May 21, 2009 — drsubrotoroy
“May 21 2009 It is wonderful to hear from you and I am honoured to find myself, perhaps accidentally, on the same list as so many of your distinguished colleagues among Government economists.
Your essay is most engaging. I am afraid I disagree with your assessment that the current problems “did not originate in the real sector of the economy” but were “triggered by the excesses of the financial system”. I have said to the contrary “There is no clear path to solving the great (alleged) economic and financial crisis because no one wants to admit its roots were the overvaluation (over decades) of American real-estate, and hence American assets in general.”
There is no more real sector than real-estate itself and American real-estate has tended to be overvalued as a result of government policy since the Carter Administration; the accumulated dangers along that path came to explode in the sub-prime crisis. Here as elsewhere in economics, the financial tail has not wagged the non-financial dog but vice versa.
I have also said “(i) foreign central banks might have been left holding more bad US debt than might be remembered, and dollar depreciation and an American inflation seem to be inevitable over the next several years; (ii) all those bad mortgages and foreclosures could vanish within a year or two by playing the demographic card and inviting in a few million new immigrants into the United States; restoring a worldwide idea of an American dream fueled by mass immigration may be the surest way for the American economy to restore itself.”
Re the comparison with the Great Depression, I believe
“there are overriding differences. Most important, the American economy and the world economy are both incomparably larger today in the value of their capital stock, and there has also been enormous technological progress over eight decades. Accordingly, it would take a much vaster event than the present turbulence — say, something like an exchange of multiple nuclear warheads with Russia causing Manhattan and the City of London to be destroyed — before there was a return to something comparable to the 1929 Crash and the Great Depression that followed. Besides, the roots of the crises are different. What happened back then? In 1922, the Genoa Currency Conference wanted to correct the main defect of the pre-1914 gold standard, which was freezing the price of gold while failing to stabilise the purchasing power of money. From 1922 until about 1927, Benjamin Strong of the Federal Reserve Bank of New York adopted price-stabilisation as the new American policy-objective. Britain was off the gold standard and the USA remained on it. The USA, as a major creditor nation, saw massive gold inflows which, by traditional gold standard principles, would have caused a massive inflation. Governor Strong invented the process of “sterilisation” of those gold inflows instead and thwarted the rise in domestic dollar prices of goods and services. Strong’s death in 1928 threw the Federal Reserve System into conflict and intellectual confusion. Dollar stabilisation ended as a policy. Surplus bank money was created on the release of gold that had been previously sterilised. The traditional balance between bulls and bears in the stock-market was upset. Normally, every seller of stock is a bear and every buyer a bull. Now, amateur investors appeared as bulls attracted by the sudden stock price rises, while bears, who sold securities, failed to place their money into deposit and were instead lured into lending it as call money to brokerages who then fuelled these speculative bulls. As of October 22, 1929 about $4 billion was the extent of such speculative lending when Chase National Bank’s customers called in their money. Chase National had to follow their instructions, as did other New York banks. New York’s Stock Exchange could hardly respond to a demand for $4 billion at a short notice and collapsed. Within a year, production had fallen by 26 per cent, prices by 14 per cent, personal income by 14 per cent, and the Greatest Depression of recorded history was in progress — involuntary unemployment levels in America reaching 25 per cent. That is not, by any reading, what we have today. Yes, there has been plenty of bad lending, plenty of duping shareholders and workers and plenty of excessive managerial payoffs. It will all take a large toll, and affect markets across the world. But it will be a toll relative to our plush comfortable modern standards, not those of 1929-1933. In fact, modern decision-makers have the obvious advantage that they can look back at history and know what is not to be done. The US and the world economy are resilient enough to ride over even the extra uncertainty arising from the ongoing presidential campaign, and then some.”
These quotes are from recent publications and may be found most easily under “America’s financial crises” at my site http://www.independentindian.com.
What may be of interest to the Government of India’s economists also may be a sample of my recent short articles on India’s monetary and fiscal economics based on my research beginning with my doctoral work under Frank Hahn at Cambridge in the 1970s and followed by my work with James Buchanan and Milton Friedman in America in the 1980s and 1990s and later. One of these is even named “The Rangarajan Effect” which I first defined at a seminar invited by Dr Jadav at the RBI in May 2005!
With warm regards,
Subroto Roy, PhD (Cantab.), BScEcon(London)
Sometime Adviser to the Late Rajiv Gandhi, 1990-1991
April 2, 2007 — drsubrotoroy
First published in slightly abbreviated form as “A scam in the making” in The Sunday Statesman April 1 2007, Front page comment
A gigantic financial scheme is in the making. Will it come to be seen in future years as having been in fact a scam – indeed India’s scam of the 21st Century for which India’s unknowing masses will be made to pay for many generations? The scheme is mind-boggling in size as well as its sheer audacity. Bofors, Quattrochi etc amount to peanuts in comparison.
No less a personage than the Finance Minister of India, P Chidambaram, has openly praised the potential of this financial scheme. And he has done so in no less an open and transparent place than his latest Budget Speech to Parliament last February.
It is a scheme openly advocated and currently being developed by our Prime Minister Dr Manmohan Singh’s closest acolytes, Planning Commission head Mr Montek Singh Ahluwalia and HDFC head Mr Deepak Parekh, in collaboration with Reserve Bank Governor Dr YV Reddy and the Finance Ministry’s top bureaucrats. The PM himself has come close to endorsing it explicitly. And this PM is not an elected member of the Lok Sabha but holds office and acts as the executive agent of the UPA Chairperson and Lok Sabha Member from Rae Bareilly, Sonia Gandhi.
I hasten to add nobody in the BJP has objected to this financial scheme — in fact had the BJP been in power today instead of Congress, they would have been likely even more agreeable to the scheme given their close proximity to business lobbies and organized capital. As for the Communists, none of their JNU economics professors is technically competent enough to comprehend or recognize what is going on.
The scheme involves private companies “borrowing” India’s foreign exchange reserves from the Reserve Bank of India, allegedly for purpose of “infrastructure” creation — in collaboration with the American bank Citigroup, the American financial business, Blackstone Group, and possibly the American giant, GE Capital too. Mr Chidambaram took the unprecedented step of naming Mr Deepak Parekh as well as Citigroup and Blackstone in the text of his Budget Speech.
To begin to comprehend the nature of this scheme, we need to recall an earlier case.
Foreign exchange reserves of countries typically include foreign currency holdings as well as gold stocks. One of the biggest Wall Street scams of the 1980s-1990s involved private companies borrowing not countries’ foreign currency reserves but their gold reserves.
