Hapless exporters see darker days ahead

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Bikky Khosla | 22 Jun, 2010
A fluctuating exchange rate, the debt crisis in Eurozone, rising input costs, and a possible interest rate hike by the Reserve Bank of India in its forthcoming review has once again put the exports sector under severe strain. After months of disappointment since October 2008, the sector was showing some signs of revival from November 2009. However these hurdles now threaten to make life miserable for the community.

While the hapless exporters are unable to comprehend as to how to cover their impending losses, they feel that the government needs to do much much more to help them survive these conditions. For instance, exporters are urging RBI to give a facility like that in China of a fixed exchange rate, which will enable them to focus on managing their business and save them from the trouble of managing currency movements.

Meanwhile, buyers in Europe are holding back orders apprehending that the economic recovery will be slower than expected, with many cases coming to the fore, wherein European buyers have asked exporters to hold back the dispatch of consignments.

Moreover, with many buyers refusing to take delivery of the consignments, exporters are being compelled to take temporary terminals for parking goods in the EU region which has added to their costs. And that's not all. The fluctuations in the rupee value vis-a-vis the euro is also undermining the country's export prospects. Several exporters tell me that payments which used to be earlier realized in 3 to 4 months from the shipment are now being realized between 6 to 9 months.

With India's trade with the European Union accounting for nearly a quarter of the country's total foreign trade, the current momentum in the country's exports is likely to be hit if the current situation in the continent persists or worsens further.

Back home, there are strong indications that RBI is likely to deregulate the interest on export credit, thus allowing banks to decide the lending rate of export credit, which I believe will increase the cost of credit and in turn will make exports uncompetitive. Amid growing hurdles, continuing to regulate export credit to ensure that the cost of export credit does not increase under the new system will be the only sensible decision for the central bank to take.

I think the country's decision makers need to take positive steps to reduce the impact of an otherwise shrinking export market. Probably increasing the duty drawback and DEPB rates to help the sector tide over the problem of rising input costs can be the first step.