Rupee rise will hurt export growth

NEW DELHI: The appreciating rupee is expected to hamper export growth while encouraging imports and thereby the country’s trade and current account deficits are likely to come under pressure, the economic analysis wing of Moody’s, the global credit rating agency has said.

In its report on India titled ‘India Outlook: The Elephant’s Charge Expected to Slow’, Moody’s Economy.com has said: “… the strong rupee will continue to temper the expansion of India’s export sector and support import demand, putting even more pressure on the country’s gaping trade and current account deficits”.

In just the first four months of the current fiscal year, the trade deficit, according to official data, has already increased by 61 per cent at $25,619.85 million as compared to $15,841.22 million during the same period a year ago.

Lower export target

While the growth in exports, fixed at $160 billion for 2007-08, is expected to be at a brisk pace during the current calendar year, it is the deceleration in global demand coupled with the effect of a strong rupee that is likely to put pressure on the country’s export sector, the report said.

Mainly responsible for this state of affairs would be the slowdown in import demand from the U.S., which generally accounts for a large chunk of India’s total exports.

In a large measure, the neutralising factor would be the healthy import demand from China as it would continue to cushion much of the impact of a slowdown in shipments to the U.S., the report said.

BPO may take a hit

Moreover, as India’s services exports, in particular, business process outsourcing would remain resilient, “we expect export growth to book double-digit gains again this year,” the report concluded. Also, another reflection of the economy remaining buoyant would be the strong demand for inbound shipments owing to the country’s heavy dependence on imported energy, machinery and capital equipment for infrastructure development, it said.