In that scam, it was not the Reserve Bank of India that was cheated but the Central Banks of Poland, Malaysia, Portugal and Yugoslavia. The New York financial company involved was a subsidiary of the Drexel Burnham Lambert Group. The Drexel parent went bankrupt on February 13 1990 and its subsidiary followed on May 9 1990.
A report on June 4 1990 by Leah J. Nathans (now Leah Nathans Spiro) in New York’s highly respected Business Week magazine said: “Central banks, those pillars of monetary virtue, lost $219 million ($21.9 crore) to an obscure commodities subsidiary called Drexel Burnham Lambert Trading Corporation”. The sum was small by American standards but it was “a big, big number” for the countries involved at the time.
What had these national central banks done? They had been lured into becoming greedy. They had been sitting on stocks of gold as part of their national reserves which they felt “just collect dust”. So they yielded to the temptation offered by the Drexel subsidiary of leasing the gold to private parties.
In Ms. Nathans’ words, “By leasing gold, a central bank earns a modest interest rate, ranging from less than 0.5% to 2.5%. Typically, the central bank consigns the gold to a dealer – say, for 90 days. The dealer can then lend the gold to a customer, at a higher interest rate. It may be a speculator, who hopes to repay the borrowed gold when the price falls, or a gold mine that wants to repay the broker with gold produced later.”
But the Drexel parent and subsidiary went bankrupt through bad financial decisions. Drexel’s Michael Milken went to jail. The Central Banks of Poland, Malaysia, Portugal and Yugoslavia were left empty-handed – and had to sue as creditors in New York’s courts trying desperately to get back the gold they had been lured into parting with. It would be unwise to take bets on how much of their gold they ever got back.
All the present PM’s men — Messrs Chidambaram, Ahluwalia, Parekh, Reddy et al in collaboration with one or two American financial companies – now have a scheme that will use not the RBI’s gold but its foreign currency reserves.
Mr Ahluwalia and Mr Parekh have made the outlandish claim that “India needs US$320 billion” (US 32,000 crore) by way of “investment for physical infrastructure” during the so-called “Eleventh Five-Year Plan”. (How many so-called “Five Year Plans” is India going to have incidentally? We had our “First Plan” when Manmohan Singh was a student at Punjab University. Stalin, who invented the “Five Year Plan”, died during that time, and even his old USSR has ceased to exist, let alone its “Five Year Plans”.)
That vast amount of “investment for physical infrastructure” is what Mr Ahluwalia says he knows India needs for his purported “9% growth rate” to be achieved. Where are the macroeconomic models and time-series data sets from him or his friends to back such assertions? There are none. None of the PM’s men, no one in the Finance Ministry or RBI or Planning Commission, nor any of their JNU economics professor friends or anyone else in Delhi, Mumbai, Kolkata etc have any such models or data with which to back such assertions. Nor do the World Bank etc. It is all sheer humbug – all a lie. It is part of the mendacity and self-delusion that our capital city has been floating upon.
In any event, the RBI reportedly has “opposed the idea of deploying forex reserves for infrastructure development on the grounds that it will create monetary expansion”. But Mr Chidambaram’s Finance Ministry owns the RBI, and the Ministry has said “the RBI’s concerns had been taken care of, as the investments would be deployed only through a structured mechanism”. (Business Standard 23 March 2007, p. 3)
What is a “structured mechanism”? Mr Chidambaram, mentioning Citigroup and Blackstone Group specifically, said in his Budget Speech that Mr Deepak Parekh has “suggested the establishment of two wholly-owned overseas subsidiaries of India Infrastructure Finance Company Ltd with the following objectives: (i) to borrow funds from the RBI and lend to Indian companies implementing infrastructure projects in India, or to co-finance their External Commercial Borrowings for such projects, solely for capital expenditure outside India; and (ii) to borrow funds from the RBI, invest such funds in highly rated collateral securities, and provide ‘credit wrap’ insurance to infrastructure projects in India for raising resources in international markets. The loans by RBI to these two subsidiary companies will be guaranteed by the Government of India and the RBI will be assured of a return higher than the average rate of return on its incremental investment.”
You do not understand? Well, no one is supposed to. The most exquisite thievery occurs after all not in darkness but in broad daylight with everyone watching but no one able to see or comprehend anything. So let us return to elementary first principles.
What are foreign exchange reserves and why do countries hold them? It is quite simply answered. Consider the USA and Canada, each with its own dollar. Canadians want to purchase American goods and services, give gifts and make loans to American residents, and make investments in the USA. Americans want to do the same in Canada. Each has to use the domestic money of the other when it does so. If an American wishes to lend money to a Canadian or to purchase something from him, he receives Canadian dollar notes from the Canadian Government to make his Canadian transactions, handing over his American dollar notes instead. The American dollar notes he hands over become part of Canada’s foreign exchange reserves, held by its Central Bank. Roughly speaking, a country’s foreign exchange reserves are the residual foreign currency assets its central bank holds after all these transactions are carried out on both sides of the border.
In the US-Canada case, neither Government prevents its citizens from exchanging domestic money for foreign money. In India, our rupee has been inconvertible since about 1940. The average Indian cannot freely exchange his/her rupee-denominated assets for foreign exchange denominated ones even if he/she wished to. There has been some import-liberalisation in recent years but only someone with the political access of Mr Tata or Mr Birla can purchase foreign assets and foreign companies using their Indian money – because the rupee is inconvertible, any bad financial decisions they make in using their foreign assets will be implicitly paid for by the Indian public.
Now a country’s central bank, such as our Reserve Bank, is the custodian of its foreign exchange reserves. India’s reserves are supposed to have reached $195.96 Billion ($19,596 Crore) as of March 16 2007. Keep in mind we do not know why they have risen: they can rise merely because foreigners (including NRIs) have lent us more of their money, not because foreigners have bought more of our goods and services. In fact Business Standard yesterday 31 March 2007 said on its front page “external commercial borrowing” was “a major source of accretion” of India’s reserves.
Also keep in mind that the Reserve Bank has the duty to manage these foreign-denominated assets against which it has already issued Indian rupees. It might receive a small conservative income from the cash-management aspect of this but it may not risk them or place them in any jeopardy!
Yet the whole idea behind the Chidambaram-Ahluwalia-Parekh-Reddy scheme under discussion by the Sonia-Manmohan Government is that the RBI will “lend” some of the billions of Americans dollars in its custody to overseas subsidiaries of Indian companies – say, for example, to the Tatas who have now bought foreign “capital assets” of some US$ 12 Billion ($1200 Crore) from Corus without having anything near that kind of foreign income.
