In an interview with ET Now, Ajay Sahai, DG & CEO, FIEO, says we can provide 3% to 4% more competitiveness to export by halving transaction cost alone
How do you see the recent rupee weakness impacting exporters as well as importers? Which sectors do you think would benefit from the rupee weakness?
In fact., rupee has depreciated by around 5% in the current financial year and overall 6% in the current calendar year. This has definitely helped the competitiveness of exports but always keep in mind that currency is one of the factor which makes export competitive. There are other factors also which are equally important.
Coming back to the textiles, we have to keep in mind that Indian textile exports are more sensitive to the demand rather than to the price segment and the demand is not picking in the US and EU. In fact, in these countries, we are losing out our share to other competitors like Vietnam, Bangladesh, Cambodia and Myanmar.
We have to be a little cautious. Rupee alone will not provide much comfort to the export sector. Definitely, it will be one of the factors and its impact will vary from sector to sector.
In import-intensive sectors like gems and jewellery, petroleum, electronic hardware or high-end engineering products, there is a natural hedge and therefore the rupee depreciation is more or less nullified.
But traditional sectors like handicraft, carpets, sports goods, marine products, agro and process sectors, textiles, footwear — where we are less import- intensive — will definitely be gainers.
Imports, definitely, will become costlier. There are issues with regard to increasing trade deficit, current account deficit and even inflation and therefore while it is good for the export sector, those who are receiving the remittances in the country and the other segments of economy may be adversely impacted with this depreciation.
In terms of competitiveness, what needs to be done? The rupee of course is one factor. It will help in the current situation but what are the other things that you would look at?
If you are talking about the textile sector, let us look at how we have performed over the last 10 years or so. In 2006, India’s share in global apparel export was 3%. In 2016, we have increased it by 1% to take it to 4%.
In the meantime, both Bangladesh and Vietnam they have increased their global share to more than 4%. Their global share of Vietnam in today’s apparel sector is around 5% and Bangladesh’s is 6.4%. UNIDO has recently carried out a study which clearly demonstrated that over a period of time, India is losing its competitiveness even in the traditional sectors of exports like apparel and textile.
While of course we should be happy with the depreciation of Indian rupee, first, I am not sure how long it will last. Second, we have to use this time to address some of the fundamental issues relating to infrastructure, skilling of workers etc.
The relaxation in labour laws has happened. That will be implemented by state authorities in true spirit. The transaction cost for exports needs to be looked into. This is the time where we should look into the long-term solutions for exports. However, let us drive on the waive and if it can provide competitiveness and better prospects of exports to India, we should be happy with but I personally feel that if we want export to be on a sustainable path, we have to look into the core issues.
Which sectors do we need to watch out for once rupee starts to depreciate or remains around these levels?
If rupee remains at 67 or little above 67, that all traditional sectors of export – textiles, footwear, marine, agro process sector, sports goods, traditional sectors will gain a lot. Maybe pharmaceuticals and some of the sunrise sectors also, IT and IT enabled services will also be benefitted.
We will have little concern about import-intensive sectors like electronic hardware where we are still at a very nascent stage.
In export of cotton yarn, where we were one of the leaders – our share is down by 40% to China and China’s overall imports. India’s cotton yarn share was 20% and it has come down to 8% in last two years.
There are countries which are becoming more competitive. They are providing better facility to their exporters. They are providing more facilitating approach to their whole export strategy and therefore if we want the Indian exports to be on a long lasting path, we have to look into the core issues.
In terms of traditional sectors, are any policy interventions needed to boost exports or is just a weak rupee is sufficient?
No, policy intervention will be needed there. In fact, with the US raising dispute over the continuation of the export promotion schemes, a big question mark has been raised over continuation of these schemes. The government should have a fallback position that if something goes wrong we should have something in place to support export
I personally feel that while on the one hand, government and the industry have worked together for some of the replacement of these schemes, let us look at how we can reduce the logistics cost for Indian exports. Our logistics cost is one of the highest.
A number of initiatives have been taken. The government is looking into overall infrastructure improvement also. Lot of reforms have taken place in the road and shipping sector. The e-way bill has been introduced. We hope that the toll plaza at the boarders will be electronic. Third, let us look into more input of technology into the government processing so that the processing become simple and transparent.
Even if we reduce our transaction cost by 50%, we can provide 3% to 4% more competitiveness to export.