Exporters reduce share of invoices in dollars

Exporters reduce share of invoices in dollars

New Delhi: Faced with a rising rupee, which means they earn less than they used to from exports, Indian exporters have managed to cut down the share of their exports invoiced in dollars to about 80% of their total exports from more than 90% a year and a half ago.

“We would have liked this ratio to drop overnight," says Ajay Sahai, director general, Federation of Indian Export Organisations, the apex body of Indian export promotion organizations that was set up jointly by the commerce ministry and private bodies in 1965. “But, unfortunately, we don’t yet have the manoeuvrability that is required to arm-twist our buyers," he adds. “So, the ratio is dropping only very gradually."

India’s share in global merchandise trade is expected to touch 1.5% in 2009, but its exporters are battling with the rupee’s relentless rise against the dollar—around an 8.6% appreciation in the current financial year.

This has happened despite the fact that about half of India’s exports now go to Asia and the Asean (Association of South-East Asian Nations) region, compared with less than 40% in 2000-01. The region also accounts for over 60% of imports into India, compared with only 28% in 2000-01.

The significant loser in this period has been the US: India’s exports to the country have fallen from around 25% in 2000-01 to 19.2%. Exports to Europe have dropped by around 3%.

According to the commerce ministry’s foreign trade performance analysis data, between April and June, exports to this region grew 18% to reach $17.9 billion (about Rs73,157 crore then). This translated into a 51% share of total exports of $35 billion in the three months. This was mainly made up of exports to the Wana (West Asia North Africa) region, which accounted for a 21% share, and to North-East Asia, largely to China, with 15%.

“The reasons for this are simple: comparative advantage in the case of exports, and better and cheaper goods in the case of imports," says Rajesh Chadha, trade economist and senior fellow with the New Delhi-based think tank National Council of Applied Economic Research. “Over 55% of our exports to China, for instance, are iron ore and coal," he adds.

Sahai agrees. “The composition is changing. There are a lot of auto components and textiles, too, being exported to Asia, but mainly it is raw materials, while in the case of imports, it is finished products and capital goods."

Even without a free trade agreement, India’s trade with China and Asean countries has increased.

However, this doesn’t necessarily mean exporters can bill in non-dollar currencies, says Sahai. “It all depends on if it is a buyer’s market or a seller’s market. We can dictate our terms in new and emerging markets. But in established markets, it is tough.

“Still, our exporters are trying to fix deals in Euro and other currencies which, too, have strengthened against the dollar," he adds.

The other option that is becoming popular is hedging, says Chadha. But overall, the exchange rate challenge is likely to remain for a few years more, he adds: “Exporters of traditional items such as textiles will suffer. The reason for this is the unreasonable reservation policy for small scale industries that has continued far too long."

India had more than 800 items reserved for production in the small-scale sector till 2004. And textile exporters, according to Chadha, are still unprepared to meet global competition and the removal of the quota system (or quantitative limits on how much a country could export) in 2004. “The exchange rate appreciation has simply worsened the situation," he adds.