Such favoured Indian companies might then use these “borrowed” funds as collateral for other borrowings. In exchange, they will go about undertaking purported “infrastructure” projects in India. So much for the “structured mechanisms” being touted by Messrs Chidambaram, Ahluwalia, Parekh et al.
Before India’s public understands it, the schemers will shout (as they have done with the SEZ Act) that Parliament has passed it. The BJP will applaud with envy. The Communists might uncomprehendingly complain a little, and then be bought off with a sop or two that they do understand, like a little pro-China rhetoric or being let off lightly on Nandigram.
Now international institutions like the International Monetary Fund and the Bank of International Settlements officially exist to advise central banks to stay along the straight and narrow and to avoid all such mischief. Here is what the IMF explicitly warned about such schemes in its Guidelines for Foreign Exchange Reserve Management dated September 20 2001:
“Liquidity risk. The pledging of reserves as collateral with foreign financial institutions as support for loans to either domestic entities, or foreign subsidiaries of the reserve management entity, has rendered reserves illiquid until the loans have been repaid. Liquidity risks have also arisen from the direct lending of reserves to such institutions when shocks to the domestic economy led to the borrowers’ inability to repay their liabilities, and impairment of the liquidity of the reserve assets.
Credit risk. Losses have arisen from the investment of reserves in high-yielding assets that were made without due regard to the credit risk associated with the issuer of the asset. Lending of reserves to domestic banks, and overseas subsidiaries of reserve management entities, has also exposed reserve management entities to credit risk.”
Dostoevsky believed man could have evil intent. Socrates was more generous and said man does not do wrong knowingly. It is not impossible our Indian schemers have innocent intent and do not even realize how close they are to becoming scamsters, or are already in the grip of scamsters. But at least we are now forewarned: India faces a clear risk of being swindled of its foreign exchange reserves. Prevention is better than cure.
January 8, 2006 — drsubrotoroy
The Dream Team: A Critique
by Subroto Roy
First published in The Statesman and The Sunday Statesman, Editorial Page Special Article, January 6,7,8, 2006
(Author’s Note: Within a few weeks of this article appearing, the Dream Team’s leaders appointed the so-called Tarapore 2 committee to look into convertibility — which ended up recommending what I have since called the “false convertibility” the RBI is presently engaged in. This article may be most profitably read along with other work republished here: “Rajiv Gandhi and the Origins of India’s 1991 Economic Reform”, “Three Memoranda to Rajiv Gandhi”, “”Indian Money & Banking”, “Indian Money & Credit” , “India’s Macroeconomics”, “Fiscal Instability”, “Fallacious Finance”, “India’s Trade and Payments”, “Our Policy Process”, “Against Quackery”, “Indian Inflation”, etc)
1. New Delhi’s Consensus: Manmohantekidambaromics
Dr Manmohan Singh has spoken of how pleasantly surprised he was to be made Finance Minister in July 1991 by PV Narasimha Rao. Dr Singh was an academic before becoming a government economic official in the late 1960s, rising to the high office of Reserve Bank Governor in the 1980s. Mr Montek Singh Ahluwalia now refers to him as “my boss” and had been his Finance Secretary earlier. Mr Ahluwalia was a notable official in the MacNamara World Bank before being inducted a senior government official in 1984. Mr P Chidambaram was PVNR’s Commerce Minister, and later became Finance Minister in the Deve Gowda and Gujral Governments. Mr Chidamabaram is a Supreme Court advocate with an MBA from Harvard’s Business School. During 1998-2004, Dr Singh and Mr Chidambaram were in Opposition but Mr Ahluwalia was Member-Secretary of the Vajpayee Planning Commission. Since coming together again in Sonia Gandhi’s United Progressive Alliance, they have been flatteringly named the “Dream Team” by India’s pink business newspapers, a term originally referring to some top American basketball players.
Based on pronouncements, publications and positions held, other members or associates of the “Dream Team” include Reserve Bank Governor Dr YV Reddy; his predecessor Dr Bimal Jalan; former PMO official Mr NK Singh, IAS; Chief Economic Advisers Dr Shankar Acharya and Dr Ashok Lahiri; RBI Deputy Governor Dr Rakesh Mohan; and others like Dr Arvind Virmani, Dr Isher Ahluwalia, Dr Parthasarathi Shome, Dr Vijay Khelkar, Dr Ashok Desai, Dr Suman Bery, Dr Surjit Bhalla, Dr Amaresh Bagchi, Dr Govind Rao. Honorary members include Mr Jaswant Singh, Mr Yashwant Sinha, Mr KC Pant and Dr Arun Shourie, all economic ministers during the Vajpayee premiership. Institutional members include industry chambers like CII and FICCI representing “Big Business”, and unionised “Big Labour” represented by the CPI, CPI(M) and prominent academics of JNU. Mr Mani Shankar Aiyar joins the Dream Team with his opinion that a gas pipeline is “necessary for the eradication of poverty in India”. Mr Jairam Ramesh explicitly claimed authoring the 1991 reform with Mr Pranab Mukherjee and both must be members (indeed the latter as Finance Minister once had been Dr Singh’s boss). Dr Arjun Sengupta has claimed Indira Gandhi started the reforms, and he may be a member too. External members include Dr Jagdish Bhagwati, Dr. TN Srinivasan, Dr Meghnad Desai, Dr Vijay Joshi, Mr Ian Little, Dr Anne O. Krueger, Dr John Williamson, IMF Head Dr R Rato, and many foreign bank analysts who deal in Bombay’s markets. Harvard’s Dr Larry Summers joins with his statement while US Treasury Secretary in January 2000 that a 10% economic growth rate for India was feasible. His Harvard colleague Dr Amartya Sen — through disciples like Dr Jean Dreze (adviser to Sonia Gandhi on rural employment) — must be an ex officio member; as an old friend, the Prime Minister launched Dr Sen’s recent book while the latter has marked Dr Singh at 80% as PM. Media associates of the Dream Team include editors like Mr Aroon Purie, Mr Vinod Mehta, Dr Prannoy Roy, Mr TN Ninan, Mr Vir Sanghvi and Mr Shekhar Gupta, as well as the giddy young anchors of what passes for news and financial analysis on cable TV.
