Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Politics / Policy/  Strong rupee stings Modi’s export ambitions
BackBack

Strong rupee stings Modi’s export ambitions

To counter slack external demand, Modi's govt plans higher infrastructure spending, but lacks the fiscal firepower for a China-style stimulus

Merchandise exports, which make up around 16% of India’s $2 trillion economy, shrank for the fourth month in March, with the 21% annual decline being the steepest since 2009. Photo: Bloomberg Premium
Merchandise exports, which make up around 16% of India’s $2 trillion economy, shrank for the fourth month in March, with the 21% annual decline being the steepest since 2009. Photo: Bloomberg

New Delhi: Ajit Lakha, who runs a mid-sized garment export business in the textile hub of Ludhiana, prays daily that the rupee weakens and the euro recovers, to cut losses on his overseas sales. “Only a year ago, I was getting 80 for each euro on garment exports to France. Now, I am getting just 67 or 68."

Lakha is one of the thousands of garment, leather, handicraft, and gems and jewellery exporters, who have watched helplessly as the rupee has appreciated by a quarter against Europe’s common currency over the past 12 months.

The result has been India’s worst export performance since the global slump of 2009, an early setback to Prime Minister Narendra Modi’s “Make in India" campaign to launch an export-led boom.

To counter slack external demand, Modi’s government plans higher infrastructure spending, but lacks the fiscal firepower for a China-style stimulus. Short of alternatives, New Delhi is starting to lean on the Reserve Bank of India (RBI) to do more on the currency side to restore India’s international competitiveness.

“A case is building for rupee depreciation. Otherwise, all indicators show that we are entering another difficult year," a senior trade ministry official told Reuters, adding the government expected help from the central bank, besides taking other measures.

Merchandise exports, which make up around 16% of India’s $2 trillion economy, shrank for the fourth month in March, with the 21% annual decline being the steepest since 2009. In part, that reflects the collapse in oil prices — India’s main import is crude but its refiners also export petroleum products.

Exports to Europe shrank by nearly 2% in the 11 months to February, reducing its share of total exports to 18% and cancelling out gains to the Americas and Africa.

Sales of textiles — a major export to Europe — for instance, have slowed in the current fiscal year after growing 15% in 2013-14 year to $6.38 billion.

Need oxygen

To be sure, a stronger rupee is not all gloom for Asia’s third-biggest economy which imports nearly $450 billion worth of goods a year. But the upshot for Modi is that his goal of doubling shipments to $900 billion in four years now looks very ambitious.

“India has become uncompetitive in some markets," said Gaurav Poddar, director at Limtex India, which exports tea to oil-dependent economies of the Middle East and former Soviet Union. “The rouble has really hit us," said Poddar, referring to the Russian currency’s collapse last year.

Trade officials say exporters need a helping hand as they are fast losing competitiveness after the rupee appreciated by 11% in real terms against a six-currency basket over the year to March.

“Indian exports are in intensive care and immediately need oxygen," said SC Ralhan, president, the Federation of Indian Exporters Organisation (FIEO).

Yet economists say that the RBI already faces a tough task curbing the rupee, as enthusiasm over Modi’s business-friendly policies sucks investment dollars into the Indian financial markets.

In January and February, the RBI bought a net $20 billion in the spot forex market.

Any acceleration in dollar-buying intervention would force the RBI to absorb, or “sterilise", more of the rupees that it prints lest they leak into the economy and undermine hard-won gains in cooling inflation.

“India can choose to join the global currency war by cutting interest rates — but that is not an option we have, given we are still fighting inflation," said Sonal Varma, an economist at Nomura in Mumbai. Reuters

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Politics News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.
More Less
Published: 27 Apr 2015, 10:28 AM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App