The Hindu Business Line : Sell differently

Most central banks suffer from the "Damned if you do, damned if you don't" syndrome. Till about a few years ago, the Reserve Bank of India was often criticised for intervening far too much in the currency market than was good for it. Now, arrows fly thick and fast at Mint Street from exporters for not preventing the home currency's rise against the dollar. Over the last five months the rupee has gained some 8 per cent. Last week, Dr C. Rangarajan, chairman of the Prime Minster's Economic Advisory Council, justified the RBI going hands off as an anti-inflationary measure though he did warn that the success of this move would depend on good monsoons and favourable harvests.

A rising rupee also lowers the import bill. So far the widening trade deficit has not mattered because foreign exchange inflows through export of services, especially software, and remittances largely neutralised the deficit's baneful effects on the balance of payments. For two successive years, India, among all developing nations, has been the highest recipient of savings from its overseas workforce. But all these are of little comfort to exporters who feel their market shares threatened by the rupee's rise against the dollar. Small wonder that both traditional exporters, such as of coir products, textile and ready-mades, to those of IT services are beginning to voice concerns of a likely decline in their competitiveness. But are their complaints justified?

The slow down in exports had set in even before the rupee started to appreciate with merchandise export growth slipping to 19.3 per cent in April-February 2006-07 from 26 per cent in the previous year. In fact, a look at the export data shows that despite growth in the last four years of around 25 per cent, India's export trade, barring that in IT services, has not matched the export-oriented reforms since 1991. The basket of exports has not diversified to reflect the economy's new strengths; engineering goods, gems and jewellery and textiles still remain the mainstay of India's non-service exports. The rising rupee presents a great chance to change course. Traditional Indian exports are price sensitive because they are low end and substitutes are available to the global consumer readily; to retain market share they must become more efficient, more brand conscious with focus on value-addition.

The biggest opportunity lies in services that are less price sensitive and that reflect India's sunrise sectors. India's `culture' industries are gaining worldwide acceptance. The film industry and related activities, for example, are growing at 16-18 per cent every year; recently, India and Brazil signed an audio-visual cooperation agreement that should open up the Latin American markets. Adding variety to the export basket and imparting greater value to `Made in India' brands are the best antidotes to currency changes.

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