This illustrious set of politicians, government officials, economists, journalists and many others have come to define what may be called the “New Delhi Consensus” on contemporary India’s economic policy. While it is unnecessary everyone agree to the same extent on every aspect — indeed on economic policy the differences between the Sonia UPA and Vajpayee NDA have had to do with emphasis on different aspects, each side urging “consensus” upon the other — the main factual and evaluative claims and policy-prescriptions of the New Delhi Consensus may be summarised as follows:
A: “The Narasimha Rao Government in July 1991 found India facing a grave balance of payments crisis with foreign exchange reserves being very low.”
B: “A major cause was the 1990-1991 Gulf War, in its impact as an exogenous shock on Indian migrant workers and oil prices.”
C: “The Dream Team averted a macroeconomic crisis through “structural adjustment” carried out with help of the IMF and World Bank; hence too, India was unaffected by the 1997 ‘Asian crisis'”.
D: “The PVNR, Deve Gowda, Gujral and Vajpayee Governments removed the notorious license-quota-permit Raj.”
E: “India’s measurable real economic growth per capita has been raised from 3% or lower to 7% or more.”
F: “Foreign direct investment has been, relative to earlier times, flooding into India, attracted by lower wages and rents, especially in new industries using information technology.”
G: “Foreign financial investment has been flooding into India too, attracted by India’s increasingly liberalised capital markets, especially a liberalised current account of the balance of payments.”
H: “The apparent boom in Bombay’s stock market and relatively large foreign exchange reserves bear witness to the confidence foreign and domestic investors place in India’s prospects.”
I: “The critical constraint to India’s future prosperity is its “infrastructure” which is far below what foreign investors are used to in other countries elsewhere in Asia.”
J: “It follows that massive, indeed gargantuan, investments in highways, ports, airports, aircraft, city-flyovers, housing-estates, power-projects, energy exploration, gas pipelines, etc, out of government and private resources, domestic and foreign, is necessary to remove remaining “bottlenecks” to further prosperity for India’s masses, and these physical constructions will cause India’s economy to finally ‘take off’.”
K: “India’s savings rate (like China’s) is exceptionally high as is observable from vast expansion of bank-deposits, and these high (presumed) savings, along with foreign savings, will absorb the gargantuan investment in “infrastructure” without inflation.”
L: “Before the gargantuan macroeconomic investments bear the fruits of prosperity, equally large direct transfer payments also must be made from the Government to prevent mass hunger and/or raise nominal incomes across rural India, while existing input or other subsidies to producers, especially farmers, also must continue.”
M: “While private sector participants may increasingly compete via imports or as new entrants in industries where the public sector has been dominant, no bankruptcy or privatisation must be allowed to occur or be seen to occur which does not provide public sector workers and officials with golden parachutes.”
Overall, the New Delhi Consensus paints a picture of India’s economy on an immensely productive trajectory as led by Government partnered by Big Business and Big Labour, with the English-speaking intellectuals of the Dream Team in the vanguard as they fly between exotic conferences and international commercial deals. An endless flow of foreign businessmen and politicians streaming through Bangalore, Hyderabad, five-star hotels or photo-opportunities with the PM, followed by official visits abroad to sign big-ticket purchases like arms or aircraft, reinforce an impression that all is fine economically, and modern India is on the move. Previously rare foreign products have become commonplace in India’s markets, streets and television-channels, and a new materialist spirit, supposedly of capitalism, is captured by the smug slogan yeh dil mange more (this heart craves more) as well as the more plaintive cry pardesi jana nahin, mujhe chhorke (foreigner, please don’t leave me).
2. Money, Convertibility, Inflationary Deficit Financing
India’s Rupee became inconvertible in 1942 when the British imposed exchange controls over the Sterling-Area. After 1947 independent India and Pakistan, in name of “planned” economic development, greatly widened this war-time regime – despite the fact they were at war now only with one another over Jammu & Kashmir and, oddly enough, formed an economic union until 1951 with their currencies remaining freely convertible with each other.
On May 29 1984, the present author’s Pricing, Planning and Politics: A Study of Economic Distortions in India proposed in London that the Indian Rupee become a convertible hard currency again — the first time liberal economics had been suggested for India since BR Shenoy’s critique of the Second Five Year Plan (a fact attracting an editorial of The Times). The simple litmus test whether believers in the New Delhi Consensus have or have not the courage of their stated convictions – i.e., whether what they have been saying is, in its empirical fundamentals, more signal or noise, more reality or rhetorical propaganda – would be to carry through that proposal made 21 years ago. The Dream Team have had more than enough political power to undertake this, and it remains the one measure necessary for them to demonstrate to India’s people and the world that the exuberant confidence they have been promoting in their model of India’s economy and its prospects is not spurious.
What does convertibility entail? For a decade now, India has had limited ease of availability of foreign exchange for traders, students and tourists. Indeed some senior Government monetary economists believe there is convertibility already except forex dealers are being allowed “one-way” and not “two-way” quotes! That is wrong. The Government since 1942 has requisitioned at the border all foreign exchange earned by exporters or received as loans or investment — allocating these first to pay interest and amortisation on the country’s foreign debt, then to make its own weapons and other purchases abroad, then to release by ration what remains to private traders, students, tourists et al. Current account liberalisation has meant the last of these categories has been relaxed, especially by removal of some import quotas. What a convertible Rupee would mean is far more profound. It would allow any citizen to hold and save an Indian money that was exchangeable freely (i.e. without Government hindrance) into moneys of other countries. Full convertibility would mean all the paper money, bank deposits and rupee-denominated nominal assets held by ordinary people in India becomes, overnight, exchangeable without hindrance into dollars, yens, pounds or euros held anywhere (although not of course at the “one-way” rates quoted today).
Now money is a most peculiar human institution. Paper money is intrinsically worthless but all of India’s 1,000 million people (from street children onwards) have need to hold it temporarily to expedite their individual transactions of buying and selling real goods and services. Money also acts as a repository of value over time and unit of account or measure of economic value. While demand to hold such intrinsically worthless paper is universal, its supply is a Government monopoly. Because Government accepts obligations owed to it in terms of the fiat money it has itself issued, the otherwise worthless paper comes to possess value in exchange. Because Government controls its supply, money also can be abused easily enough as a technique of invisible taxation via inflation.
With convertibility in India, the quantity of currency and other paper assets like public debt instruments representing fiscal decisions of India’s Union and State Governments, will have to start to compete with those produced by other governments. Just as India’s long-jumpers and tennis-players must compete with the world’s best if they are to establish and sustain their athletic reputations, so India’s fiscal and monetary decisions (i.e. about government spending and revenues, interest-rates and money supply growth) will have to start competing in the world’s financial markets with those of the EU, USA, Japan, Switzerland, ASEAN etc.
