Tags:
Journalism of Courage
A single fact ought to place in perspective the annual ritual called the Export and Import Policy. India aspires to reach a one per cent share of world merchandise trade only by 2007. Modifications are therefore undertaken and incentives tweaked in the exim policy to realise this objective. To hit the one per cent target, India8217;s exports from now have to grow annually by 12 per cent in dollar terms. So, if exports actually grew by 16.8 per cent this fiscal, isn8217;t a 12 per cent growth feasible?
Sounds reasonable, but there are problems. For starters, the exchange rate of the rupee might spoil these calculations. Conventional wisdom has it that when it weakens relative to say the dollar, it provides a boost to exports. When it strengthens, it makes imports cheaper. The bad news is that the rupee has strengthened in recent months, thanks to service sector exports and inward remittances from the non-resident Indian diaspora. While overall export growth may not have been affected till now, the firming up of the rupee does have the potential to hurt its prospects over the near term. More importantly, there are high transaction costs in the economy. They amount to anything between 15 to 23 per cent of export price, covering everything from inadequate infrastructure like port, shipping facilities and power, the hassle component of procedures, labour market rigidities, high real interest rates and so on. Due to the pervasiveness of these factors businessmen prefer to sell domestically than abroad.
