One little talked about legacy of our colonial-type government is the persisting pre-eminence of the Ministries of Home, Finance, External Affairs and Defence. Other ministries, though important, occupy a lower rung in the caste hierarchy of ministries.

The Commerce Ministry is one such. But the Government does acknowledge its importance indirectly by very often posting some of its best officers to it. It also appoints the more able ministers to it.

The commerce ministry is also one of the most powerless ministries because it is dependent on other ministries. It reminds me sometimes of those bearded odd-bods on the streets of New York who used to hold up placards at street corner saying “The End is Nigh”.

They would buttonhole you to deliver homilies on the nuclear winter, the dangers of auto fumes, global cooling (later global warming) and, if you were especially unlucky, the importance of using prophylactics while having sex.

In a hurry to get away

The important point, however, is not that they were tiresome. It is that on each of these topics, the balance of the argument lay with them. So, naturally, no one listened.

The Commerce Ministry's “Strategy Paper for Doubling Exports in the Next Three Years”, ( http://commerce.nic.in/WhatsNew/StrategyPaper.pdf ), which it put out a few days ago, is like that. Minister Anand Sharma is right but no one is listening and everyone is in a hurry to get away because they have something else to do that is more important than saving the world.

Anand Sharma and Rahul Khullar, Commerce Secretary, are not aiming that high. They are merely trying to save India from the embarrassment of not being able to pay its import bills.

Not perfect

The Report is not perfect. Often-times it sounds like an advocacy report which lobbyists pay economists to write. But one would have to very short-sighted indeed to ignore its core message.

To quote the paper: “...the proportion of merchandise trade to GDP is expected to increase from close to 35 per cent to nearly 48 per cent in 2013-14.... However, the BOT deficit is projected to increase from 7.2 per cent of GDP in 2010-11 to nearly 13 per cent of GDP in 2013-14. There is no hard and fast rule to determine the numerical size of a sustainable Balance of Trade (BoT) deficit. For economies with large remittance earnings and positive net services earnings plus large invisible flows, even a 10 per cent deficit on the merchandise account can be managed. Equally, however, economies with lower invisible earnings, including net services and smaller remittances may not be in a position to even sustain a 5 per cent BoT deficit. The real point is that sustainability is best gauged with respect to the Current Account Deficit (CAD). The projected BoT deficit on merchandise account of 13 per cent is clearly cause for serious concern because it can lead to an unsustainable CAD (emphasis added). Services earnings will most certainly grow over the next few years. However, it is unlikely that even their growth can sustain a ballooning of the BoT deficit to the size of 13 per cent of GDP.”

The Report says simply we have to do something about the exports of goods because we have no choice. Accordingly, it has come up with some sector-specific solutions. But these require the rest of the Government, not least the Finance Ministry, to cooperate. If they don't, or do so only partially, we will get a balance of payments crisis, full blown or lingering, as the case may be.

This is the price India will pay for high living with no forward thinking.

Inconsistencies

The Report is not flawless. For example, the Ministry has tried to sell its prescriptions on two grounds: The threat of a possible balance of payments crisis and the lure of higher employment created via a growing export industry.

But truth to tell if — as the report itself points out — quality is crucial in export markets, it is hard to see how labour-intensive production can give the sort of quality that the major markets want. Like it or, labour-displacing technology will be needed. But to get a major share of the low value-added, manufactured goods market, we need to displace China and this brings up the second infirmity: There is no discussion of the exchange rate policy India should follow. Keeping the real effective exchange rate steady is all very well, but it doesn't work over the long or even medium term.

Lastly, the Report would have done well to have computed the share of export profits in total profits, if only to see if further concessions are needed. I suspect they are not, but this needs to be verified.

That said, the Report identifies all the things that the other ministries must do. It is up to the Prime Minister now to bang their heads together.

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