The average family in rural Madhya Pradesh who may wish, for whatever personal reason, to liquidate rupee-denominated assets and buy instead Canadian, Swiss or Japanese Government debt, or mutual fund shares in New York, Frankfurt or Singapore, would not be hindered by India’s Government from doing so. They would become as free as the swankiest NRI jet-setters have been for years (like many members of the New Delhi Consensus and their grown children abroad). Scores of millions of ordinary Indians unconnected with Big Business or Big Labour, neither among the 18 million people in government nor the 12 million in the organised private sector, would become free to hold any portfolio of assets they chose in global markets (small as any given individual portfolio may be in value). Like all those glamorous NRIs, every Indian would be able to hold dollar or Swiss Franc deposit accounts at the local neighbourhood bank. Hawala operators worldwide would become redundant. Ordinary citizens could choose to hold foreign shares, real-estate or travellers’ cheques as assets just as they now choose jewellery before a wedding. The Indian Rupee, after more than 65 years, would once again become as good as all the proverbial gold in Fort Knox.
When added up, the new demand of India’s anonymous masses to hold foreign rather than Rupee-denominated assets will certainly make the Rupee decline in price in world markets. But — if the implicit model of India’s economy promoted by the Dream Team is based on correctly ascertained empirical facts — foreign and domestic investor confidence should suffice for countervailing tendencies to keep India’s financial and banking system stable under convertibility. Not only would India’s people be able to use and save a currency of integrity, the allocation of real resources would also improve in efficiency as distortions would be reduced in the signalling function of domestic relative prices compared to world relative prices. An honest Rupee freely priced in world markets at, say, 90 per dollar, would cause very different real microeconomic decisions of Government and private producers and consumers (e.g., with respect to weapons’ purchases or domestic transportation, given petroleum and jet fuel imports) than a semi-artificial Rupee at 45 per dollar which forcibly an inconvertible asset in global markets. A fully convertible Rupee will cause economic and political decisions in the country more consistent with word realities.
Why the Rupee is not going to be made convertible in the foreseeable future – or why, in India’s present fiscal circumstances if it was, it would be imprudent to do so – is because, contrary to the immense optimism promoted by the Dream Team about their own deeds since 1991, they have in fact been causing India’s monetary economy to skate on the thinnest of thin ice. Put another way, a house of cards has been constructed whose cornerstone constitutes that most unscientific anti-economic of assumptions, the “free lunch”: that something can be had for nothing, that real growth in average consumption levels of the masses of ordinary households of rural and urban India can meaningfully come about by nominal paper-money creation accompanied by verbal exhortation, hocus-pocus or abracadabra from policy-makers and their friends in Big Business, Big Labour and the media. (Lest half-remembered inanities about “orthodox economics” come to be mouthed, Maynard Keynes’s 1936 book was about specific circumstances in Western economies during the Depression and it is unwise to extend its presumptions to unintended situations.)
3. Rajiv Gandhi and Perestroika Project
On 25 May 2002, India’s newspapers reported “PV Narasimha Rao and Manmohan Singh lost their place in Congress history as architects of economic reforms as the Congress High Command sponsored an amendment to a resolution that had laid credit at the duo’s door. The motion was moved by…. Digvijay Singh asserting that the reforms were a brainchild of the late Rajiv Gandhi and that the Rao-Singh combine had simply nudged the process forward.”
Now Rajiv Gandhi was an airline-pilot and knew no economics. But the origins of the 1991 reform did come about because of an encounter he had, as Opposition Leader and Congress President from September 1990 onwards, with a “perestroika” project for India’s political economy occurring at an American university since 1986 (viz., The Statesman Editorial Page July 31-August 2 1991, now republished here; Freedom First October 2001). In being less than candid in acknowledging the origins of the reform, the Dream Team may have failed to describe accurately the main symptoms of illness that afflicted India before 1991, and have consequently failed to diagnose and prescribe for it correctly ever since.
The Government of India, like many others, has been sorely tempted to finance its extravagant expenditures by abusing its monopoly over paper-money creation. The British taught us how to do this, and in 1941-43 caused the highest inflation rates ever seen in India as a result. Fig. 1 shows this, and also that real growth in India follows as expected the trend-rate of technological progress (having little to do with government policy). Independent India has continually financed budget- deficits by money creation in a process similar to what the British and Americans did in wartime. This became most conspicuous after Indira Gandhi’s bank and insurance nationalisations of 1969-1970. Indeed, among current policy-makers, Pranab Mukherjee, Manmohan Singh, Arjun Sengupta, Montek Singh Ahluwalia, Bimal Jalan, NK Singh, Amaresh Bagchi and Shankar Acharya, were among those governing such macroeconomic processes before 1991 — albeit in absence of the equations that illustrate their nature. Why the Rupee cannot be made an honest, internationally convertible, stable money held with confidence by all Indians today, is because the Dream Team have continued with the same macroeconomics ever since. The personal and political ambitions of the tiniest super-elite that the New Delhi Consensus represent (both personal and political) have depended precisely on gargantuan unending deficit-financing backed by unlimited printing of paper-money, and hence the continuing destruction of the integrity of India’s banking system. A convertible Rupee would allow India’s ordinary people to choose to hold other stores of value available in the world today, like gold or monies issued by foreign governments, and thus force an end to such processes.
Two recent articles in The Statesman (Perspective Page 30 October 2005, Front Page 29 November 2005) outlined India’s financial repression and negative real interest rates (which suffice to explain the present stock market boom the way athletes perform better on steroids), and also how deficits get financed by money creation accompanied by wishful projections of economic growth in an upside down imitation of how macroeconomic policy gets done in the West.
