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Business News/ Politics / Policy/  Govt signals rethink on rupee as export anchor
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Govt signals rethink on rupee as export anchor

Government officials shrug off rupee's appreciation and its impact on exports and said focus should be on logistics and infrastructure

The appreciating rupee reflects the growing strength of the Indian economy as the government rolls out GST, commerce minister Nirmala Sitharaman said in Tokyo on Sunday. Photo: Pradeep Gaur/MintPremium
The appreciating rupee reflects the growing strength of the Indian economy as the government rolls out GST, commerce minister Nirmala Sitharaman said in Tokyo on Sunday. Photo: Pradeep Gaur/Mint

Tokyo: The appreciating rupee reflects the growing strength of the Indian economy as the government rolls out second-generation economic reforms such as the goods and services tax (GST), Nirmala Sitharaman, minister of state (independent charge) for commerce and industry said.

The minister’s remarks echo similar sentiments among other members of the government who have shrugged off the recent appreciation of the rupee, arguing that the exchange rate alone can’t be the sole way of incentivizing exports.

Instead, they say the emphasis should be on addressing other constraints, including the lack of infrastructure and logistics, suggesting a fundamental break by the National Democratic Alliance (NDA) government with conventional policy thinking in government wherein a weak rupee is seen as the key incentive for exports.

ALSO READ: A country’s economy gets reflected through its currency: Nirmala Sitharaman

“Although strengthening of the rupee by itself will be worrying today, I will contextualize it in the Indian economy’s overall strengthening position," Sitharaman said. She was speaking to the Indian media on the sidelines of the India Investment Seminar co-hosted by the Japan External Trade Organization and the Confederation of Indian Industry.

Separately, an MP of the Bharatiya Janata Party (BJP) and someone close to decision making in government, said that there had been too much focus on the exchange rate as the only incentive for exports. “We have long been hostage to Bangalore," the MP said in an implicit reference to software exports.

The rupee, which closed at 64.41 against the dollar on Thursday, has strengthened by 5% against the US currency year to date. This has triggered fears that it would affect India’s export competitiveness. Indian exports rose 27.6% in March.

“I would think it is important for us and I am sure the exporters would be fairly clear in their head about it; currency-based lack of competitiveness is far lesser in the context of rupee strengthening for the Indian exporter, even though I grant it that the strengthening of the Indian rupee of late is not against just one currency," Sitharaman said.

According to the minister, the focus of policy planners should instead be on improving the state of the domestic economy and thereby enhancing competitiveness.

Sitharaman argued that the rollout of GST, addressing logistic bottlenecks—like the lack of a cold chain system impeding the movement of fresh fruits and vegetables—are the key to improving the competitiveness of Indian industry and consequently of the country’s exports.

Asked pointedly as to whether it signalled a fundamental rethink by the government, the trade minister said, “Yes, that’s right. That is something that the government has been looking into. That is one of the reasons why sometimes it may appear as though we don’t put so much emphasis on exchange rate anxieties. We may have to look at it in larger macroeconomic perspective but the attention of policy planners, the state governments should go towards (improving) logistics, (trade) facilitation."

Trade experts welcomed the rethink by the BJP-led NDA government.

“There is a fundamental disconnect between what we are doing in the domestic economy and what India is doing in global trade negotiations. We are not addressing domestic bottlenecks simultaneously," said Biswajit Dhar, a trade expert and professor of economics at Jawaharlal Nehru University.

Welcoming the move, Dhar said, “Tinkering at the margins won’t help. Foreign trade policy is not just about adjusting export incentives. Instead, it is about coordinating with other ministries to address trade and infrastructure bottlenecks."

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Published: 17 Apr 2017, 12:33 AM IST
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