India’s exports are likely to be hurt by the credit rating agency Standard & Poor’s downgrading of US sovereign debt, according to the Federation of Indian Export Organisations (FIEO).

The weakening of the US dollar resulting from the downgrade would make India’s exports less competitive even while imports to India would become cheaper and put further pressure on domestic manufacturers.

Stating this, Mr Ramu S. Deora, President, FIEO, said on Saturday that India’s exports to the US will also be hit because of Washington likely to raise taxes for reducing its deficits as part of the recent deal to increase America’s overall debt ceiling.

The higher taxes will in turn further shrink the disposable incomes of American people and reduce the demand for imports, thereby impacting India's exports to the US, Mr Deora said in a statement.

Rupee appreciation

The more immediate fear of exporters, however, is the possibility of the rupee appreciating further against the dollar on account of the US sovereign debt downgrade.

“We are already facing the heat on this count here. Any further appreciation will blunt our competitive edge,” Mr Deora said, adding that this is “certainly not good for Indian exports,” Mr Deora said.

“Garments, handicrafts, leather, gems and jewellery would be the most affected export sectors besides information technology,” he said.

“The world largest economy is entering into depression while the Eurozone is in debt crisis. Thus, our worst fear that exports in third and fourth quarter (of this fiscal) will be affected may come true,” he added.

Centre’s help sought

He demanded that the Centre should immediately help the exports sector with interest subsidy, reduction in transaction cost and upgrading infrastructure particularly ports and roads.

In the post-recession era, the US is no longer India's top export destination, FIEO said. In 2009-10, India goods exports to the US had had fallen 7.6 per cent to $19.53 billion, and imports from US to India also dropped 8.5 per cent to $16.97 billion, according to the Commerce Ministry data. India’s exports to the US in 2010-11 (April-December) were $18 billion. However, India's exports are picking up with $11.85 billion worth of goods export to US in the first six months of 2011, FIEO said.

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