“Narrow Money” consists mostly of hand-to-hand currency. “Broad Money” consists of Narrow Money plus bank-deposits. Modern banking is built on “fractional reserves”, i.e. a system of trust where your bank does not literally hold onto deposits you place there but lends these out again – which causes further deposit expansion because no individual banker can tell whether a new deposit received by it is being caused by the depositor having himself borrowed. As a general rule, bank lending causes further deposit expansion. Why India’s (and China’s) bank deposits have been expanding is not because Indians (or Chinese) are superhuman savers of financial assets in banks but because the Government of India (and China) has for decades compelled (the mostly nationalised) banks to hold vast sums of Government debt on the asset side of their balance-sheets. Thus there has been humongous lending by the banking system to pay for Government expenditures. The Dream Team’s macroeconomics relies entirely on this kind of unending recourse to deficit finance and money creation, causing dry rot to set into banks’ balance sheets (Figs. 2,3, 4). If the Rupee became convertible, those vast holdings of Government debt by banks would become valued at world prices. The crucial question would be how heavily New York, London and Hong Kong financial markets discounted Indian sovereign debt. If upon convertibility, the asset sides of domestic Indian banks get discounted very heavily by world financial markets, their insolvency upon being valued at international prices could trigger catastrophic repercussions throughout India’s economy. Hence the Rupee cannot be made convertible — and all our present inefficiencies and inequities will continue for ever with New Delhi’s rhetorical propaganda alongside. The capital flight of 10 out of 1000 million Indians will continue, leaving everyone else with the internal and foreign public debts to pay.
4. A Different Strategy had Rajiv Not Been Assassinated
Had Rajiv Gandhi not been assassinated and the perestroika project allowed to take its course, a different strategy would have been chosen. Honest money first demands honest Government and political leadership. It would at the outset have been recognised by Government (and through Government by all India’s people) that the asset-liability, income-expenditure and cash-flow positions of every public entity in the country without exception — of the Union Government, every State and local Government, every public undertaking and project – is abysmal. Due to entanglement with government financial loans, labour regulations, subsidies, price controls, protection and favouritism, the same holds for the financial positions of vast numbers of firms in the organised private sector. Superimpose on this dismal scene, the bleak situation of the Rule of Law in the country today – where Courts of Justice from highest to lowest suffer terrible abuse receiving pitiable amounts of public resources despite constituting a third and independent branch of India’s Government (while police forces, despite massive expenditure, remain incompetent, high-handed and brutal). What India has needed ever since 1991 is the Rule of Law, total transparency of public information, and the fiercest enforcement of rigorous accounting and audit standards in every government entity and public institution. It is only when budgets and financial positions become sound that ambitious goals can be achieved.
The Dream Team have instead made a fetish of physical construction of “infrastructure”, in some grandiose make-believe dreamworld which says the people of India wish the country to be a superpower. The Dream Team have failed to properly redefine for India’s masses the appropriate fiscal and monetary relationship between State and citizen – i.e. to demarcate public from private domains, and so enhance citizens’ sense of individual responsibility for their own futures, as well as explain and define what government and public institutions can and cannot do to help people’s lives. Grotesque corruption and inefficiency have thus continued to corrode practically all organs, institutions and undertakings of government. Corruption is the transmutation of publicly owned things into private property, while its mirror image, pollution, is the disposal of private wastes into the public domain. Both become vastly more prevalent where property rights between private and public domains remain ill demarcated. What belongs to the individual citizen and what to sovereign India –their rights and obligations to one another – remains fuzzy. Hence corruption and pollution run amuck. The irrational obsession with “infrastructure” is based on bad economics, and has led to profoundly wrong political and financial directions. The Rupee cannot be made an honest stable money because India’s fiscal and monetary situation remains not merely out of control but beyond New Delhi’s proper comprehension and grasp. If and when the Dream Team choose to wake up to India’s macroeconomic realities, a great deal of serious work will need to be done.
May 18, 1993 — drsubrotoroy
Author’s Note May 2007: Between January 1993 and about May 1993 I was a Consultant to the International Monetary Fund, Washington, DC. The IMF does not usually hire consultants, and I was hired thanks to a recommendation by Gopi Arora to Hubert Neiss. At the request of Saudi IMF Executive Director Mohammad Al-Jasser, I did an interdepartmental comparative study — the only one until that time and perhaps since — of exchange-rates and exports of India, Pakistan, Sri Lanka and Bangladesh. What follows is a part of that relating to exports. A little of it was published in an ICRIER study in New Delhi the following year, on India-United States trade.
EXPORTS FROM THE SUBCONTINENT
This study reports the main results of a study of exports from India, Pakistan, Sri Lanka and Bangladesh to their largest world markets in the period 1962-1991.
Panels of two-level Standard International Trade Classification (SITC) data were gathered as reported to the United Nations Statistical Office, Geneva in its Trade Analysis and Reporting System. These gave original data of all imports from India, Pakistan, Sri Lanka and Bangladesh as reported by each of the United States, Britain, Japan, Germany and France (G-5 countries) over the 30-year period 1962-1991 in c.i.f. terms. These countries constitute almost 75 percent of the subcontinent’s total export market, and possibly more if indirect exports via third countries like Hong Kong and Singapore are accounted for.
The import-demand data reported by each of these countries provide the most reliable and uniform data source available.
To detect any possible trends in real growth or decline, the nominal data reported over this 30 year period were deflated to constant 1990 prices, using price-series obtained from the World Bank’s Quarterly Review of Commodity Markets December 1992. This source provides a manufactured goods unit value index for the G-5 countries, as well as individual price series for petroleum and commodities excluding energy. The latter is divided into foods (divided into beverages, cereals, fats & oils, and other), non-food agricultural, timber, and metals & minerals. It is considered the most reliable price-series data of its kind available. All figures given below are in constant 1990 U. S. dollars.
Overall, one firm regionwide fact to emerge about the subcontinent’s exports to the major industrial countries has to do with the enormous real growth of clothing, especially in the decade 1982-1991. Not only has there been remarkable growth in real terms of clothing exports from the entire region, but there has been relatively higher growth in Pakistan compared to India, and higher growth in Sri Lanka and Bangladesh compared to Pakistan.
India to the United States
India’s main exports to the United States have changed in product composition over the period 1962-1991, though not in ways predicted or hoped for by national economic plans. Between 1962-1971, the main exports other than textile manufactures (SITC 65) were agricultural: tea, coffee & spices (SITC 07), fruit and vegetables (SITC 05), sugars (SITC 06), fish and preparations (SITC 03), and crude matter(SITC 29). Between 1972-1981, the mix was transformed by growth of exports of polished diamonds (SITC 66) and clothing (SITC 84), which together with textile manufactures have dominated Indian exports to the United States since.
Between 1982-1991, the same mix continued to dominate with the significant addition of petroleum and products (SITC 33) which was the single largest export from India to the United States in each year between 1982 and 1985. Textile manufactures were the dominant export until 1978 and have been in the top four throughout the period. But there has been steady decline in real terms. The decline has been from annual averages of $740 million (c.i.f.) in 1962-71, to $406 million in 1972-1981, to $285 million in 1982-1991. India has also steadily lost market-share in total textile imports into the United States, dominating the market with an average annual market-share of 19.5 percent in 1962-1971, reduced to 10.1 percent in 1972-1981, reduced further to 4.84 percent in 1982-1991.
