To meet the challenge, Indian export should price itself in competition to China and others. says FIEO chief
Amid the grouse that India is not moving on the reform front resolutely to infuse investors' confidence, a relatively salutary show by the country's export segment has come as a big respite.
That India has crossed $300 billion in merchandise goods exports during 2011-12 at $304 billion reveals that our trading instinct is emerging as strength. This is despite a distinct slowdown in manufacturing segment. But as our appetite for importing goods mostly items like oil and gold and silver accounting for more than $200 billion out of $488 billion is perilously substantial, the country ended up with a huge trade deficit close to a staggering $185 billion. Whether India can sustain this order of trade deficit without redoubling its export drive in the coming years is a moot point. But the optimistic chief of the Federation of Indian Export Organisation (FIEO) Mr. Rafeeq Ahmed demurs, stating that everything is not doomed and negative for India as the situation on the ground is still favourable with “intensive interaction between exporters and the authorities and sustained support from the latter”
Talking to The Hindu, he said in the first half of last fiscal, export growth ran between 40-50 per cent when there was no currency crisis and Chinese currency was overvalued. That made Chinese products costlier and Indian products a favoured lot in the overseas markets. So when supply from China was costlier and there was demand, every one looked at India. But in the next two-quarters this growth had declined and in the fourth quarter it ran into single-digit. If the latter half situation prevailed during the first half, we would have been short by $50-70 billion for the whole of last fiscal.
Mr. Ahmed wistfully noted that the Commerce Secretary conceded that going forward 2012-13 and 2013-14 would be difficult years. “The achievement of $300 billion last year does not give guarantee that we will be achieving $500 billion in the next two years” he said wryly but bracing himself hastily to add that China is becoming costlier and expensive because of the rising cost of labour, raw materials and fuels there. There is also a currency pressure particularly the yuan vs. dollar and in the election year in the US, they will pressurise the Chinese to revalue their currency and make it not attractive to exporters there. All these give us hopes. It is not competitive strengths of others but their weaknesses which are giving us hopes now, he quipped.
Again, the US is now much better than what it was two or three years ago, though
China is always a preferred partner to the US than India Hence, he said, we must focus on the US now nevertheless as its economy is slowly turning around. But the ways things are going in the Europe, we may not see any big change at least a year or so from now, where we may have to struggle.
Talking about market diversification such as Latin America and Africa, commodity prices, natural resources and metal prices are under pressure which will render their economies not so strong. He said that we cannot confidently say that these continents would be alternate to the US or European markets. Earlier we have seen increase in these new destinations only percentage-wise and not volume-wise.
Still, logistics cost is a big problems to ship our merchandise to these regions. But we have to understand how China is dominating there while we are not, though the distance barrier is applicable to both India and China in making foray into these far-flung areas.
In order to meet the big challenge Indian export should be done in such a way as to price ourselves in competition to China and other trading nations.
If we do not do so, we will be priced out. What determines our pricing is the cost of finance and the interest rate is hurting the exporters with banks charging anywhere between 10.5 to 12.5 per cent for export finance. This way we cannot compete with Asean or any competitive countries. Even interest subvention is only for carpets, handicrafts and handlooms.
It is also sad that after the RBI raised the interest rate on dollar loan from 2 to 3.5 per cent, the banks are reluctant to provide dollar credit to exporters. RBI guidelines to banks to provide 12 per cent for export finance has not been fulfilled as banks exposure to export industry is hardly 8 to 8.2 per cent today, he justifiably cribbed.
FIEO has tied up with e-bay and pay-Paul so as to encourage e-commerce in India's overall exports in tune with the times, he said on the shape of things to come.
To achieve $500 billion export target, government should support capacity increase by export sector in every product with easier term-loan because the returns are in dollar to the exchequer, Mr. Ahmed asserts.