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'Rupee appreciation eroding India's trade competitiveness'
Nov '15
An Assocham study has revealed that India's export competitiveness has been eroded because of the steady real appreciation of rupee and therefore the country should not be very 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,” the study titled “What's behind India's Declining Exports,” said.

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

According to the study, the main reasons for decline in exports during the recent months of 2015-16 are, slower growth in world output and trade; appreciation of Rupee against Euro making exports to Europe, which is a major market for India and less competitive for Indian Exporters; and steep fall in oil prices 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 get 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 consecutive month 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 $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.

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