Weak rupee,euro zone growth to push exports

Economists,trade promotion organisations are pencilling in an over 10% growth for current month.

Written by Shruti Srivastava | New Delhi | Published: August 26, 2013 2:25 am

With the rupee weakening against the dollar and the euro zone registering growth in the second quarter after 18 months of economic contraction,exports are likely to benefit. Economists and trade promotion organisations are pencilling in an over 10 per cent growth rate for the current month.

In fact,given the rupee depreciation and base effect,the growth during August and September may even be in two digits as was seen in July.

Almost half of the growth recorded in July,11.64 per cent at $25.83 billion,was on account of depreciating rupee alone and “but for the devaluation,exports would have contracted further”,according to Rafeeque Ahmed,president,Federation of Indian Export Organisations.

Soumya Kanti Ghosh,chief economist,State Bank of India too said he expects a short term burst in exports primarily riding the low base of last financial year. “Only after September when the base effect is over,will we know the real trajectory of export growth”.

Ahmed,said the currency alone wasn’t responsible for the expected rise in exports. The improving health of major importing countries including the EU and US which showed signs of recovery — euro zone recorded 0.3 per cent growth while the US stood at 1.7 per cent in the second quarter of the year — has also played a key role in improving India’s export growth. “We can manage $330 billion exports for the year. August should see anything between a 10-15 per cent growth,” Ahmed said.

Indian exports rose 11 per cent in July. The commerce ministry targets $325 billion exports in FY’14. However,the benefits from depreciation would shave off about 40 per cent from export invoices as exporters have hedged their risk at a much lower exchange value than the current rupee to dollar exchange rate.

The rupee has lost 13 per cent since May 22 this year,becoming the worst performing currency among its Asian peers. However,from 50.01 against a dollar on January 25,2012,rupee has consistently risen,barring a few instances.

But exports have not grown in tandem with the rising rupee. Exports stood at $25.37 billion in January 2012 when the rupee was at 50.01 a dollar. However,when it depreciated to 56.04 on May 31,exports were $25.06 billion. Similarly,on August 30 2012,the rupee was reigning at 55.64 a dollar though exports for the month was $23.69 billion. On May 31 this year,rupee was 56.58 a dollar while the growth in export was $23.78 billion during the month. Ghosh said the growth in exports cannot be a currency-led phenomena. “Competitiveness of exports is yet to improve,” he said.

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