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Free fall helps but Indian exports need more than just a cheap Re

Sep 11 2013, 11:01 IST
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SummaryThe upside of the rupee's slump is an export boom that sets the economy straight, right? Wrong.

long, if at all.

"Rupee depreciation has a limited advantage, and that too only in the short term. Continuous depreciation will have a reverse impact on pricing in the export market and an adverse impact on input costs," he said.

Chennai is an example of the stumbling blocks preventing exporters from exploiting rupee weakness. The city is plagued by power cuts, so manufacturers rely on expensive onsite generation. Chennai port is so congested that trucks often spend three days driving just 30 km from the factory district to the port. A long-mooted expressway is delayed.

Chennai's story is repeated across India. The boom during the last decade was not matched by increased infrastructure, so traders struggle to get their products to cargo ships on time. Blackouts raise everybody's costs.

After authorities shut down mines two years ago largely to clamp down on illegal mining, iron ore exports fell from $6 billion to almost nothing. India's agricultural exports, swelled by a bumper monsoon harvest, are limited by a global glut, quality issues and government price restrictions.

"We are sitting on a mountain of sugar. We can export 4-5 million tonnes, but we are struggling to sign deals for a few thousand tonnes," said trader Kamal Jain. "There has been a drop in currencies of other countries as well, like Brazil."

Perhaps most damaging is the government's thirst for revenue. The need for income to meet tough fiscal targets is choking Special Economic Zones (SEZs) set up in 2005 to copy the success of China's economic rise.

Orient Craft thought big when it bought 400 acres of farmland in an up-and-coming industrial town close to New Delhi airport and a railway link to the west coast.

The vision was to make it north India's biggest apparel export zone, modelled on Italy's traditional textile capital, Prato.

As the global economy boomed in 2007, the aim to attract a billion dollars of investment and create 20,000 jobs in a "Fashion Village", seemed reasonable. Dupont was interested, commercial director AK Jain said.

"We started the Fashion Village apparel SEZ thinking it would become a mini-Italy," said Jain. Orient Craft had the land designated as an SEZ, built a 13-km boundary wall and a warehouse, laid concrete roads and planted trees. In all, it invested more than $30 million.

What happened next helps illustrate the missteps of a government that businesses say translates into lost opportunity and wasted capital.

Backed by a 10-year tax holiday, exports from

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