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US downgrade & Euro zone debt crisis to hit Indian exports
Aug '11
The down grading of US from AAA grading ,which it held since 1941,to a notch below to AA+ by S&P will have mixed impact on Indian economy but it is certainly not good for Indian exports said Mr Deora, President FIEO. The world largest economy is entering into depression while Euro zone is in debt crisis and thus our worst fear that exports in third and fourth quarter will be affected may come true said the FIEO President.

The down grading will lead to further appreciation of rupee against dollar which is already facing the heat in India, thereby blunting our competitive edge but more importantly US government will have to increase taxes to bring in more people under the tax net to curtail its deficit which will further shrink their disposable incomes and may have an impact on India's exports to North America, said Ramu S. Deora, FIEO Chief.

Garments, handicrafts, leather, gems and jewellery would be the most affected sectors besides IT said President, FIEO. He demanded that Government should immediately help the exports sector with interest subvention, reduction in transaction cost and upgrading infrastructure particularly ports and road.

In the post-recession era, the US is no longer India's top export destination. In 2010-11, India exported $19.53 billion worth of goods to the US, with imports being $16.97 billion. However, India's exports are picking up with $11.85 billion worth of goods export to US in the first six months of 2011.

However, US $ weakening will benefit imports ,there by pushing pressure on domestic manufacturing as well said Mr Deora.

FDI will flow to India but we need to create climate for the same by ushering in the second generation of reforms in taxation and investment policies including launching of GST, observed Mr Deora. This would lead to appreciation of the Indian rupee but would ease the burden of widening current account deficit in the short term.

Federation of Indian Export Organisations (FIEO)

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