Growth in exports may not be sustainable, says Ficci survey

Even as the country’s merchandise exports surge by the month, the party is not expected to last much longer in the backdrop of inflation and rising crude prices, coupled with the withdrawal of fiscal incentives by the government.

Exporters are facing tough competition in the international markets with unabated rise in interest rates by the Reserve Bank of India to control inflation. Moreover, exporters are not getting the advantage of the two per cent interest rate subvention since March. Adding to their woes, banks have also increased their base rates, which is expected to impact the export sector heavily, according to a survey.

The survey, conducted by the Federation of Indian Chambers of Commerce and Industry (Ficci), also noted that rising prices of crude oil would have a negative impact on the country’s exports. First, this would increase the cost of inland transportation, and second, the cost of ocean freight would also move northwards.

“Market conditions in the US and EU, though improving, are still not as firm as exporters would like them to be. Moreover, recent developments in the EU region have again brought the issue of sovereign debt crisis to the forefront with concerns being raised about the likely growth trajectory in this region,” the survey stated.

Exporters have also said withdrawal of the popular duty reimbursement scheme — Duty Entitlement Passbook Scheme — is also expected to make a dent on the country’s export growth.

In the first quarter (April-June) of this financial year, exports reached $79 billion, growing at a rate of 45.7 per cent annually, according to initial estimates. The government has set a target of achieving exports worth $500 billion by 2014.

The survey also highlighted the volatility in exchange rates as one of the main reasons for exports slowing down in the near future, as this is making it difficult for exporters to project their revenues.

However, exporters have indicated that their order book positions at present are better than what is was six months ago. But they have also indicated that the order book position is not as robust as it was last year, a clear indication of a slowdown in demand.

Lastly, the survey has also highlighted the problem of complex paperwork and difficult government regulations as one of the important factors that might pull down exports.