Inflation, high interest rates eating into exports: Assocham.

As Inflation and  high interest rates have eaten into the advantage that may have accrued to exporters due to depreciation of rupee, the government needs to press the emergency button for saving Indian exports in a highly depressed European markets and slowing US economy, an Assocham study said today.

While rupee depreciated by about 25% in the last one year, the inflation based on the wholesale price index remained around eight per cent. In real terms, the impact of rising price was much more. The situation got further compounded with the export credit staying expensive as the RBI refused to lower the interest rates.

It is in this context that the government needs to do a reality check along with the exporters and set realistic targets. According to an assessment done by Assocham, the export target of USD 360 billion for the fiscal 2012-13 is not achievable given the present global economic situation.
 
 ``We would be lucky if we are able to reach the level of the previous year at  USD 304 billion ,`` the study pointed out.

It might even decelerate well below USD 300 billion, the study cautioned adding a new realistic target should be set.  
 
For the long term, the strategy earlier devised by the Commerce Ministry to achieve exports of USD 500 billion by the end of 2013-14 should certainly be changed.  Assocham suggested that the exports sector be given maximum incentives if we want to sustain jobs in several labour-oriented sectors like gems and jewellery and handicrafts.

The government should immediately announce incentives for the exports sector. The duty drawback rates should be revised upward and the rate of export credit should be significantly reduced, if we have to even sustain the exports achieved last year, the study said.
 
Moreover, the government should speed up talks on the Free Trade Agreement with the European Union so that the Indian exporters get duty-free or concessional access to the vast European market, Assocham President Rajkumar N Dhoot said.

Exports registered a small growth of 3.2% in April this fiscal and the situation worsened in May and June. The shipments decelerated by 4.16% in May to USD 25.68 billion and by 5.45% in June to USD 25 billion.

For the first quarter of April-June, the exports were down by 1.7% to USD 75.2 billion dollar, from 76.5 billion dollar in the same period last fiscal.
 
As against earlier projections, the situation in Europe the main market for the Indian goods and the US has worsened rather than improved.

If the present global market scenario continues, the Assocham forecast suggests the country`s total export billing may be in the range of USD 297-USD 300 billion.

It is also true that India`s exports, after deceleration during the global meltdown of 2008, had looked up at an impressive pace in the financial years of 2010-11 and 2011-12. The shipments had increased by 40.5% in the FY 2010-11 and by 21.3% in the subsequent year.

Thus, any expectation of further growth in the current year has also to be seen in the context of high base at the start of 2012-13, the Assocham study pointed out.

The new strategy should catch up must include the ground realities. The problem is that the engineering goods are the country’s largest export resource which had totaled USD 58.2 billion in 2011-12. It, may at best clock USD 55 billion in the current fiscal. The initial trends look discouraging.

Likewise, the second largest sector, petroleum products may bring in USD 52 billion in 2012-13, against USD 56 billion in the previous year. Both these sectors get largely influenced by the economic downturn and they are ``our largest export contributors``, the study said.

Even the sectors like pharmaceuticals, which are considered immune to recessions and slowdown, have also not shown any promise. The drug and pharma exports were USD 3.4 billion in the April-June quarter of this fiscal.

Leather, handloom products and carpets, besides gems and jewellery would face the major challenges in the current fiscal.

Source : myiris.com