Engineering export volumes not in sync with value

The Union ministry of commerce may have praised the performance of the engineering export sector but the industry representatives have a different story to tell.

According to the industry sources, although the engineering exports have grown in value terms, the same cannot be said in terms of volume.

"In value terms, the exports have grown by 18-20 percent ($) for the month of October but it has not increased in terms of volume and the main emphasis should be given on whether we are able to build on the quantity exported in the last year," said Rakesh Shah, chairman of Engineering Export Promotion Council (EEPC).

He even claimed so far as the trends suggests, it might be difficult to match the volumes of the previous year.

Last year the sector recorded a growth of over 35 per cent but Shah was quick to point out, "The figures are half compared to last year and we believe that after last year's performance at least the sector must grow by 30 per cent year on year."

Shah attributed the growth of exports on dollar terms to the increased price of steel. "Worldwide the price of steel has increased and thereby the cost, and hence subsequently it reflected in higher selling price. So the overall realisation in terms of value has increased as we are getting more price for the same amount of export," he explained.

Regarding the overall performance of the exports in the country Shah singled out the gems and jewellery sector as the main contributor of the good performance. "The gems and jewellery exports increased by 48 per cent but the main factor is that this sector is mainly import-oriented and hence it has registered such a growth," he said.

Commenting on the possible of introduction of the Tobin Tax structure to curb the inflows, Shah said, "So long the full convertibility is not there this move would be necessary to control inflows."

However he added this tax structure should be looked upon as a short run measure as in the long run it might not be beneficial.

"In the long run the government would have to look for full convertibility, for it will never work with a system of controlled outflow and open inflows," he said.

Shah also hit out at the banks for their hedging practices in the foreign currency market.

"Ideally in the long run we should have a free currency exchange market and the regulator must make sure that the banks come out of the hedging practices. By buying and selling the foreign currency the banks are eating away the margins," he said.

Shah also said that if free currency exchange market were possible, then the volatility of the rupee could be adjusted by the market forces.

"Once the market is fully open then the demand and supply forces would decide the market course and our economy is mature enough to adjust to the market conditions," he added.