Clothing during the same period has shown high real growth, going from an annual average of $7 million in 1962-1971 to $178 million in 1972-1981, to $538 million in 1982-1991. Average annual market-share of total U.S. imports has gone from 0.10 percent in 1962-1971, to 2.11 percent in 1972-1981, to 2.34 percent in 1982-1991. While this has been small growth from the point of view of the United States market, the movement has been large relative to initial conditions from the point of view of Indian exporters. It is not apparent whether the decline in textile manufactures has been independent of the growth of clothing or whether there has been value-increasing substitution from textile manufactures into clothing. Comparative experience with Germany suggests there has not been such substitution.
India to Britain
India’s exports to Britain are marked by textile manufactures (SITC 65) and tea, coffee & spices (SITC 07), being among the top five exports throughout the entire period 1962-1991.
However, both of these traditional exports have declined in real terms. Annual average imports into Britain of textile manufactures from India were $253 million (c.i.f.) in 1962-1971 down to $179 million in 1972-1981 and $161 million in 1982-1991. India’s share of Britain’s imports of textile manufactures fell from 15.5 percent and 16.0 percent in 1962 and 1963 to 3.4 percent and 4.0 percent in 1990 and 1991.
Annual average imports into Britain of tea, coffee & spices from India were $269 million in 1962-1971 down to $87 million in 1972-1981 and $66 million in 1982-1991. Clothing (SITC 84) exports to Britain have shown high real growth, from annual averages of $4 million in 1962-1971 to $86 million in 1972-1981 to $200 million in 1982-1991. Of remaining exports to Britain, in the period 1962-1971 agricultural outputs like animal feed (SITC 08), tobacco (SITC 12) and crude matter (SITC 29) as well as leather goods (SITC 61) were the main product groups.
The next period 1972-1981 saw the growth of clothing (SITC 84) to a position of dominance among all Indian exports to Britain, and some growth in non-ferrous metals (SITC 68) mainly copper and aluminium alloys. The latest period 1982-1991 has seen some growth of non-traditional engineering exports to the top ranks, mainly transport equipment (SITC 73), metal manufactures (SITC 69) and non-electrical machinery (SITC 71). Clothing and textiles, however, continued to dominate more than 44 percent of all exports.
India to Japan
The main feature of India’s exports to Japan over the entire period 1962-1991 is the dominance of iron ore (SITC 28) throughout. Annual average imports of iron ore into Japan from India were $401 million in 1962-1971, rising to $556 million in 1972-1981, and $572 million in 1982-1991.
The period 1962-1971 saw, in addition to iron ore, export of raw cotton and jute fibres (SITC 26), crude agricultural matter (SITC 29), crude fertilizer (SITC 27), animal feed (SITC 08), sugar (SITC 06), ferrous alloys (SITC 67), and fish and preparations (SITC 03). The period 1972-1981 saw very high growth of exports of fish and preparations (SITC 03) and polished diamonds (SITC 66), as well as some growth of textile manufactures (SITC 65). Starting from almost zero, India’s market-share of Japanese imports of fish grew to an annual average of 7.31 percent during the period 1969-1985, before falling back to 2.7 percent in the 1990s. The latest period 1982-1991 has seen the dominance of polished diamonds equalling that of iron ore, as well as significant growth in clothing (SITC 84) and petroleum (SITC 33). The main exports of India to Japan are at present polished diamonds, iron ore, fish, ferrous-alloys and clothing. It seems plausible that India’s pattern of exports to Japan has been related to the high growth transformation of Japan’s economy during this time.
India to Germany and France
As with Japan, India’s exports to the Federal Republic of Germany show unique aspects related in all likelihood to the high growth transformation of the German economy during this period. Remarkably, textile yarn and fabric (SITC 65) from India to Germany has shown large real growth during 1962-1990. German imports of Indian textile manufactures were at an annual average of just $55 million for 1962-1971; this increased to an annual average of $163 million for 1972-1981 and to $255 million for 1982-1990. Although this has not been enough to offset the large declines of Indian textiles in the United States and British markets, it may suggest that rapid domestic growth in one large importing market can reduce the impact of loss of competitiveness in a different market. Clothing (SITC 84) has shown extremely high real growth relative to initial conditions. German imports of clothing from India were at an annual average of under $4 million in 1962-1971, rising to annual averages of $96 million in 1972-1981 and $282 million in 1982-1990. The simultaneous growth of textile manufacture and clothing exports from India to Germany may suggest that there has not been value-adding substitution from the former to the latter. Other than clothing, the product composition of Indian exports to Germany has not seen much drastic change.
In 1962-1965, iron ore (SITC 28) was the single largest export only to become abruptly insignificant, possibly implying new sources had been found by importers. Besides textile manufactures, three other traditional exports — leather goods (SITC 61), tea, coffee & spices (SITC 07), and crude matter (SITC 29) — have been among the top Indian exports to Germany throughout the period 1962-1990. Of these, leather goods have shown real growth from annual averages of $34 million in 1962-1971, to $55 million in 1972-1981, to $86 million in 1982-1990. Polished diamonds (SITC 66) also have been a major export to Germany since as early as 1964, with significant growth in the latest period 1982-1990.
India’s exports to France show certain similarities with the pattern to Germany on a smaller scale. Textile yarn and fabric (SITC 65) has shown growth in real terms from annual averages of $18 million in 1962-1971, to $51 million in 1972-1981 to $63 million in 1982-1991. (The growth of textile exports to Germany and France together have not offset the declines to the United States and Britain — average annual exports to the four countries totalling $1.07 billion for 1962-1971, $0.80 billion for 1972-1981, and $0.76 billion for 1982-1991.) Clothing exports to France have shown enormous growth relative to initial conditions, moving from annual averages of under $3 million in 1962-1971, to $57 million in 1972-1981 to $108 million in 1982-1991. Besides textile and clothing, Indian exports to France have included leather goods (SITC 61), crude matter (SITC 29), polished diamonds (SITC 66) and animal feed (SITC 07). In 1982 and 1985, France also reported petroleum imports as the single largest product from India.
Pakistan to the United States and Britain
In the period prior to 1972, Pakistan’s exports to traditional markets in the United States and Britain were dominated by raw jute and cotton fibres (SITC 26) and cotton and jute manufactures (SITC 65).
