Let me try & explain what I mean by export of labour & the cost of such labour in Dollars. Bear with me. I am making up this thread as I go.

It has all to do with our demographics - number of workers & wages they can earn in Dollars if we exposed them in international markets.

We have millions of unemployed. They earn nothing for the economy but are mouths we have to feed and shelter. Now suppose we could find a way of getting them 2 do something - what that something is we will see later - that earns even 1 Dollar, we are ahead of the present state.

We can continue to do this until we run out of all the unemployed people. Thus we will earn for the economy as a whole, daily wages per worker X total unemployed thus used for this strategy. Since the number unemployed is huge, the sums we will earn are humongous.

Now how can we use these unemployed people?

The mind goes blank. The traditional way of thinking about this problem is to say we will have an export sector, where we will invite foreigners, who will set up factories 4 export, using this cheap labour.

It never happens so.

Why?

Because global value chains work with wafer thin margins. A 1% move in exchange rate can wipe out 20% of your profits. No manufacturer ever takes that kind of risks.

You say others do it - like Vietnam. They don’t, I say.

So how do you solve this problem?

It is not difficult. It is just that the solution is not obvious. We start with what we have traditionally & organically exported - let us say textiles.

We grow cotton, we spin yarn, we weave cloth, we know how to stitch.

What do we need to do to export all the textiles & garments that we can possibly sell abroad, assuming price is the only factor?

You drop the Dollar price of your exports. Note the Dollar price not the INR. How do you do that? You set Dollar = INR at whatever level it takes.

You just keep dropping the Dollar price till every bit of cloth/garment you can make gets sold in the international market.

Remember, what you are exporting is labour whose current earnings are Zero.

So if you earn even 1 Dollar as the wage, over & above other costs such as materials etc, you can afford to keep exporting as long as there are unemployed people.

Next, having exhausted textiles, you turn to shrimps, or cars, or whatever.

The one thing you have to focus on is price. You lower your price, you can sell anything. The only limit is that you must get at least an incremental Dollar for a worker who was otherwise unemployed and earned nothing.

What are doing by this strategy?

You are dropping the Dollar cost of your labour, just as China and Vietnam did, until each & every worker finds work. But you are not dropping their wages in local currency [lcy]. We will see why.

This strategy is the same as what happens in the casual labour markets.

They simply keep dropping wages till all find jobs. Nothing terribly new about it.

However, the difference is that you don’t drop the wages of your unemployed workers. You suck them into the workforce, wherever they will fit, by lowering the Dollar price of your exports. Clear?

You may not have a clear idea about what to export, where the labour will fit, how to find markets abroad etc. But as long as you commit drop the price of whatever you can export - and you are really exporting only labour - you will find work for all in time.

Now why can China & Vietnam drop their currencies & thus the Dollar price of their exports but we can’t? Faulty thinking.

We think in terms of commodities & their price. That is our flaw. We should think in terms of labour for export.

As long as you have 1 idle worker who can earn 1 additional Dollar via this strategy you will have enough Dollars to import whatever you need. The commodity exchange doesn’t matter. The employment of labour is what matters. Their un-utilised labour is a loss for ever.

But can we drop the Dollar price of our labour arbitrarily? The answer is yes. China did it. Vietnam, Bangladesh, Pakistan - all are doing it. Pakistani labour in Dollars is about 1/3rd Indian cost, while Bangladesh is half. Vietnam is about 30%.

I spoke about wages in LCY and Dollar cost of labour. Remember when you drop the Dollar cost of your labour by cheapening whatever you can export, it doesn’t mean the cost in local currency also drops. It doesn’t. The 2 are related but not the same.

Why?

It should be obvious that if the basket of wage goods in local currency is W, you will have to pay something like 4W in order to give the worker a decent life. But how much of this basket of wage goods + add ons like housing, transport, education are traceable?

*tradeable. The answer is very little. Food, housing, education, some 70 to 80% of what a worker consumes are in the nongraded sector of the economy. Their prices are in LCY and locally determined.

So to a large extent, what we need to pay worker 4 the extra Dollar is determined by the local products, in local prices & has nothing to do with how much we drop or increase the Dollar price of what we export - textiles or whatever. That price should be set to use up all labour.

The faulty thinking of our economist & policy makers hides this crucial insight. Your local wages can continue as they are. As long as you look only at the margin, and ensure that all your idle labour starts working by exporting whatever you can, you are still ahead in the game.

What does dropping the Dollar cost of labour - or the Dollar cost of everything you can possibly export means? It means letting the INR go to 80, 100 or 200 - whatever price it takes - to export all that we possibly can until all idle labour is used up. Just get INR down.

Can countries set the price of Dollar arbitrarily in local currency? Obviously not but you will amazed at the flexibility available here. The price of Dollar in local currency is a policy choice. Within certain limits.

