The country’s merchandise exports are expected to revive from January after a growth dip but the year ahead won’t be easy, Union commerce secretary Rahul Khullar tells Nayanima Basu & Indivjal Dhasmana. Edited excerpts:
Will we achieve the $300-billion export target for FY12? The fall in the November export growth rate was too much; do you see any contraction ahead?
We are within striking distance of about $290 bn in exports and with a little luck, we will get to $300 bn. My guess, based on today’s condition. I do not see any contraction to happen. I think in January, February and March, there will be a slight turnaround. If you look at the corrected numbers, exports essentially fell by $2 bn every month since August. It is not that significant but this indicates a trend that exports are steadily decelerating, due to external factors and the exchange rate. The nominal exchange rate change took place in November, so that is why I am confident we will go back to the $25-bon a month level in January, February and March.
You have earlier said the trade deficit will end up within $150-$155 bn. How do you see this impacting our current account deficit (CAD), which many say would be close to three per cent of GDP, the case during the balance of payments (BoP) crisis?
Yes, we are likely to end up within the range of $150-155 bn, which is a very large trade deficit. The real question is what happens to remittances, what happens to net services income and what happens to factor incomes. There are two good things. First, the services market is responding well and there are indications these will go up by 16-18 per cent in dollar terms in the next three-four months. On remittances, I think with the depreciation taking place, people who were holding back on spending money would now start doing so. This means the news on remittances and net services income is not all that bad and we’ll be in the 3-3.5 per cent of GDP range on CAD. This is normally manageable.
Is it a comfortable range for CAD? Also, will we able to finance it without taking a hit on forex reserves?
Te real problem is that there is going to be financing difficulties because the mood in the rest of the world is not good for capital flows. Should something untoward happen in the euro zone, there will be a real financing problem, because a lot of the European banks have exposure to Asia. So, it is not India’s problem alone, it is the financing of the Asian trade deficit as a whole which may become a problem, because we are not only ones dependant on the European banking system for finance.
Second, the drying of capital markets impacts not only rolling over money but also trade finance. The availability of credit itself becomes very difficult and people who give short-term loans to finance trade get impacted. That is the real problem.
Is the fall in the rupee expected to push up the growth rate of exports, that has come down to single-digits?
Nobody responds to the exchange rate instantly but only with a lagged response. Exports will start showing some improvement from January but the bulk of the exchange rate depreciation took place in November, so you cannot expect an instantaneous reaction in orders in December. You should start seeing it in January-February. Orders have started coming in from the US but not so from Europe, so that could also help in pushing export.
Customs duty collections have also come down in November and December. Does that indicate any deceleration of imports?
As the exchange rate depreciates, imports become more expensive, so there will be a natural slowdown in imports because people will then start substituting. Second, a lot of the investment demand in the country was being met by imports of capital goods. But for the past few months, many private sector companies have put their investments on hold, which has an automatic impact on imports. So, I am not surprised with the fall in customs duty collections. This may be an indication of slowing imports. But we will still have a trade deficit of $150-155 bn this fiscal, because there are certain imports that you can do without.
What trend do you foresee in FY13 on exports?
Too early to say, but it is going to be a very difficult year. One, we are going to have our own domestic problems, which means we have a fiscal correction to be effected, there will be tax buoyancy as a problem, growth is decelerating and the question is will growth actually revive and will there will be any easing of the domestic monetary policy stance. More, there are going to be international events that will impact you. These will be mostly demand-related problems due to the European trouble, difficulties in the US and the general world mood is very sombre. Export will continue to grow but to expect a growth rate at 30-40 per cent is out of the question. If we get export growth rate in the order of 15-20 per cent, we should be more than happy.
Looking at the present global conditions, do you think the budget will have a package for exporters?
That depends on the December till February numbers. If there is a real problem, something has to be done. But I am very doubtful that the ministry of finance, which is already so strapped for cash, will give export subsidies.
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How do you see the sanctions on Iran impacting us?
Oil prices have already started rising. Should those sanctions be pushed to the hilt, we are going to have a supply problem which is artificially created and that would hike prices. What can we do? There are too many risks and no one knows how these will shape up in 2012.
Last year, you released a strategy paper on doubling India’s exports by 2014. Where do you get the optimism from?
Over the last five years, there has been a quiet revolution in our industry and in our export sectors such as engineering, chemicals, gems and jewellery, and others. This does give me reason for optimism.
I think certain sectors are intrinsically competitive and those will drive our exports, so we should continue to see growth. Also, even as the rest of the world turns protectionist, we have gone on signing trade agreements, and that is helping us. Our trade with these countries is growing by 30-40 per cent per annum.