Global slowdown to dampen foreign trade prospects

Updated: Feb 29 2008, 05:49am hrs
Indias foreign trade sector is in for tough times, indicates the Economic Survey that has cited the global slowdown in 2008 as a crucial hindrance for exporters and importers in the coming months. Referring to the downward revision of the US growth to just about 1.5%, and that of the advanced economies overall to 1.8%, the survey says, this (slowdown) will impact the demand for Indias exports and the value of imports.

It says, The outlook for exports in 2008-09 may not be as bright as in the past few years, and adds, the direct impact of the global growth slowdown is on the demand for imports.

The survey has also said that the Indias slower economic growth in 2007-08, as against the previous two fiscals, might have a temporary dampening effect on capital inflows. In April-December 2007, the exports grew by 21.6% to $111 billion. However, in rupee terms, the growth was just 7.7%. Due to the global slowdown, it is unlikely to reach the $160 billion target for 2007-08.

Rupee has appreciated by over 13% against the US dollar in 12 months to December 2007, affecting the export sectors competitiveness.

Rajiv Kumar, director and chief executive, ICRIER, said, The cost of sterilisation (RBI's intervention to ease the impact of rupee appreciation), which stands at Rs 8,200 crore, can be enhanced if needed to prevent rising of the rupee at any point of time. This will give a clear signal to the exporters that their profitability will be maintained.

Exporters are factoring in fewer shipments to the US and the EU. The share of the US, which is among the India's largest trading partners, declined by 2.5% points to 9.8% in 2006-07, while that of the UK and Belgium declined by 1.9% and 2% respectively, the survey said. However, India's exports to China, in US dollar terms, grew by 22.7% in 2006-07.

Ajay Sahai, DG, FIEO, said, We need make our presence in African countries and other emerging market economies where there are opportunities for real growth. He added that since these are new markets, the government should give specific sops to encourage Indian SMEs.

The survey indicated that Africa would be the only region where growth will not slow down.

The maximum impact of rupee appreciation has been felt by sectors like textiles and handicrafts with low import intensity. The survey has called for some fundamental policy changes. For the merchandise sector, these include continuation of the reduction in customs duty resulting in low import duty, weeding out of unnecessary customs duty exemptions, abolishing export schemes that are redundant with fall in import duties and streamlining existing schemes, it said. It pitched for a focused policy on beneficial Comprehensive Economic Cooperation Agreements (including trade in goods and services as well as investment protection) even with some developed countries.