Wednesday, March 17, 2010

The purpose of Exports - Part III

As is normal with any developing nation, India exports its choiciest produce. As a result the best fruits, vegetables and industrial goods produced in our country aren't available to our own citizens, but exported to other nations. One would think that this would be enough to allow India to import all that it needs. but it isn't. As far as physical trade is concerned, we still have a trade gap, which means that we import more than we export.
So how does a nation in our position reach a stage where we are able to balance the two? Most definitely by drafting policies that support an increase in exports. Which would lead us to conclude that our economic and monetary policymakers are on the right track. Or are they?
It is laudable to support an increase in exports, but only to the extent that our ability to import isn't hampered. Any policy that ends in a reduced ability to import is, by definition, violative of the underlying aim of our exports itself. But this seems to be completely lost on our policymakers, resulting in policies that support exports at the cost of imports.
Which brings us to the most important aspect of this discussion, which is the value of the INR.
A weak currency is good for exports, yes. But a weak currency does violent damage to the nations purchasing power and hurts its ability to import. In addition, as long as we import more than we export, a weak currency would be an added burden to the economy. In the next part, we'll look at this in numerical terms, for easier understanding.

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