Strong Exchange Rate Not A Worry: ASSOCHAM Study

ASSOCHAM study has revealed that India's export competitiveness has been eroded because of the steady real appreciation of rupee and therefore we should not be so concerned about a strong exchange rate.

"Global experience shows that 10-15 per cent real devaluation could be a shot in the arm for an export surge, while a real devaluation of the order of around 10 per cent through a combination of falling inflation and allowing rupee to depreciate may provide much needed boost to exporters," noted a recent ASSOCHAM study titled "What's behind India's Declining Exports."

INR

83.518

United States Dollar

"The continuation of Rupee Export Credit Interest Rate subvention scheme for same select sectors need to be announced at the earliest," said Mr D.S. Rawat, secretary general of ASSOCHAM while releasing the chamber's study.

The main reasons for decline in exports during the recent months of 2015-16 are -

(i) slower growth in world output and trade;

(ii) appreciation of Rupee against Euro making exports to Europe, which is a major market for India and less competitive for Indian Exporters; and

(iii) Steep fall in the prices of petroleum crude resulting in consequent decline in prices as well as export realizations for petroleum products.

In addition prices of a wide range of primary commodities have also fallen, besides the overarching impact of global demand conditions exports from certain sectors reflected the impact of policy changes domestically and in destination countries as also sector-specific issues.

Presently, micro, medium and small enterprises sector gets loans at 12-13 per cent. After subvention, this would come down to 9-10 per cent.

However, India's competitors get it at around 5 per cent.Government needs to put in place temporary measures to ensure Indian exporters do not withdraw from important overseas markets during the period of downturn," suggested the ASSOCHAM study.

"This will help Indian exporters regain market as and when recovery takes place, this could be achieved through a combination of liberal market development assistance and easing export financing. Besides, Markets which are expected to recover fast (USA, Germany, ASEAN, Republic of Korea, and West Asia) need special focus," it added.

This will help reduce transaction costs. With profit margins shrinking globally, cost competitiveness is of vital importance. In an attempt to reduce some of the transaction costs associated with international trade, the Government has been simplifying its customs procedures over the past few years.

While this is a continuing process, it needs to carry further. Import and export procedures in India take much longer than in Singapore, Thailand and Malaysia. This can partially be explained by the number of documents required to proceed, which is much higher compared to these countries.

Finally, customs clearance for both imports and exports also takes longer The elimination of the administrative burden of import and export procedures, while not a panacea, would make great progress toward this end.

The Foreign Trade Policy 2015-20 has reduced the number of mandatory documents required for export and import to three each.

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