The Hindu Business Line : Export challenges

With a stronger rupee and rising inflation, India will have to fight hard, and adapt to client expectations, to retain its share of the export market.

Like other policy-makers, those in the Commerce Ministry too are caught between a rock and a hard place when it comes to creating enabling environments. On the one hand, global trade is heading down on pessimistic economic cues from developed nations and the domestic economy is showing signs of exhaustion, with the IMF joining those predicting lower than 8 per cent growth. On the other, the general elections are a year away and, more than at any other time, the government must now be seen reviving the economy — creating jobs — and reining in inflation. In its annual statement, the Commerce Ministry exhibits an odd mix of bravado and caution.

The target for this year’s exports is $200 billion — a 30 per cent rise over last year. That was a pace of growth before the rupee grew 12 per cent against the dollar and when inflation was under control. Now, with the rupee showing no signs of easing, inflation rising in tandem with global price spikes, and the IMF predicting slower world trade, chances are exporters will have to fight tooth and nail to retain market share. The policy contains a few initiatives meant simply to enable exporters retain margins: extension of the popular Duty Entitlement Pass book scheme, tax refunds and interest subsidies for garment exporters. However, other than increasing the burn rate on the tax-payer’s money, these measures have limited value in enhancing product presence in periods of intense competition. Yes, cutting transaction costs, reducing procedural delays, and improving the infrastructure would help; certainly, employment must increase. But just how exporters are to face the daunting challenges ahead in markets that have not yet bottomed out is unclear. Most exporters may find relief in the concessions now extended for longer periods; if the rupee does not strengthen further, profit margins may just stabilise, though even that is unlikely if the orders diminish.

A flexible and dynamic approach to markets is what will enable exporters get over cyclical turns in currency values. So far the IT industry has learnt this lesson and is able to weather price dislocations by servicing client expectations. In the event, this may be a good time for some strategic reflection on market realities; before scaling productivity levels, merchandise exporters primarily need to orient production to market needs. As the Minister of State for Commerce, Mr Jairam Ramesh, pointed out, India must export what the world needs, not simply what it cares to produce. India produces cost-effective khadi; but does the world want it?

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