Rupee's link with exports is weak: Ind-Ra
While the Indian rupee can act as an enabler for export revival, it is unlikely to be a primary driver, says the ratings agency
 
India Ratings and Research (Ind-Ra) says the country's export performance is likely to stay weak in FY2017 as global economies face headwinds to their growth prospects. While the rupee can act as an enabler for export revival, it is unlikely to be a primary driver. Ind-Ra says it expects the rupee to weaken and trade at an average of 67.5 per US dollar.
 
"A revival in global consumption will be the key for improvement in India’s export trajectory. Evidence of the impact of the exchange rate on exports’ performance does not suggest strong linkages. Consequently, benefits of the weak exchange rate are unlikely to have a desired impact. With global outlook subdued, the recovery of Indian exports is likely to be protracted," the ratings agency said in a note.
 
Ind-Ra said it believes the government’s focus on infrastructure investment is likely to enhance India’s export competitiveness compared to its peers.
 
The ongoing slowdown in India’s merchandise exports over the year has drawn focus of stakeholders, in a bid to support the trade dynamics. It is in this context, that the rupee’s relative strength compared to its peers is believed to be at the centre of a raging debate, on the impact it has on India’s competitiveness in the global market. 
 
The Bank of International Settlements’ measure of India’s real effective exchange rate (REER) stands at 104.34 as of January 2016 (indicating over 4% of scope for further depreciation), while most peers are running significantly weaker exchange rates, the ratings agency said.
 
 
Ind-Ra said evidence of the links between trade performance and currency movement has been weak, in the sample of countries it analyses. Barring the recent past, an appreciating rupee has been accompanied with robust export growth, while weaker exchange rates have not necessarily translated into an export push, it added.
 
According to the ratings agency, the primary drivers of exports are India’s established competence in key areas – namely refining, precious metals, pharmaceuticals and transportation equipment, which has enabled the country to hold on to its share in the global market. 
 
"Additionally, consumption trends in the trading nations have a significant bearing on export performance. In such an event, outlook of major developed economies is likely to determine demand for Indian goods. The concentration of Indian exports is mainly to US, Europe and the Middle East. While the former two are battling with fragile growth impulses and deflationary pressure, the collapse in oil prices has impacted demand from the Middle East. The revival of India’s exports is unlikely in the near term, as the growth outlook for developed economies remains lacklustre," Ind-Ra said.
 
 
Exports from sectors like petroleum refining, chemicals and pharmaceuticals have, unarguably, witnessed subdued growth and even fallen in some cases in the last year. Global deflationary pressures and tepid demand have eroded headline export growth however, the ratings agency says, a look at the volume growth suggests that headwinds to India’s exports are pronounced on account of price pressures and not necessarily in quantity.
 
 
"In this context, India’s calibrated stance to diversify both the export composition and destination has enabled overall export performance to stay supported," it added. 
 
 
Ind-Ra feels that the key challenge for India will be to maintain its overall competitiveness, at a time when other emerging markets (EMs) and China may pose a bigger competition. It says, "India majorly exports intermediate goods, thus moving up the value chain could be an alternative. A more near term and multi-linked benefit is likely in the form of infrastructural development. It may enable the private sector to enhance their cost competitiveness on a global platform, while providing an impetus to domestic growth as well. In this context, the introduction of Goods and Services Tax (GST) is yet another policy measure that seeks to rationalise existing tax structures and harmonise costs for major firms, domestically."
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    India's merchandise exports fall for 13th straight month
    India's merchandise exports fell for the 13th straight month in December and were valued at $22.29 billion against $26.15 billion in the like month in the previous year, as per official trade data released on Monday.
     
    Imports also fell during the month by 3.88 percent to $33.96 billion from $35.33 billion, even as the trade deficit went up to $11.66 billion from $9.18 billion, as per official data released by the Commerce and Industry Ministry.
     
    On the positive side, the continuing fall in the crude oil prices brought the import bill on this count down by 33.19 percent to $6.66 billion from $9.96 billion, while the non-oil shipments to the country increased 7.63 percent to $27.30 billion from 25.36 billion.
     
    "The export figures, which reflected the continuous decline for more than over a year now, seems to be now gaining lost ground," said S.C. Ralhan, president of the Federation of Indian Export Organisations (FIEO).
     
    "As commodities and crude oil prices have more than 40 percent bearing on India’s exports, this has further led to continuous decline in exports. Global demand also does not seem to be picking up," he added. 
     
    "With only countries like US showing some signs of improvement, this does not augur well."
     
    Looking at the cumulative figures, exports during the first three quarters of the current fiscal were valued at $196.60 billion down 18.06 percent over previous year's $23.99 billion and import fell 15.87 percent to $29.58 billion from $35.16 billion.
     
    Oil imports during the period declined 41.60 percent to $68.07 billion from $116.56 billion and non-oil commodity shipments to the country were down 3.11 percent lower at $227.74 billion, as against $235.05 billion.
     
    Between the disappointing export numbers, the federation president sought to suggest that among the top 30 commodity groups traded in December, half the numbers saw a positive development in December, as against seven in the previous month.
     
    "Export sectors including jute manufacturing, including floor covering, have shown an impressive growth of over 135 percent. Spices with 34 percent, handicraft (27 percent), tea (25 percent) and fruits and vegetables (24 percent) were some of the high export growth sectors."
     
    Ralhan urged the government to reconsider the inverted duty structure for "Make in India" scheme and sought service tax for exports, besides calling for the creation of fund with a corpus of 0.5-1 percent of total export value to push India's merchandise shipments.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    'Defence exports have risen in past 6 to 8 months'
    The Make in India campaign would have increased India's defence exports over the past six to eight months, Defence Minister Manohar Parrikar said on Monday.
     
    Parrikar was speaking to reporters here during a two-day visit to the state.
     
    "Actual export figures will come after some time," Parrikar said, when asked if measures taken by his ministry to boost defence-related export had worked.
     
    "Many of the items from defence ministry list have been de-listed, export has been opened...During last six-eight months the export NOCs are being granted online. There is no complaint...Earlier NOCs used to take months to be given; now we give them within specified time frame. I have been intimated by the industry itself that they have been getting the export NOC within the time, in fact, faster than they expect," Parrikar said.
     
    Parrikar also said that the Make In India policy was the highlight of the defence procurement procedure, under which 49 percent foreign direct investment was permitted in the defence sector and on a case to case basis, the FDI could go up even up to 100 per cent.
     
    He also said that currently the global component in defence procurement was a small one, and the majority of the items were made in India.
     
    Parrikar also said that de-listing of nearly two-thirds of the items from the defence ministry list had encouraged manufacture and free trade in the sector.
     
    "When we deleted some items, they became free-to-export, and freely tradable...So the restrictions of requirement of Defence NOC were automatically withdrawn. Almost two-third items have been removed from the list, so now you have more items which you can freely manufacture and export," Parrikar said.
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