But as the Covid-19 crisis shows, you have enormous room.

India could set the price today at INR 200 to the Dollar. There would be a lot of noise but that’s what diplomacy is about. We would be allowed to get away with it b/c nobody what’s a messy India on their hands. That’s precisely how China got away with it.

The Chinese said if you don’t give us full employment by letting us make our exports cheaper - which in reality means exports cheaper - because the Chinese workers continued to be paid well locally - there will be a revolution.

You cannot have 4% unemployment rate in the US and 50% in India. Or China. That was the Chinese argument. And they simply pegged the Yuan at rate which they thought would enable them to suck ever worker into the work force. And it worked. That’s the way to do it.

There is this notion of our imports being inelastic & exports being elastic as to price. This has blinded us to the underlying reality of what is really traded in international markets. So let me put this argument at rest.

Here goes.

What are we exporting? At independence we were exporting cotton & importing oil. The relative prices of those to commodities matter. As does their price elasticity.

But does it matter really? Today we want 2 export labour - our idle labour that earns nothing if it remains idle.

We are willing to drop the price of that labour in Dollars as long as the supply isn’t exhausted. Only that over & above material cost, the labour must ear something incremental - say 1 Dollar. As long as the incremental Dollar is earned, we are better off than before.

Commodity X is the same as Commodity Y. Both are a certain sum of Dollars. They can be exchanged at a given price in any quantity. We couldn’t care less if Cotton is a little more expensive than oil or vice versa. We want that 1 extra Dollar for our labour.

Am I getting across? We have nothing to export other than our labour - the labour of our 1.38 billion people. And long as we can earn even 1 Dollar for their labour exporting whatever we can we are ahead of the game. The cotton used in textiles is incidental as is oil.

We have to go for maximisation of the Dollar earnings of our labour. We can maximise that as long as the4 Marginal Dollar earned exceeds the Dollar cost of such labour. Follow cost of labour is zero. So we maximise when e3ver single idle worker is working.

Full employment.

Now please note, you do not have to go to a Chinese entrepreneur and say please set up your shop in Vizag & we will make sure slave4 labour at $ 1 per day will be made available. That is the most stupid way of doing business.

Instead,

You go to Mukesh Ambani, Rahul Bajaj and & TCS. You say to them please export whatever you can & hire as many people as you want till every guy idle is employed. What we will do is to keep dropping the price off INR or conversely, increasing the price Dollar to give you profits.

So Mukesh Ambani can export as many towels as the world can buy so long as he keeps absorbing workers. We will drop the INR to guarantee him profits, Like wise Rahul Bajaj can export scooters by dropping his prices, and TCS can sell services abroad by dropping its prices.

Notice what I have done? Rahul Bajaj drops his prices, TCS drops its prices but both export more and earn more. Why? Because we corresponding make the INR cheaper or the Dollar more valuable. We ensure they make tons of money & that our worker gets a good wage in local currency.

Recall in the traditional thinking TCS or Rahul Bajaj or Ambani dropping prices was a bad thing. Oh our exports are becoming cheaper while oil costs so much more. Now you can see how blind that argument is. We want to export more, even at lower prices because …

.. we have lots of utilised labour that wee want to export and the price doesn’t matter as long it earns something incremental for the whole economy.

What we gain from exporting labour is an order vow magnitude more than what we lose by dropping price.

The key into realise we are exporting labour, not commodities or goods. The latter can be exchanged on any scale at a given price. What every country ultimately exports is labour. Commodities are incidental - so incidental that they don’t matter.

Second, our usual fallacy of 1 for 1 thinking. If we have surplus labour, that very labour will go to the export zone. No no no.

That labour will go wherever it can find jobs. We start with our winners & reward them with extra profits 4 exporting labour.

We let our winners decide how they will export our next batch of labour - by exporting cell phones or fighter jets or leather shoes. We don’t care. Were simply tell them you export our idle labour & we will ensure that your earnings in INR are handsome by adjusting Dollar price.

Of course when U credible do that foreigners will come rushing in too as will other local entrepreneurs. All you need is a transparent way of telling people how you will price Dollars 2 make sure they have adequate INR profits.

That is all it takes to ignite export led growth.

The key is understanding that you have nothing to lose in exporting your idle labour for whatever price it will fetch. You don’t have to send the guy abroad. He can well be a cobbler at home. You simply set the Dollar price such that somebody will use lots of cobblers 2 make

Lots of shoes for export.

And their Dollar wages will then pay for all our imports. We don’t have to bother about price & demand elasticities of commodities because we have idle labour to export that overrides every other economic factor.

May be the time for such a reform in our thinking is now with the Covid-19 crisis in hand.

There are a couple of strategic issues with regard to exchange rates which I will address later.

Thank you for your time.