Export Exigency

The payments crisis of 1991 had brought along with it the awareness amongst policy makers that exports simply had to grow at around 20 per cent annually in dollar terms. The success of the Asian Tigers, with their export-led growth, also contributed to a reappraisal of policy which underwent the necessary modifications. The results were most gratifying. Between 1992-93 and 1995-96, exports grew by over 20 per cent annually in dollar terms. But for the last 18 months or so, there has been a marked slowdown. When the average for 1996-97 and 1997-98 is calculated next year, export growth will not, in all probability, turn out to be impressive at all.

The optimists will point out that even a 15 per cent on a high base is pretty good going, especially when there is a slowdown worldwide. Besides, they will say, India has a large domestic market and it is only to be expected that exports will not account for the same high share of GDP as they do in the smaller economies. And the truly insular will ask, why worry when the government has foreign exchange reserves popping out of its ears and growth in imports is slack? In fact, the government is thinking of ways to haemorrhage out the foreign exchange which is putting an upward pressure on the rupee which will worsen the export prospects further. To prevent this, the government needs to take quick purposeful measures to bring exports back on track.

The meeting convened by the Prime Minister must take a medium term perspective. The most immediate problem is the exchange rate of the rupee. At 36.80 to the dollar, it seems overvalued and the time may have come to intervene so that it slides a bit. The most efficient way of doing this is to stimulate the demand for imports by liberalising them further, quickly. In fact, the rate of growth of non-oil imports declined last year and still has not picked up with adverse consequences for import duty revenues which are slated to grow by 50 per cent this year. This is another reason for liberalising imports. Ideally, the two areas which should be selected for this are consumer goods and agriculture. Once the rupee slides a bit, exporters will regain the edge they have lost over the last 18 months. This should revive export growth in quick time. Nor can anyone complain, if higher imports lead to a depreciation of the rupee, that India is following an aggressive exchange rate policy. Of course, this will make the oil pool deficit grow even faster because POL imports will cost more. But the solutions to that problem lie elsewhere. Undesirable as that might sound, it has nothing to do with exports, imports and the exchange rate policy and should not, therefore, become a reason for continuing with the year old inertia over exports.