governance, political economy, institutional development and economic regulation

Mumbai local

The future of work is uncertain. Within this global conundrum, India has a peculiar problem. The International Labor Organization estimates that less women in India are opting to work. In 1990 there two men for every woman in the workplace. Now there are three men for every woman in the workplace. Despite women becoming better educated and overweight in the honors list of colleges, two thirds of graduate women do not work.

Men “crowd out” women in a stagnant jobs market

This statistic does not align with the over-crowded “Ladies” section of the Mumbai local trains or how the workplace looks in metros, particularly InfoTech heavy Bangalore, where gender diversity is the norm.  What seems more likely, is that with low-skill jobs declining in significant numbers, women step back to allow their men to get such jobs. It helps that men are implicitly preferred by employers, despite costing more than women for similar work.

This wealth of unused woman power in India, is what Ms. Trump could tap into, at Hyderabad next week, where she will be a key note speaker at the Global Entrepreneurship Summit.

Ivanka and global supply chains

Ivanka trump

Ms. Trump, now in honorary public office, as an Advisor to the President of the United States, was previously a businesswoman in the luxury goods market. She knows first-hand, the potential of global supply chains, to drive development and growth, across networked economies. India needs all the help it can get in boosting exports.

Standards and Poor’s assesses India’s external position as strong

Exports have lagged economic growth since 2014 and this trend is projected by Standard and Poor’s – the international rating agency – to continue, at least, till 2019. Curiously, S&P is simultaneously bullish about the resilience of India’s external position. This is principally due to our sound monetary management; a “liquid” rupee, trading for which constitutes around 1 percent of all forex transactions; low external debt levels at around 20 percent of GDP and our ability to finance the sizable trade deficit of 7 percent of GDP from surpluses in the export of services; our net balance of remittances from expatriate Indians and inward net flow of foreign investment.

But oil price increase can upset the finely balanced external account

But left unsaid is the fact that low oil prices over the last three years have significantly decreased the trade imbalance. Nevertheless the risk of potential external imbalance remains if the oil price strengthens. Pumping up exports is not just necessary for a healthy and sustainable external balance. Booming exports are a signal of increasing competitiveness of the domestic economy and its enhanced integration into global supply chains.

Rational pricing of currency can boost exports and price imports competitively

It is less easy to define how to boost exports selectively, without distorting incentives for domestic producers. Creating “walled” export enclaves with superior facilities means “ghettoizing” the rest of the country. China can do this, because of its repressive labor and immigration policies and its top down, centralized, party managed, authoritarian State. India is closer in values; in diversity and in political architecture to the US. Out of the options for incentivizing exports – tax breaks; cheaper finance or better infrastructure facilities, the least distorting and the most efficient is maintaining a realistic exchange rate.

The Rupee is currently overvalued by around 20 percent. This strategy is great for limiting the public expenditure on import of defence and transport related equipment and on the subsidy for installation of imported solar panels for generating power.  It is also great for households which buy “cheaper” imported products – ranging from LED backlit plastic Gods to iPhones – from China. But it is a killer for domestic industry. It is not just the exports which suffers. Small and medium enterprises also take a direct hit if ceramic tiles from Turkey can out price domestic production.

Agriculture also suffers. If the exchange rate was realistic, government would not need to impose an additional duty to discourage the import of cheaper, imported onions. A seasonal glut of vegetables could be avoided if a realistic exchange rate made the export of agricultural produce more competitive, thereby increasing farm incomes without a subsidy.

Three takeaways

If Ms Trump is truly concerned about empowering women, the lessons from India are the following. First, women suffer more from economic downturns than men. By losing their income they slide into the traditional role of being financially dependent – not a happy position to be in, for anyone. Second, higher exports help women, particularly if production is decentralized to exploit localized skills, like high value embroidery and handicrafts. Finally, integrating domestic production into global supply chains seamlessly, is key, for empowering women sustainably.

The Pearl Price Index

pearls

One hopes Ms. Trump will ponder over these issues. Over dinner, in the lavishly ornamented Falaknuma Palace, one wishes she would nudge Prime Minister Modi into depreciating the Rupee to realistic levels, by exclaiming, she was shocked by the dollar prices quoted for the pearls, she had intended to buy, at Charminar. She would only be  furthering US interests. Robust exports, increase India’s capacity to buy American. Down-at-heel Indian exporters and the women of India will also thank her for this collaborative gesture.

 

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