Reasons For Export Growth Dip Inadequate

None of the reasons offered by the government adequately explains the dramatic decline in export growth in 1996-97.

Slower rise in exports of gems and jewellery, leather and tea can only offer a partial sectoral explanation for the decline in the growth rate. It cannot however explain an overall fall in export growth rate from 29 per cent to 4 per cent.

The finance ministry has argued that the growth rates measured in dollar terms exaggerate the deceleration because of the sharp appreciation of the US currency during the period. In special drawing rights terms, the export growth was 9.6 per cent and import growth 10.7 per cent.

However, experts point out that almost 60 per cent of Indias exports are in dollar terms and therefore the growth rate has to be evaluated in dollars.

The real reasons behind the slow-down can be found, experts argue, partly in the inflexible exchange rate in India, devaluation by other competing exporting countries and partially in the slow-down in world trade and the strong correlation between world exports and Indias exports. According to an analysis by Icriers S P Gupta, a very strong correlation does exist between Indias export growth and the growth of world trade.

In fact, Indias exports have been rising and falling sharper than the world trend. In 1996-97, with world trade showing a growth of just 4 per cent (against 19 per cent in 1995-96), Indias exports have plummeted.

Another reason offered by the above analysis is the commodity composition of Indias exports. The composition has remained unchanged since 1990-91 and the income elasticity for several of Indias traditional export items like agricultural products is low.

Further, the exchange rate has remained fairly stable. This implies that exporters have not received any benefit of devaluation in a sustained way.

The Reserve Bank of India has been intervening to ensure that foreign exchange inflows do not push up the value of the rupee.

However, with inflation picking up, the dollar surge in the world markets and continuing inflows on the capital account, there has been some appreciation in the real effective exchange rate.

In fact an analysis of the RBIs trade weighted real effective exchange rate shows that the rate of the rupee in December 1996 was 5 per cent higher than in December 1995. Competing countries, including Pakistan and Bangladesh, have seen significant devaluation in the past two years with the former devaluing in double digits.

Federation of Indian Export Organisations president Ramu S Deora said: Exports from India have been non-competitive by 15 per cent solely on account of the exchange rates. Exporters are seeking currency adjustments by the government to remedy this situation. Deora argues that the difference in rates at which credit is available to Indian exporters and to others is another reason behind the price non-competitiveness of Indian exports.