If it is convertible fixed exchange rate currency system, like gold standard or gold exchange standard, it requires building forex/gold reserves, as the central bank may have to buy its own currency in the foreign exchange market using its foreign currency reserves to maintain the fixed exchange rate; and the reserves should be sufficient to back the circulating currency.
If it is fiat non-convertible floating exchange rate currency system, then the forex/gold reserves will not be required to back the circulating currency (as there is no promise to convert currency into gold/$ on demand) but it may desire to stabilise the currency value in the forex market in the event of abnormal movement.
Export led economy was a necessity and inevitable, as forex/gold reserves determined the economic fate of a country. But, that has gone away with the termination of Bretton Woods system. Now, under the present fiat currency regime, currency creation is not bound by forex/gold reserves. Those reserves are held by central banks as safe assets and perhaps to contain the volatility in the forex market.
What do we gain from exports?
The ability to import is the primary reason for export.
Forex earning not being the priority with the fiat currency system, it is relegated to being just a sale for the manufacturer, on par with the local sale. Then, that raises the question whether supporting exports with competitive low wages, low interest and other incentives is justified.
Could employment generated be another gain?
Private sector employment ideally should facilitate employees' progression in skill, efficiency and value chain. But by design, as export focus leads to low wages and periodic unemployment, it is not ideal for employment generation and labour welfare and the lost output means a reduced standard of living.
International capital also lost its relevance with the fiat currency regime.
So, the only gain could be technology and advanced business practices that would come to the country.
Export is a cost to the real economy, and depletes real goods and services.
India having huge human and other natural resources should deploy all the available resources, produce to meet the enhanced consumption and distribute meeting everyone's need. After meeting the desired local consumption fully, additional production could be exported to facilitate additional imports.
Rajendra Rasu
