Export-Import Bank of India (Exim Bank) Chairman and Managing Director T C A Ranganathan asserts that a compound annual growth rate (CAGR) of 21 per cent between 2001 and 2011 attests to the success of India’s exports story. In an interview with Nayanima Basu, he says, the focus now should be on clocking a CAGR of more than 21 per cent over the next decade. This, he says, will be possible if we promote all categories in the export sector and measure up to the best countries in the world. Edited excerpts:
India’s dismal export performance started the current fiscal year on a bad note; the situation is comparable to the 2008 crisis. How long do you think this will continue and when do you see a turnaround in exports?
I see the country’s exports story as a Formula 1 race. You can’t make out who is performing well or badly by merely watching the race. The Indian exports story should be viewed from this perspective. The CAGR of exports from 2001 to 2011 was almost 21 per cent. Growth during these 10 years was very strong though there were periods of poor performance in between. In fact, India’s exports growth story had been one of the strongest, apart from that of China’s. Our share in world exports has gone up from less than one per cent to about less than two per cent in the same period. But growth might not look that strong since imports have gone up faster. So, the so-called slowdown is because we are not seeing the story in its totality. The challenge now is to clock a CAGR of more than 21 per cent in the next 10 years.
How can India achieve this in the next 10 years?
There are some exports that need to be promoted. For example, agricultural exports that account for 10 per cent of total exports. Today, there is no organised method for promoting agricultural exports as a concept in the national economy. Without the full support of the government, agricultural exports have reported a CAGR of more than 21 per cent. We need to export because we do not have enough oil in India; we have a billion-plus population for which we have to create a job market.
All sectors of economic activity need to be promoted and exports is one of them. And in promoting exports, we have to measure up to the best in the world otherwise we cannot export.
Today, the main markets for India’s merchandise exports like the US and Europe are down. Do you see a revival of demand in these markets anytime soon?
See, we have to look at the overall composition of exports: chemical products, petroleum, manufacturing, gems and jewellery, agriculture and textiles. No one is talking about these categories that may not have seen a fall in demand in the US or European markets but are facing their own set of problems. If we address the problems of each of these segments, we may create a better CAGR story for exports. We have to create substantial capacity for their exports. We have to create manufacturing capacity or production capacity for exports. These issues are long term and are not getting due focus and attention. We have more arable land than China yet in agriculture our productivity is lower than China. There is potential in all our top-five export sectors. Today, almost all countries in Europe are in recession or are stagnating; the US economy is just floating; and then there is the emerging Asia where the picture is not so good either.
Imports are rising faster than our exports and this is putting pressure on the trade deficit that, in turn, is stretching our current account deficit. Why are Indian exports lagging imports?
There are two reasons for the increase in our import base: one is the energy issue and the other is an overvalued currency. FII [foreign institutional investors] inflows resulted in the overvaluation of the currency and the rupee was kept at a higher level. We have had inflation on a real basis and it was not being mapped into the currency over the period. These things should be kept in mind whenever you analyse a problem.
What is the Exim Bank doing to push Indian exports?
We are helping SMEs [small and medium enterprises] identify new markets. We are trying to promote exports in financial products. We are giving sovereign loans to projects as a primary or as a guarantee counterparty and we will give term credit up to 10 to 12 years. This could be for a power project, a dam or a housing project. We have also developed a short-term buyer credit that is giving loans directly to companies that are importing from India.
Exporters have been complaining about the high costs of borrowing over the past five years. What is your view?
I believe interest rates are being given too much importance. People should think of how to manage other aspects. I urge companies to look at China, for example, and analyse how it has been able to manage. The Chinese model is based on economies of scale because they have set up large units. Our story is based on SMEs. And to compete, these SMEs have to fend for themselves. But if they work collectively, they could pool in resources to buy raw materials, get transportation and warehousing and so on. Therefore, Indian SMEs should stop competing with each other and join hands to compete with the world. This will change the cost profile in terms of high costs of borrowing and soaring transaction costs.
So, you are basically trying to promote the idea of clusters?
Yes, absolutely. This is the only way we can improve India’s export story in the next decade. It is not that we are not successful; but problems arise because of internal issues and our dependence on imports. We need to grow exports faster than imports. Today, companies are working with a micro perspective.