower profile investments that help us understand consumer markets and modern production techniques. Not that we need them as I can provide better ones if needed, but still, it's better with more sources."
He paused, then added, "I'm also proposing we offer to invest in aerospace and strategic sectors like Rolls-Royce, Hawker Siddeley, de Havilland, and even BP Oil."
Kelkar looked up sharply. "Prime Minister, those are Britain's crown jewels. They'll never accept foreign investment in those sectors, no matter what."
"I know," Arjun said calmly. "That's exactly the point. We propose investments in everything from low-sensitivity consumer goods to high-sensitivity strategic sectors. When they reject the strategic ones, which they will, it makes our acceptance of the other investments look reasonable and moderate. We're showing good faith by offering, and they're showing their limits by refusing."
"Clever," Pillai said quietly. "You make them feel like they're maintaining control over their strategic assets while we secure positions in sectors they consider less important but will actually be quite valuable."
"Exactly. And frankly, some of these 'less strategic' investments will give us more useful technology and expertise than the high-profile ones anyway. Automotive technology, chemical processes, power equipment, these are things we can actually absorb and replicate. Cutting-edge jet engines would be impressive, but we're not ready to fully utilize that technology yet.
But it needs to be noted that all of this is majorly focused on our public and private sectors. And for the state-owned ones, we already have a giant in making."
Pillai permitted himself a slight smile. "You're thinking several moves ahead, as usual."
"That's the only way to play this game, Pillai-ji" Arjun replied.
He stood up, looking at both men. "Draft the formal demands for the gold repatriation. Work with the British High Commission to present the investment proposal as a mutually beneficial solution. Make it sound like we're doing them a favor by not demanding cash during their difficult financial period."
"And the unpegging?" Kelkar asked.
"We'll announce that separately, after the gold is secure and the investments are finalized. Present it as India maturing into an independent financial power with its own currency management. The timing needs to be just right, before the British devaluation but after we've secured our assets."
After both ministers left, Arjun sat back down at his desk, looking at the British communiqué again. In the original timeline, India had been caught off guard by the pound devaluation and suffered significant losses. Not this time.
The clock was ticking toward Britain's financial crisis, but India would be ready. More than ready. They'd turn Britain's weakness into India's strategic advantage.
This was how you played the long game in international finance. Not with dramatic confrontations, but with careful timing, strategic leverage, and turning your opponent's necessity into your opportunity.