For real wealth we need to sell abroad.

India's exports fell by 14.75% in December, 2015 to $22.3 billion while imports shrank by 3.9% to $33.9 billion, giving a trade deficit of $11.7 billion. Total trade deficit for the full financial year will be around $140 billion. The good news is that Indians living abroad remitted $70 billion back home and oil prices have fallen from a high of $115 to around $30 a barrel today, reducing our import bill. The bad news is that India has agreed with the US Foreign Account Tax Compliance Act which might restrict remittances from the US and the fall in the price of oil, while good for our import bill, will certainly reduce remittances from Gulf countries, as they reduce their budget spending to account for the severe reduction in income. An article explaining the steep fall in our exports says that "....the main culprit is the exchange rate of the rupee ". From 31 December, 2014 to 31 December, 2015 the rupee has fallen by 4.2% against the dollar, almost the same as the Chinese yuan which has fallen by 4.3%. But the South Korean won has fallen by 6.6%, the Thai baht by 9.4%, the Indonesian rupiah by 10.4%, the Mexican peso by 17%,and the Turkish lira by 25.4%. Even the Euro has fallen by 13.6% against the dollar. The strength of the rupee compared to a basket of currencies is shown by 2 indices - the nominal effective exchange rate, or NEER, which has climbed from 70 to 75.6, and the real effective exchange rate, or REER, which is adjusted for inflation, has climbed from 101.3 to 115.6. Why is our government comfortable with a strong rupee when it is harming our exports? It maybe because a strong currency gives the appearance of a strong economy or it maybe a way to attract foreign portfolio investment, to pay for our current account deficit. Foreign portfolio investment brought in a total of $89.5 billion in 2014-15, of which $57.2 billion was in debt and $32.3 billion was in equities. That is nearly a quarter of our total foreign exchange reserve of $350 billion. The rupee has fallen because FPIs have sold $1.23 billion of equities since the beginning of the year. What the article misses is that a strong rupee keeps inflation under control by reducing the price of imports, especially fuel, and allows the Reserve Bank to lower interest rate. This is because our politicians have an almost religious belief that low interest rates, regardless of any other factor, will somehow magically stimulate economic growth. Trade inside the country merely circulates the same money in a merry-go-round while exports bring in new money. Because of competition goods for exports have to improve constantly while keeping prices as low as possible. This leads to innovation and technological improvements which are vital for growth. That is why the Prime Minister has launched the 'Make in India' initiative. Not much point in having bags full of rupees. We need dollars, and for that we have to sell abroad.