BY K.N. ANANTHANARAYANAN

The downtrend in India’s exports following the unprecedented appreciation of the rupee against the dollar persists. This has been revealed by the provisional figures released by the Commerce Ministry for April-June of the current fiscal. Exports valued at $12.4 billion in July against $10.5 billion in the same month of 2006, representing a growth of 18.5 percent, and the average growth of 18.2 percent for the four-month period were wide off the 25 percent surge in exports recorded for the year ended March 2007 and much lower than the targeted export growth rate of 28 percent for the current fiscal.

Though the rupee ruled a little above Rs.41 a dollar for a few days recently, its value in fact rose nearly seven percent during April-June to touch a nine-year high. This has led to an enormous erosion in the value of the dollar earned from exports. At around Rs.40.90 a dollar in most of June last against Rs.46.50 as of August 2006, rupee appreciation meant a loss of earnings worth millions of dollars to exporters.

The Ministry data also showed that Indian imports which grew faster than exports hit $17.5 billion in July, an increase of 20.4 percent from a year ago. This widened the trade deficit further. However, trade figures did not cover export-import of services such as outsourcing done by IT companies.

Himself concerned over the accelerated appreciation of the rupee that slowed down exports, Mr.Kamal Nath, India’s Commerce and Industry Minister, kept on assuring at different fora timely government assistance to relieve the export trade of its problems. And, as promised to an FIEO team consisting of representatives of different export promotion councils in New Delhi in June, he did manage to offer, with the assistance from the Finance Ministry, a big relief package to exporters.

However, this was of no avail as exporters soon realized that the package did not go beyond neutralizing the impact of the rising rupee on the export deals already concluded. Further they are unable to enter into fresh contracts with overseas customers for export of both traditional items like textiles and new marketable products like auto components and accessories, particularly in view of the emerging competition from India’s Asian rivals like China, Korea, Indonesia, Thailand, etc. The main advantage of these countries is that their currencies have remained almost unchanged or have moved up in the range of just one-three percent.

Meanwhile, regular customers of Indian products have started switching to other markets where their requirements are available at much lower rates. Markets once lost cannot be regained. Also, Indian manufacturer-exporters feel constrained to shift their units to regions outside the country where production proves more economical.

It is an irony that the Indian textile industry, which accounts for more than 30 percent of the country’s aggregate exports, is the worst affected in the emerging scenario. All the more so when vigorous efforts are being made to revive textile exports to major markets like the US where the export trade has lost much ground. Figures for the year ended January 2007 showed that Indian textile exports to these markets grew only by five percent against 27 percent for China, 38 percent for Indonesia, 26 percent for Cambodia and 20 percent for Bangladesh.

The Indian Government may do well to announce new duty drawback rates for the export trade after taking into account factors like transaction costs in order to maintain the competitiveness of Indian products in overseas markets. The Reserve Bank of India and the Finance Ministry could jointly consider special steps like selling dollars to check a further rise in rupee value against the dollar. According to economic experts, the ideal rupee-dollar rate is about Rs.45 and anything above it is detrimental to the interests of exporters.