Indian exports grew by a meagre 3.2 per cent year-on-year to USD 24.4 billion in April 2012,prompting a worried government to state it may extend sops for labour intensive sectors like textiles in the next few days.
Sharp deceleration in import growth to 3.8 per cent to USD 37.9 billion resulted in trade deficit narrowing to USD 13.2 billion,the lowest in the last seven months.
Reduction in trade gap would at least lessen worries arising out of sharp decline in rupee against the US dollar.
The Commerce Ministry is expected to announce some incentives for the hard-pressed labour intensive export sector when it unveils the annual supplement of the Foreign Trade Policy.
After chairing a meeting of the Board of Trade which reviewed challenges for the export sector in the wake of difficult global situation,Commerce and and Industry Minister Anand Sharma said,the target of achieving USD 500 billion shipments by end of 2013-2014 could be difficult.
However,he was hopeful that despite odds,exports would achieve a 20 per cent growth in the current fiscal.
Asked what could the government do for the export sector,given the tight fiscal conditions,Sharma said,”It is a question of supporting labour-intensive sectors. We have to take a holistic view to ensure that we should remain competitive globally. It is important for India to have a sustained thrust on exports,” he said.
Finance Secretary R S Gujral,who was also present in the BoT,said: “The depreciation of rupee prima facie would help exporters in terms of higher realisation in terms of rupee… overall in the long term it would help the exporters”.
Oil and non-oil imports during April grew by 6.96 per cent and 2.11 per cent to USD 13.90 billion and USD 24 billion respectively.
Sharma said before finalising the foreign trade policy,the government would consider factors such as volatility in global prices,demand slowdown in western markets,rupee fluctuation,widening trade deficit and slowdown in global and domestic investment.
The minister also pitched for differential rate of credit for exporters and industry.
“I personally have the considered opinion that the differential rate of credit,that (this) demand has a very strong and justified case. We hope a fine balance will be there so that investment climate and productivity improves,” Sharma said.
The drop in the balance of trade (BoT) deficit should reduce pressure on the rupee which has lost value by about 15 per cent against the US dollar since September,2011.
It closed at Rs 55.54 today.
Although exporters community too said that the rupee depreciation would help in long term,but buyers are pressuring for discounts.
“Buyers are asking for more and more discounts,” FIEO President Rafeeq Ahmed said.
In 2011-12,the country’s trade deficit jumped to USD 185 billion,the highest ever in the history. Exports grew by 21 per cent to USD 303.7 billion during the last fiscal.
The country’s economic growth has also slipped to 6.5 per cent in 2011-12,the worst in nine years.
Among others who attended the BoT meeting included,
Chanda Kochar (MD,ICICI Bank),Y C Deveshwar (Chairman,ITC) and presidents of CII,FICCI and ASSOCHAM.
Some members of the BoT such as Anand Mahindra,Biocon chief Kiran Mazumdar Shaw,TVS Motors Chairman Venu Srinivasan,Ashok Leyland MD R Seshasayee,Apollo Tyres CMD Onkar S Kanwar and Hero MotoCorp MD Pawan Munjal,could not attend the meeting.
Sharma said: “…though we have to tighten our belts as the Finance Minister has also indicated yesterday,but at the same time,this is our considered view that economic activities have to be given a push forward as otherwise the negative spin-offs can be very harmful for the economy”.
When asked about the government’s view on the demand of exporters and industry leaders to give 2 per cent interest subsidy,he said slowdown in the manufacturing sector has a social dimension when it comes to job creation and therefore there is a need to lift investment sentiments.
CII President Adi Godrej,who was present at the board meeting,said there is an urgent need to incentivise exports.
“We should also try to contain imports. For example,when there is enough coal in the country,there should be faster production of coal,” Godrej said adding: “We are not happy with the pace of reforms. Reforms should be implemented fast. We should also reduce the subsidy burden”.
He added that Goods and Services Tax regime should be brought in immediately and there should also be a reduction in repo rate,the rate at which RBI lends to banks.
“It is the only thing that will be a game changer for the industry,” the CII President said. ITC Chairman Y C Deveshwar said that it is a very challenging situation for the economy.
Assocham President Rajkumar Dhoot said problem of imports is expected to get worse by the continuing pressure on rupee.
Exporters have demanded increased allocation of funds for market development,2 per cent interest subvention,raw material security and increase in all industry duty drawback rates.