TNC Rajagopalan: Exporters should stop looking for incentives

EXIM MATTERS

After a week of extraordinary developments, Dr Manmohan Singh took over as the Prime Minister last week. His selection for the top job has cooled political tempers and calmed the financial markets.

Uncertainty still hovers over what the future holds, but there is enough optimism that Singh's sincerity will help him tide over any crisis that may erupt now and then.

As expected, Singh has put economic issues like agriculture, rural development and employment generation on top of the agenda. Some businessmen worry as to whether this will mean more taxes to spur public investment and whether the prices and interest rates will go up.

The Reserve Bank of India expects the growth rate to be around 6.5 per cent and inflation 5 per cent. Despite uncertainties, India would be among the top performers globally in terms of GDP growth during 2004-05, and despite high oil prices and large domestic liquidity, the price situation would be in control, said YV Reddy, Reserve Bank of India governor, in the Credit Policy statement.

Indications suggest that if exporters stay focused on the opportunities that world trade growth offers, they will be better rewarded than if they keep looking for incentives.

Importers and exporters can take note of the apex bank's observation that significant trade deficit will continue with accelerated exports as well as imports. Decisions on trade liberalisation have to be based on the overall view of the economy and not just on issues related to forex inflows, says RBI.

In other words, the days when exporters were made to believe that they were doing a 'patriotic favour' to the country by earning foreign exchange, are over. They should expect to be treated on a par with anyone else generating as much employment and contributing to economic growth.

The good news for exporters is that the growth in world trade is projected to pick up from 4.5 per cent in 2003 to 6.8 per cent in 2004. In the US, it is expected that the growth momentum will be sustained. Although recovery in the Euro zone is slow, the growth outlook seems to be improving.

Growth in the UK has been gaining ground and growth prospects in Japan, reinforced by foreign and domestic demand, have improved. In recent years, emerging markets have been major drivers of world growth.

RBI expects large capital inflows to continue, which means that the exporters will have to reconcile to the prospects of a strengthening rupee. They also will have to expect a wider coverage of service tax and reduced subsidies. They can, however, expect the new government not to disturb the present Exim Policy or the tax structure much.

The present trade and tariff policies may continue and, at the best, the coming Budget will focus more on social and rural sectors. Singh has a promised a unique development model to ensure that the poor also get the benefits of growth.

He is taking over at a time when the domestic economy and world economy are doing well. He can accelerate the growth in manufacturing and services sectors, while addressing the key issues in other sectors. We all wish him all success.

Email: tncr@sify.com