The Hindu Business Line : Re-think the export process

Will the Government succumb to the exporters’ demand for more concessions and support measures beyond that announced on July 12? Lobbying has already begun. Such measures as interest rate relief on export credit, increased duty drawback rates for almost all items and speedy settlement of deemed export benefit claims have not wholly satisfied exporters who now want the DEPB and duty drawback rates raised to 5 per cent; that is, a virtual doubling of the relief. Appare ntly, the Finance Ministry’s package did not consider the Commerce Ministry recommendations — so much for inter-ministerial coordination. The Finance Ministry, however, claims that the package is sympathetic to items that are less import intensive and therefore unable to enjoy the benefit of lower input costs.

To be sure, exports need support, but it is almost impossible to meet exporters’ demands entirely because the level of support needed is not the same for all items. Unfortunately, exporters do not talk about a quid pro quo. Th e merits of their demand aside, there is no guarantee that the annual export target of the traditional items would be achieved even with enhanced support. Rapid currency appreciation is sure to reduce the rupee value of earnings; but export competitiveness is something that goes beyond mere exchange rates. Clearly, exporters have all along been overly relying on exchange-rate-related gains rather than on ‘intrinsic competitiveness’. The rupee appreciation has exposed them. Also, exporters seem to have largely not ploughed back export profits (tax-free for long years) to improve products and processes, and thereby competitiveness. Indeed, the exporting community should perceive the current challenge as an opportunity to re-examine costs and improve supply-chain efficiencies. The artificial protection afforded by a weakened rupee is available no more. The threat of losing business should spur exporters to improve sourcing, processing, packaging and shipment. To a significant extent, production of traditional export items is either in the unorganised sector or on a scale that does not permit of economy. Inefficient units will fall by the way side or a process of consolidation of capacities will happen. It is a painful exercise that has got to be gone through.

Innovation in goods and services as also in marketing could be a way forward. Japan provides a good example of how its large trading houses came up withproduct and service innovations to beat a rising yen. Importantly, the apprehension of a further upside to the rupee is rather limited. Thus, effective cost-cutting exercises will prove beneficial in the medium-term. It is also an opportunity for exporters to learn to hedge the exchange-rate-related risk. Finally, with the economy growing at a robust rate, partial loss of export will release productive capacities for the domestic market. On its part, the Government should set right all the limiting factors such as poor infrastructure.

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