World inflation of raw material and food is shooting up, the price-rise is putting unprecedented pressure on the user industry. Simultaneously, the consumer is finding it difficult to meet the basic needs of food and energy, which, in turn, is affecting the demand for consumer goods. The Indian exporter has to fight on three fronts: rising raw material prices, falling consumer demand and, most important, dollar depreciation and volatility in the exchange rate of Indian rupee. These are the issues before the Foreign Trade Policy 2008, and these should be addressed on April 1.

The wholesale price index has risen by 11 percent in India. Consumer prices specially food, have risen in tandem. In China too, consumer prices have rose by 8.7 percent in February 2008 with food prices alone up by 23 percent. Interest rate in the land of the dragon is at a nine year high of 7.5 percent. Export growth slowed to 6.5 percent in February, the lowest in the last six years. The Yuan has risen by 2.8 percent in 2008 against the dollar, this is on top of 7.7 percent rise in 2007.

The dollar slid against the Yen to a record 102.22 on March 9 which is near the record low of 101.43 in January 2000. Similarly, against the Euro it is down to 1.5384 which is the lowest ever level since the Euro's birth in 1999.

Crude has gained 78 percent in the last year with prices now in the region of $110 per barrel. In these choppy times, the exporters, specially those in the small and medium sector are being forced to close shop. (In Ludhiana, the hike in steel price to Rs 41 per kg from Rs 34 per kg has resulted in the halt in bicycle production with factories unable to pass on the costs to the buyer). The consumer price inflation in the economy will also result in rising labour costs putting pressure on prices.

The Indian exporters are caught in a "trillema", costs are spiraling, demand is flagging due to consumer resistance and the exchange rate is volatile. This situation is leading to the closure of many small and medium enterprises. The big companies are feeling the pinch. The savings rate in China is no better, in some ways it is worse off; pork prices have risen over 60 percent, edible oil is up by 41 percent. (The snow storms in February have contributed to this jump to some extent).

India's response: The reaction of the Indian government is ad hoc. Carpet exporters have got the five percent VKGUY gift even as the scheme is meant for non traditional agri export products. Cashew kernels too are now bundled with carpets in the VKGUY basket, they too are eligible to the sop to cope with the problem of falling export proceeds.

The Government has announced the waiver of 60,000 crore loans to small farmers to provide relief. Excise duty was cut to 14% in the 2008 Budget in a bid to bring prices down. These are supposed to give relief to the pains of the common man suffering from food prices. More sops can be expected in the near future, specially since the Government's budget position is fairly happy.

What then, can one expect from the Government in the Foreign Trade Policy 2008? Minimum dollar exchange rate on export realizations to provide the safety net to exporters? More products like leather goods in the WTO compatible VKGUY for relief? Amnesty for EPCG export obligation defaulters? Revival of the income tax holiday to exporters? These changes can, at best, postpone the problem. The real answer is to improve efficiencies through competition and developing markets which reward efficient producers. The example of the telecom services sector is before us. There are no quick fixes to cure inflation.

Footwear consumption rises with prosperity: India is the World's second largest producer of leather footwear; with an estimated production of over 900 million pairs per annum. Of all the leather products, footwear has registered the highest growth rate of 18% CAGR (Compound Annual Growth Rate) in 2005-06. Exports in 2005-06 were valued at US$ 786.76 million, which accounts for 28% of total export of Leather products. In the last 5 years, India's overall footwear export has been growing at 12% per annum.

India has one of the highest potential for footwear consumption, given the rapid increase in the disposable income among the younger population.

Presently, around 70-80% of footwear units are in the unorganized sector and therefore, production is a constraint.

(Minister of State for Industry, Dr. Ashwani Kumar, in a written reply in the Lok Sabha on March 11).