New Delhi: Even as it said that India might not be able to grow its exports in 2008-09 by as much as it has done in recent years, the Economic Survey for 2007-08 released Thursday has called for a reduction in import duties, the abolition of redundant export promotion schemes and the streamlining of others, and has pressed its case for further liberalization on the capital account—essentially, capital account convertibility.
Such convertibility would mean that companies and individuals do not need the Reserve Bank of India’s permission to convert rupee into foreign currency, or vice versa, for whatever purpose. Apart from increasing inflows of money into the country, this is expected to make it easier for local companies to access overseas markets. The move will also benefit non-resident Indians who currently have to work around fairly restrictive norms on how they can move their funds, and how much.
Business edge: A business processes outsourcing office in Gurgaon. According to a working paper brought out by the finance ministry, exports of software services grew by 32.7% in 2006-07. (Madhu Kapparath / Mint)
However, the survey has added that this will not happen immediately.
“Given that the process of adjustment involves gains and pains for different stake holders and limits to absorptive capacity, further initiatives (on the capital account) would continue to be gradual, calibrated and sequenced,” the survey said.
Given the fall in exports, in the wake of the appreciation of the rupee, the Economic Survey has said that Indian exporters will have to improve their productivity in order to remain competitive in international markets, especially in the context of an imminent slowdown in the global economy. It has also suggested that devising better comprehensive economic cooperation agreement (CECA) with several countries, including some developed countries, could be one way to grow trade.
CECA is a bilateral trade agreement between two countries for better mutual trade.
The International Monetary Fund (IMF) has lowered its projection for the global economy’s growth in 2008 by 0.3% to 4.1%.
“The outlook for exports in 2008-09 may not be as bright as in the past years with lower projections in world gross domestic product, or GDP, and world imports and exchange rate developments,” the survey cautioned.
The survey also said that, in this year, exporters have begun to delay repatriation of their earnings into the country. This may have been prompted by the 12.3% appreciation of the rupee in the nine months ended December, which reduces the rupee value of these earnings. Consequently, the survey said that the trade deficit was exaggerated.
The survey added that India needs to closely monitor its exports to the US in general and those of the textile sector to the US and the European Union (EU) in particular. It also said that India needs to watch out for a fall in the export of business services.
According to a working paper brought out by the finance ministry, India’s services exports are fast catching up with its merchandise (or goods) exports. India was ranked No. 10 in terms of service exports and No. 28 in merchandise exports in 2006. Within the services sector, exports of software services grew by 32.7%, and that of non-software miscellaneous services (mainly led by business services such as management, architectural and engineering consultancy) by 39.3% in 2006-07.
The paper, authored by H.A.C. Prasad, senior economic adviser at the finance ministry, also talks about the need for greater synergy, not only between trade strategies and trade negotiations, but also between the country’s growth and development strategy, and trade negotiations.
“Now is the time to devise a medium-term trade policy. Indian exporters have to improve their productivity, sops should only serve the purpose of business confidence, that too in the short term,” said Biswajit Dhar, professor and head, Centre for WTO Studies at the Indian Institute of Foreign Trade. Dhar added that currency appreciation has affected many countries and that Indian exporters should learn to survive.