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Updated: August 6, 2011 22:20 IST

U.S. downgrade to hit exports

Special Correspondent
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Ramu Deora
Ramu Deora

The economic crisis in the U.S., further aggravated by the downgrading of its sovereign rating by S&P, could have a severe impact on India's exports in the coming months as the U.S. continues to remain the world's largest market.

Reacting to the downgrade by S&P, Indian business chambers and the Federation of Indian Export Organisations (FIEO) on Saturday expressed concern over the turn of events in the recent times in the U.S. economy. The U.S. is one of the biggest markets for Indian merchandise and software exports.

Country's second largest software exporter Infosys's CEO and Managing Director Kris Gopalakrishnan said: “There are fears of another recession in the U.S. and a debt crisis in Europe. I believe industry will be able to withstand another downturn (after the 2008 crisis),'' he remarked.

Confederation of Indian Industry Director General Chandrajit Banerjee in a statement said: “We shall have to see how it plays out, we are likely to have a stronger rupee against the dollar, which is not good for our exports.''

FIEO President Ramu Deora said the downgrading would lead to further appreciation of the rupee against the American dollar, which was already facing the heat, thereby blunting our competitive edge. “The U.S. 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. Our worst fear that exports and fourth quarter (economic growth) will be affected may come true,'' he remarked.

Garments, handicrafts, leather, gems and jewellery would be the most affected sectors besides IT, according to Mr. Deora. India's merchandise exports to the U.S. in 2010-11 made up for 13 per cent of its merchandise exports of $246 billion. Besides, 60 per cent of the country's software exports of $59 billion during that period were destined to the U.S.

FICCI Secretary General Rajiv Kumar said: “Problems in the U.S. can cause major disruption in the world and would also affect India. Our exports would be affected if situation in the US deteriorates.''

Mr. Kumar said it would have an impact on the banking sector as well. Indian exports since January have been registering high double-digit growth.

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