Government signals rethink on rupee as anchor for exports
Infra hurdles should also be looked into
TOKYO: The appreciating rupee reflects the growing strength of the Indian economy as the government rolls out second-generation economic reforms such as the goods and services tax (GST), Nirmala Sitharaman, minister of state (independent charge) for commerce and industry said.
The minister’s remarks echo similar sentiments among other members of the government who have shrugged off the recent appreciation of the rupee, arguing that the exchange rate alone can’t be the sole way of incentivising exports. Instead, they say the emphasis should be on addressing other constraints, including the lack of infrastructure and logistics, suggesting a fundamental break by the NDA government with conventional policy thinking in government wherein a weak rupee is seen as the key incentive for exports.
“Although strengthening of the rupee by itself will be worrying today, I will contextualise it in the Indian economy’s overall strengthening position,” Sitharaman said.
Separately, an MP of the Bharatiya Janata Party (BJP) and someone close to decision making in the government, said that there had been too much focus on the exchange rate as the only incentive for exports. “We have long been hostage to Bangalore,” the MP said in an implicit reference to software exports.
The rupee, which closed at 64.41 against the dollar on Thursday, has strengthened by 5% against the US currency year to date. This has triggered fears that it would affect India’s export competitiveness. Indian exports rose 27.6% in March.
“I would think it is important for us and I am sure the exporters would be clear in their head about it; currency-based lack of competitiveness is far lesser in the context of rupee strengthening for the exporter,” Sitharaman said.
The focus of policy planners should instead be on improving the state of the domestic economy and thereby enhancing competitiveness, she added.
Sitharaman also argued that the roll-out of GST, addressing logistic bottlenecks — like the lack of a cold chain system impeding the movement of fresh fruits and vegetables — are the key to improving the competitiveness of Indian industry and consequently of the country’s exports.
Asked pointedly as to whether it signalled a fundamental rethink by the government, the trade minister said, “Yes, that’s right. That is something that the government has been looking into. That is one of the reasons why sometimes it may appear as though we don’t put so much emphasis on exchange rate anxieties. We may have to look at it in larger macroeconomic perspective but the attention of policy planners, the state governments should go towards (improving) logistics, (trade) facilitation.”
Trade experts welcomed the rethink by the government. “There is a disconnect between what we are doing in the domestic economy and what India is doing in global trade negotiations. We are not addressing domestic bottlenecks simultaneously,” said Biswajit Dhar, a trade expert and professor of economics at Jawaharlal Nehru University.