Rising rupee slows down export growth

New Delhi, July 2 A sharply appreciating rupee vis-À-vis the US dollar in which most of India’s exports are denominated has taken its toll in the month of May 2007 when exports increased by a modest 6.04 per cent in rupee terms over the corresponding month in 2006.

Even as the export growth in dollar terms during May 2007, the latest monthly figure put out by the Department of Commerce based on provisional figures from the Directorate of Commercial Intelligence & Statistics (DGCI&S), showed a relatively robust growth of 18.07 per cent at $11.8 billion ($10.04 billion), the tepid growth of 6 per cent in rupee terms owed itself to the relentless appreciation of the Indian rupee vis-À-vis the US dollar. Sources said the slowdown in export growth during May 2007 was worrisome.

While officials in the Commerce Ministry contend that the rupee appreciation during the first two months of the current fiscal was a steep 7 per cent, exporting community here said that it had already cautioned the Commerce Minister about the slowdown in export growth during the rest of the current fiscal if fire-fighting measures were not in put place to stem the adverse repercussions of the appreciating rupee on the exporters’ earnings.

The President of the Federation of Indian Export Organisation (FIEO), Mr Ganesh Kumar Gupta, told Business Line that if the authorities do not take action to stem the rising rupee value, the export figure for the month of June and then onwards would be in negative as the appreciating rupee has made foreign buyers to shift to competing countries such as Pakistan, Sri Lanka and Bangladesh. “They do not want to fork out more dollars for Indian exporters and of course, exports have become a buyers’ market and not a sellers’ market,” said Mr Gupta. His estimate is that in the last three months rupee has appreciated against the US dollar by 10 per cent.

While appreciating rupee might be good for the country, he said, it would cause large scale unemployment because imports would be cheaper and imported goods would swamp the market, wiping out the small and medium industries across the country and exports would no longer be a viable proposition. He said that after the Commerce Minister, Mr Kamal Nath, announced a package on June 13, nothing has come to the exporters and the rupee continues to get strengthened against the dollar. He said the revision of drawback rates as announced must be done immediately and export credit at 6 per cent rate should be available for 364 days.

Cumulatively, while exports during the first two months of the current fiscal amounted to $22.4 billion ($18.6 billion) showing a growth of 20.37 per cent, imports during the period amounted to $35.7 billion ($26.8 billion) showing a growth of 33.05 per cent.

Interestingly, oil imports during May 2007 were valued at $4,740.29 million which was close to 3 per cent lower than oil imports valued at $4,886.44 million in the corresponding month of 2006. Despite the appreciating rupee making the import cost relatively cheaper, the decline in import was attributed to the firming up of average crude prices which was quoted at $65.52 per barrel, against $65.74 per barrel in the previous month.

With rupee making import cost slightly cheaper, this is reflected in export-related imports embedded in non-oil imports which showed a sharp 41.58 per cent growth in May 2007 at $13.3 billion against $9.42 billion in May 2006. Non-oil imports during the first two months of the current fiscal at $26.5 billion were higher by 49.42 per cent over $17.7 billion in April-May 2006.

Trade deficit during the first two months of the fiscal 2007-08 has shot up to $13.2 billion, against $8.2 billion during the corresponding months of 2006.