India could see dent in exports after US downgrade

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India could see dent in exports after US downgrade
The downgrade of the US credit rating by S&P could lead to fall in Indian exports as rupee might turn greener against dollar.

If the US economy plunges into another recession, as many economists are predicting, it will also be a bad news for India.

Indian IT sector which contributes 26% of the the total Indian export basket will be affected most followed by India's merchandise exports which made up to 13% of US$ 246 billion in 2010-11.

The industry is confident of withstanding another downturn.

While most agree that there are fears of another recession in the US and a debt crisis in Europe, they feel it is early to predict the outcome.

“It is too early to say. There are fears of another recession in the US and a debt crisis in Europe. But we were able to react very quickly in the past (2008) when the recession happened., said Infosys CEO and MD Kris Gopalakrishnan. “ These responses are still fresh in our memory and I believe that the industry will be able to withstand another downturn."

CII, FICCI, Assocham and FIEO expressed concerns over events in the US economy, one of the biggest markets for Indian merchandise and software exports.

This recent downgrade would have stronger rupee against the dollar which could be a good news for importers, but would affect the income of exporters.

Confederation of Indian Industry Director General Chandrajeet Banerjee said, "... we shall have to see how it plays out, we are likely to have a stronger rupee against the dollar, which is not good for our exports."

Assocham said, "Indian policymakers should keep a watch and analyse the impact of Standard and Poor's downgrading."

The Federation of Indian Exporters Organisations (FIEO) chief Ramu Deora said, "The downgrading will lead to further appreciation of the rupee against the American dollar which is already facing the heat, thereby blunting our competitive edge.

"The US Government will have to increase taxes to bring in more people under the tax net to curtail its deficit which will further shrink their disposable incomes and may have an impact on India's exports to North America."

Deora said,"Garments, handicrafts, leather, gems and jewellery would be the most affected sectors besides IT."

Indian exports have been registering high double-digit growth since January, but this may not be sustainable if the US falls into another recession and Eurozone problems persist.

Ramu Deora said the government should extend help to the exporters with interest subvention, reduction in transaction cost and upgrading of infrastructure, particularly ports and road.

Read more about: economy, export, downgrade
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