‘Yes, when the rupee is high exports suffer, but our economy is not just dependent on exports’
TOKYO: Indian exports have risen by double digits for the second straight month, suggesting that a turnaround has begun—it rose by 27.6% in March. A revival of the global economy has only renewed these expectations. Union minister of state (independent charge) for commerce and industry Nirmala Sitharaman dwelled on this trend in a conversation with Indian media on the sidelines of the India Investment Seminar co-hosted by Japan External Trade Organisation and the Confederation of Indian Industry in Tokyo on Friday. Edited excerpts:
What are your initial thoughts on the export trends?
Bottoming out had ended and was hoping it would be steady growth upwards. Was not trying to prophesy, but based on what industry was telling us that they are now able to make up for some lost ground; newer markets are catching up. Also I suppose some of the Indian companies had very smartly entered the value chain in certain sectors whose benefit is now being reaped.
For example..
Largely automobiles and electrical components. Also, I suppose you can’t miss out the steady growth which has continued unabated in services. So overall, India is reaping the benefits of domestic reforms, the approach of the government towards easing of a lot of difficulties which existed; many more are in the pipeline. I am sure GST (Goods and Services Tax) will have a very positive effect on exports at various levels and this too will have a bearing on the (future) performance.
But isn’t the rupee’s appreciation worrying?
This is a question which has logically been raised constantly and expectations remain that you have to answer it either way and so on. But what is important is for us to understand is that the economy gets reflected through your currency. Yes, when the rupee is high exports tend to suffer is a feeling that has been well established in economic parlance.
But I think we are talking of an economy which in the last few years has depended not just on its exports but we have a blend of exports and domestic industry.
But, I think the overall strength of the economy is now getting very adequately reflected, unlike the time when it was purely driven by exchange rates alone; in the sense that the rupee versus the currency you are talking about. So today I would think yes the exporters will have to factor this in.
But the rupee has gained against other currencies too. How do we see this perceived lack of competitiveness of Indian exports?
I would think it is important for us and I am sure the exporters would be fairly clear in their head about it; currency based lack of competitiveness is far lesser in the context of rupee strengthening for the Indian exporter even though I grant it that the strengthening of the Indian rupee of late is not against just once currency.
But for an exporter while that will be worrying because his margin of profit will come down, overall competitiveness of the Indian exporter compared to many other exporters of similar commodities remains favourable; and therefore this fluctuation per se or this strengthening of the Indian rupee per se should not eat into his margin—because our labour is still cheaper; if for the same commodity you were to compare with a competing economy like China I would still think that because of the arbitrage that the manufacturer gets out of a comparatively cheaper labour makes up for the fluctuation you had in currencies.
But if you look at the interest rates and the logistics cost…
You have to put more weight on lack of logistics. Inadequate infrastructure or overpriced infrastructure, like electricity, these are the kinds (of constraints) I would take to be unfair to a manufacturer. These are the kind of things I would take as arguments where his competitiveness gets affected, rather than take the currency’s fluctuation or currency’s strengthening as affecting his competitiveness. His core competencies are hit badly because of our lack of logistics, our freight costs, our energy costs, the reserves that he is expected to maintain or the uncertainties that he has to factor for absence of 24x7 electricity, absence of raw materials on time, imported raw materials and their cost. These are the things I would factor in determining if my exporter is cost competitive, rather than the fluctuation of the currency.