Outlook English - Print Subscribers Copy Outlook English, 18 June 2018 | Page 21

a discussion paper on industrial policy,
but there has been no movement on it so
far. The real worry remains how the
government proposes to put the manu­
facturing sector back on track. Simila-
rly, the government is not focusing
adequately on agriculture. Uday Bha­
skar, director general, Pharmexcil, says
the impact of the exc­hange rate over a
short period may be hard to assess, bec­
ause most raw materials or intermediar­
ies imported are paid for partly in
advance. “Our exp­orters normally keep
3–4 months  of  inventory, whereas our
realisations are normally 90–120 days,
which almost corresponds to inventory.
While we pay ruling rates for our imp­
orts, we realise predetermined rates,
especially tenders, so when the rupee
OLDMAN Sachs in a recent report weakens for a longer period, we may find
raised the forecast of India’s current it difficult,” says Bhaskar.
With the world turning
account deficit to
protectionist, exporters
around 2.4 per cent
fear they will not benefit
of GDP in 2018–19, from
The rupee
much from a weaker
the earlier projection
falling further
rupee. Suranjan Gupta,
of 2.1 per cent. Pointing
will intensify
exe­­cutive director, Eng­­­i­
out that the trade deficit
the impact of
n­e­ering Export Pro­­mot­
is alm­ost at the highest
high oil prices
ion Council India, cites
level now, Biswajit
eng­ineering exports,
Dhar of the Centre for
on import-­
which last year regis­
Economic Studies, JNU,
dependent
tered 16–17 per cent
states that any fur­ther
manufacturing growth over 2016–17
depreciation of the
levels to reach $76.2 bil­
rupee would int­e­n­s­ify
the impact of the high oil prices on the lion. These combine low value-added
economy, particularly import-depend­ and import-intensive exports. A large
ent manufacturing units—and thus, portion of Indian engineering exports is
exports. An international trade expert, in the low-value segments which will
Dhar cites the example of two major benefit from a weaker rupee, but imp­ort-
items in our export basket—petroleum intensive products will benefit less, as
and gems/jewellery—which have a input costs will rise and they may not be
significant element of re-exports. This able to pass this on.   “For an exporter,
means that when you import raw mate­ this yo-yoing of the rupee is a worrisome
rial, you pay more due to pressure on the factor. The fall by four rupees in 15–20
rupee, and when you re-export, your rea­ days, which was then reversed, makes it
lisation will be lower, again due to rupee difficult for exporters, particularly small
depreciation. “So, you are at the wrong ones, to even hedge,” says Gupta.
Both exporters and importers are
end of the curve now. The trade deficit
is rising because imports are expanding banking on the RBI and the government
and we are unable to do anything about to intervene to keep the rupee within
exports. The government doesn’t seem the Rs 66–68 range. This is also expec­
to have any strategy for promoting ted to keep a check on inflation due to
exports,” says Dhar. “Exports are linked higher petroleum prices. The rupee and
to the state of the real sectors—how your oil price swing apart, the manufacturing
manufacturing, agriculture and food and exporting community is rattled by
processing shape up. We don’t know the rise of protectionism, with the US
how manufacturing revival is shaping having raised the duty on steel and
aluminium. Now, with the EU also
u p because Make in India does not seem ­
bringing in safeguard duty, the road
to have yielded much result,” he adds.
Last year, the government brought out ahead for trade will be bumpy. O
Dharmakirti Joshi, chief economist at
global analytical firm CRISIL, says that
given high growth in the last quarter,
India is in a better position to withstand
the impact of a weak rupee. Past trends
also give him optimism that the rupee’s
fall will correct itself, and thus there
will be little inflationary impact. “The
direct imp­­act of rising crude prices is on
the cur­rent account deficit, which starts
rising very quickly. We have seen that
hap­pen. The question is, at what level
will crude oil stabilise? The volatility
is due to geopolitical disturbances. If
the average is around $70–72 per barrel,
then its imp­act can be absorbed. But if it
is $80 plus, then it can impact even the
fiscal deficit to some extent,” says Joshi.
G
18 June 2018 OUTLOOK 21
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