President, FIEO Those exporting under DEPB and the drawback will be largely compensated. With some more measures, I'd say we may still meet the year's export target of $60 billion Though the rupee appreciating is not a new phenomenon, the sharp and sudden appreciation we're seeing right now is unheard of. Over the 8.7 per cent appreciation last year, the rupee has already appreciated 8 per cent. No one can argue that the rising rupee will not affect exports given how price sensitive Indian exports are and how they are predominantly invoiced in dollars. Textiles, leather, engineering, pharmaceuticals and agro commodities are already feeling the pinch. The fear of slowdown in export growth is reflected in recent export figures. Export growth decelerated to 5.2 per cent in January, rose to 7.8 per cent in February and 8.8 per cent in March 2007. April showed double digit growth but aggregate exports in April 2007 ($10.6 billion) were less than in March 2007 ($12.5 billion). |
What is of greater concern is the IMF forecast which says that US growth will slow down from 3.3 per cent in 2006 to 2.2 per cent in 2007. Besides, with the US current account deficit nearing 7 per cent of GDP, the dollar is slated to move even further down. |
Indian exporters have already lost a few billion dollars of exports and, even after taking into account the advantage we have by way of cheaper imports, we have lost around 8-9 per cent of our export competitiveness, and are on the verge of losing important markets nurtured over a period of time. This will have serious implication on employment. A conservative estimate is that if things go on the way they are, we could lose around 8 million jobs this year. |
It is heartening that on the day the commerce minister convened a meeting of the head of FIEO and other export promotion councils, he announced a package to deal with the alarming situation which includes enhancing the Duty Entitlement Pass Book (DEPB) and Duty Drawback rates by 5 per cent, cutting the rate of interest on pre-shipment and post-shipment credit for exporters to 6 per cent from the current 9-11 per cent, making the Exchange Earners' Foreign Currency (EEFC) accounts interest-bearing, mandating that scheduled commercial banks have to meet their 15 per cent export credit disbursement target, making sure there is no delay in service tax exemption/refunds and reducing the Export Credit and Guarantee Corporation's premium by up to 10 per cent. |
Apart from compensating exporters, these measures will also send a positive signals to the exporting community since they underline the government's resolve to extend a helping hand in dealing with extraordinary situations. |
Quantifying the impact of these measures and whether they will help stem the slowdown in exports is a tricky issue. Those exporting under the DEPB and drawback route will find costs getting offset by about 7-8 per cent and so will be largely all right. Exporters using Advance Authorisation and DFIA schemes will probably get benefits amounting to just 2-3 per cent, as will units in EOUs, EHTP, STP and SEZs. I'd say around 60 per cent of exporters will get a significant benefit. |
That said, the announcements made need to be implemented immediately, and then supplemented with other measures. All un-rebated taxes and duties, Central and state, have to be refunded and a scheme needs to be announced to neutralise the high cost of electricity in the country "" it is around 2.5 times the international benchmark. |
The scope of the MDA scheme also needs to be enlarged to cover all exporters and the restrictions on the number of visits should go. FIEO has been asking the government to create an Export Marketing Fund with a corpus of about 0.5 per cent of exports so that sizable amount is available for venturing into new and untapped markets besides cementing the presence in the existing market. I am sure that if these additional measure are taken by the government and those already announced are extended to all exporters, we will still this fiscal's target of $60 billion. |
Trade Analyst
Many of the sops announced have already been factored in by the exporters, so it is unlikely that they will make much of a difference to export competitiveness
Commerce Minister Kamal Nath's package to help exporters cope with the impact of strengthening rupee is more of a symbolic gesture. The finance ministry may not accept some of his recommendations and even if they do, exporters who do not learn to hedge their foreign exchange exposures may not be better off.