The Hindu Business Line : Stronger rupee and exports

This seems to be the season for the Indian economy crossing various benchmarks. Thus, to take only the categories that make the headlines off and on, the country some time back became a lender to the IMF instead of being the proverbial borrower it has been through the decades, the foreign exchange reserves have crossed the $200-billion mark, the rupee has strengthened to beyond the Rs 41-to-a-dollar mark, and India's share of world trade has touched the one per cent mark from 0.7 per cent of past years.

These are impressive details in the saga of India's economic progress, but it is also a fact that some of them mask strong contrary pulls — such as the impact of the rise in the rupee's value vis-à-vis the dollar on the country's export effort. Not tackled effectively and quickly enough, this could result in strengthening the contradictions in the economy, leading possibly to a disruption of the growth process. In fact, the export segment of the growth scenario needs special attention because its prospects could be easily harmed if the rupee continues to strengthen. Strenuous efforts should be made to improve the intrinsic competitiveness of the export sector. Of course, governments at the centre and the States need to attend to the deficiencies in infrastructure that currently swell the cost of doing business. But everyone knows it will not be wrought overnight. Immediately, some exporters may need to search within for ways to reduce their own costs, others may need to vest their products or services with greater value in order to justify the higher price tags. Either way the challenge is clearly upon the community.

This is the prism through which the official policy relating to exports and the export-production sector should be seen, the latest Government essay in this direction being the annual Foreign Trade Policy Supplement which, among other things, has set an ambitious $160-billion export target for 2007-08 compared to around $125 billion the previous year. Indeed, this is not all, for the target for merchandise exports for 2009 has been tentatively put at $200 billion. Nothing can be better than the attainment of such a benchmark but, unfortunately, as of now, the prospects look bleak if important Ministries such as of Commerce and Finance continue to spar with each other over policy nuts-and-bolts such as the waiver of service tax on export items, not to speak of the myriad problems afflicting the formulation of guidelines for the Special Economic Zones, whose exports have risen by more than 57 per cent in 2006-07.

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