The Hindu Business Line : Balance of payments

Once again, the latest statistics on the balance of payments of the RBI for the first half of 2007-08 clears misunderstandings about the impact of rupee appreciation external sector.

In the first place, contrary to claims from vested interests, export buoyancy has kept up. In dollar terms, the growth rate was nearly 20per cent against 25.4 per cent last year. It is unrealistic to expect the rate to be on the rise always. What has been achieved is good enough.

If exports have been affected, it is confined to a few sectors such as textiles. The Government is right in focussing on such sectors by giving fiscal relief instead of trying to curb currency appreciation.

The main point is that, on the basis of purchasing power parity, the rupee is still undervalued and, hence, goods and services continue to be competitive abroad even after taking into account the trends in the exchange rates of other currencies. No doubt, rupee earnings have grown less but there is still profit to be made in export business.

Second, the massive rise in unrequited transfers of NRIs from $12.7 billion to $19 billion amounts to a whopping 49.2 per cent. This is a ‘benefit’ of rupee appreciation.

It is, however, dubious because the rise is partly accounted for by the fact that the NRIs have to remit more dollars than before just to ensure that their dependents in India get the same amount of rupees as in the past. The rising inflationary pressures, particularly in West Asia, aggravate the hardships to them. The growth in software receipts, although lower at 15.2 per cent compared with 37.2 per cent earlier, is welcome.

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