Export Expectations
slowdown last year. How important are demand-side factors for a country that accounts for 0.6 per cent of world exports?
Two: there was an appreciation in the real value of the rupee. Indications are that in 1997-98 as well the capital account surplus is going to be more than the current account deficit. Therefore, the pressures for a real appreciation will remain and there might even be a nominal appreciation if the RBI stops its intervention in the foreign exchange market. After all, any such intervention has a trade-off through higher rates of inflation or higher interest rates. Three: the levelling-off argument; as the base level increases, it becomes difficult to sustain higher levels of export growth. Four: poor infrastructure. for which there is no quick-fix solution. Five: judicial intervention, which has constrained exports of leather and marine products on environmental grounds. Six: the cost and availability of credit. Seven: the introduction of MAT, which not only affected genuine exports, also curbed paper exports.
In this list of problems, the only ones that are will change in 1997-98 are MAT, which has been virtually withdrawn, and credit rates. Interest rates have already softened, although the availability of export credit still seems to be a bit of a problem. There is thus the oft-mentioned point that export growth is hamstrung by a lack of reforms in the domestic economy. Since most of these problems remain, it is unlikely that we will see export growth of much more than 10 per cent in dollar terms. Ramaiahs announcement raises questions about what purpose these targets serve. The irony is that none of this hype is needed: the balance of payments (BoP) is in fine shape. Even if non-oil import growth picks up this fiscal, as it should, and the trade deficit widens beyond the 1996-97 levels, the current account deficit as a percentage of GDP cannot possibly exceed two per cent. This is clearly sustainable through capital inflows, even if one is fairly conservative about its magnitudes.