Since 1972, cotton manufactures (SITC 65) have shown remarkable real growth, and along with clothing (SITC 84) have dominated Pakistan’s exports to these markets. Annual average imports of cotton manufactures from Pakistan into the United States and Britain were $87 million and $76 million respectively in 1973-1981, rising to $182 million and $117 million respectively in 1982-1991.
Pakistan’s share of total textile imports rose from an annual average of 2.3 percent in 1973-1981 to 2.9 percent in 1982-1991 in the United States market, and from 1.8 percent to 1.9 percent in the British market. This contrasts with India’s declining textile exports to the same markets in the same period.
Average annual clothing imports from Pakistan into the United States and Britain were $22 million and $11 million respectively during 1973-1981, rising to $164 million and $62 million respectively during 1982-1991. During the period, Pakistan’s market-share of clothing imports has risen from 0.2 percent to 1.0 percent in case of the United States, and from 0.3 percent to 1.9 percent in case of Britain. Again, these are small changes for the importing markets but large changes from the point of view of exporters relative to initial conditions.
Other than textiles and clothing, significant movement in Pakistan’s exports to the United States and Britain is found in instruments, watches and clocks (SITC 86) to the United States, which went from an annual average of $10 million during 1973-1981 to $26 million in 1982-1991.
Pakistan to Japan, Germany and France
Pakistan’s exports to Japan have been dominated by cotton yarn and fabric (SITC 65) and cotton fibres (SITC 26), both showing strong real growth. The first has gone from an annual average of $79 million in 1973-1981 to $304 million in 1982-1991, the second from $48 million to $75 million in the same time period. Other exports to Japan include fish (SITC 03), leather goods (SITC 61), and petroleum and products (SITC 33).
Pakistan’s exports to Germany and France have been dominated by clothing (SITC 84) and cotton yarn and fabric (SITC 65). Average annual exports of clothing have grown from $19 million in 1973-1982 to $86 million in 1982-1991 in case of Germany, and from $8 million in 1973-1981 to $55 million in 1982-1991 in case of France. In the same periods, average annual exports of cotton yarn and fabric went up from $34 million to $66 million in case of France, and went down from $107 million to $99 million in case of Germany.
Other exports from Pakistan to Germany and France have included leather goods (SITC 61), cotton fibres (SITC 26), sugar (SITC 06) and petroleum and products (SITC 33).
Sri Lanka’s exports to the major industrial countries are marked by drastic decline in exports of tea (SITC 07) and rapid growth of exports of clothing (SITC 84).
Sri Lankan tea exports were at an annual average of $175 million to Britain and $49 million to the United States during 1962-1971, reduced to $38 million and $24 million respectively in 1972-1981, reduced to $23 million and $16 million respectively in 1982-1991. Between 1980 and 1991, Sri Lanka’s market-share of total British tea imports fell from 11 percent in 1980 to 7 percent in 1991. Evidently this loss of market-share was not India’s gain, as India’s share of the same market fell even more drastically, from 33 percent in 1980 to 17 percent in 1991. India and Sri Lanka traditionally dominated the world market for tea. Major competitors since then have been China, Indonesia, Kenya and Malawi.
Sri Lanka’s exports of clothing to the United States, Germany, Britain and France have grown very rapidly, making clothing the dominant export of Sri Lanka in the last decade. Average annual exports of clothing rose from $39 million in 1972-1981 to $361 million in 1982-1991 in case of the United States; from $10 million to $70 million in case of Germany; from $3 million to $27 million in case of Britain; from $2 million to $20 million in case of France. Although rates of value-added growth will be lower in view of Sri Lankan imports of raw materials (from India and Pakistan), clothing has clearly shown phenomenal growth relative to initial conditions.
Besides tea and clothing, significant movement in Sri Lanka’s exports over the long run appears in polished diamonds (SITC 66). Sri Lankan exports amounted to annual averages of $5 million and $4 million to Japan and the United States respectively in 1962-1971; $32 million and $17 million respectively in 1972-1981; and $38 million and $32 million respectively in 1982-1991. Value-added may be considerably lower given imports of rough diamonds via Belgium and India.
Like India and Pakistan, Bangladesh’s exports to the United States have been dominated by clothing (SITC 84) and textile yarn and fabric (SITC 65). As with India, textile manufactures have fallen drastically in real terms while clothing has shown enormous growth relative to initial conditions. While it is possible again that there has been value-increasing substitution from one towards the other, this appears unlikely as Bangladesh’s textile manufactures are mainly jute products. Average annual exports of textile manufactures from Bangladesh to the United States fell from $130 million in 1972-1981 to $75 million in 1982-1991, while clothing exports rose from near zero in 1972-1981 to an annual average of $249 million in 1982-1991. Unofficial (smuggled) trade across the India-Bangladesh border is reported to be high, and it is possible Indian exporters have sought to sidestep United States quotas by going through Bangladesh which does not face quotas.
The remaining significant movement in Bangladesh’s exports to the United States has been in fish (SITC 03), which has risen from an annual average of $8 million in 1972-1981 to $35 million in 1982-1991.
Bangladesh’s main exports to Britain have included jute fibres (SITC 26), textile manufactures (SITC 65) and fish (SITC 03). Average annual exports of jute fibres went from $19 million in 1973-1981 to $8 million in 1982-1991; textile manufactures went from $20 million in 1973-1982 to $21 million in 1982-1991; and fish went from $3 million in 1973-1981 to $18 million in 1982-1991. The remaining significant movement in Bangladesh’s exports to Britain include the appearance of transport equipment (SITC 73) as the top export at an average annual amount of $121 million in each year 1978-1980, followed by its equally sudden disappearance. And clothing exports have shown rapid growth from near zero to average annual exports of $50 million in the period 1988-1991.
Bangladesh’s exports to Japan have been dominated by fish and preparations (SITC 03), with average annual exports growing rapidly from $11 million in 1973-1982 to $54 million in 1982-1991. Other exports to Japan have included textile manufactures (SITC 65), petroleum and products (SITC 33), leather goods (SITC 61) and raw jute (SITC 26).
Bangladesh’s exports to Germany and France are marked by the rapid recent growth of clothing from negligible amounts to an annual average of $60 million in case of Germany and $52 million in case of France in 1987-1991. Other exports to Germany and France have included fish (SITC 03), textile manufactures (SITC 65), and leather goods (SITC 61).
Some discrepancy exists in the data as India does not report any exports of petroleum to either the USA or France in these years.