India`s export competitiveness eroded by steady real appreciation of Rupee: ASSOCHAM

ASSOCHAM study has revealed that India’s export competitiveness has been eroded because of the steady real appreciation of rupee and therefore we should not be so concerned about a strong exchange rate.

“Global experience shows that 10-15 per cent real devaluation could be a shot in the arm for an export surge, while a real devaluation of the order of around 10 per cent through a combination of falling inflation and allowing rupee to depreciate may provide much needed boost to exporters,” noted a recent ASSOCHAM study titled “What’s behind India’s Declining Exports.”

“The continuation of Rupee Export Credit Interest Rate subvention scheme for same select sectors need to be announced at the earliest,” said Mr D.S. Rawat, secretary general of ASSOCHAM while releasing the chamber’s study.

The main reasons for decline in exports during the recent months of 2015-16 are - (i) slower growth in world output and trade; (ii) appreciation of Rupee against Euro making exports to Europe, which is a major market for India and less competitive for Indian Exporters; and (iii) Steep fall in the prices of petroleum crude resulting in consequent decline in prices as well as export realizations for petroleum products.

In addition prices of a wide range of primary commodities have also fallen, besides the overarching impact of global demand conditions exports from certain sectors reflected the impact of policy changes domestically and in destination countries as also sector-specific issues.

Presently, micro, medium and small enterprises sector gets loans at 12-13 per cent. After subvention, this would come down to 9-10 per cent. However, India's competitors get it at around 5 per cent.

The study says that in two of the past three financial years, India’s exports have contracted. India’s merchandise exports in 2014-15 at $310 billion were much below the target of $340 billion set by the government for the third successive year and declined by 1.3 per cent.

For nine months running since December, 2014 the rate of growth of both exports and imports (in dollar terms) has been in negative territory. On a cumulative basis exports during the first five months (April-August) of 2015-16 at $111 billion were lower by more than 16 per cent over the same period last year.

Under the new Foreign Trade Policy 2015-20 (FTP) announced on April 1, 2015, the government has expanded the scope of the new schemes to special economic zones (SEZs). Taking exports to the level of US$ 900 billion by 2019-20 will need a higher compound annual rate of growth (CARG) of about 14 per cent during the FTP period (2015-16 to 2019-20) which could be a challenge.

Even the high interest rate regime and the overvalued exchange rate is helping the financial markets, not the real economy and export sector in particular.

India has been a major user of anti-dumping measures over the past few years; there has been a significant increase in the number of new anti-dumping and safeguard investigations initiated.

In the context of the current global slowdown, it may be beneficial for the economy as a whole if a detailed economic analysis on the likely impact of the duties on downstream user industries is undertaken, prior to the imposition of duties.

Such duties may be detrimental to export prospects, if the duties are imposed on imported inputs used for producing export-oriented goods in the small scale sector which contribute significantly to India’s exports.

“Government needs to put in place temporary measures to ensure Indian exporters do not withdraw from important overseas markets during the period of downturn,” suggested the ASSOCHAM study.

“This will help Indian exporters regain market as and when recovery takes place, this could be achieved through a combination of liberal market development assistance and easing export financing. Besides, Markets which are expected to recover fast (USA, Germany, ASEAN, Republic of Korea, and West Asia) need special focus,” it added.

This will help reduce transaction costs. With profit margins shrinking globally, cost competitiveness is of vital importance. In an attempt to reduce some of the transaction costs associated with international trade, the Government has been simplifying its customs procedures over the past few years.

While this is a continuing process, it needs to carry further. Import and export procedures in India take much longer than in Singapore, Thailand and Malaysia. This can partially be explained by the number of documents required to proceed, which is much higher compared to these countries.

Cost of shipping a container from India is more and roughly twice the amount paid by shippers in China, Thailand and Singapore. Finally, customs clearance for both imports and exports also takes longer The elimination of the administrative burden of import and export procedures, while not a panacea, would make great progress toward this end. The Foreign Trade Policy 2015-20 has reduced the number of mandatory documents required for export and import to three each.

With profit margins shrinking globally, cost competitiveness would be an important determinant for retaining or acquiring a share in export markets. In an attempt to reduce some of the transaction costs associated with international trade, the Government has been simplifying its customs procedures over the past few years. While this is a continuing process, it needs to be carried forward.

Cumbersome paperwork, delays caused by regulatory agencies and other bureaucratic red tape hinder trading processes, causing unnecessary delays and costs to traders. Trade facilitation can lower trade costs and in the context of the global economic slowdown there is greater need for reforms in trade practices than ever before.