Indian Export Growth Not Strongly Linked to Rupee!
Soumyajit Niyogi, Associate Director – Credit & Market Research Group, India Ratings & Research India Ratings and Research (Ind-Ra) said that India’s merchandise exports will pick-up when global consumption revives. Apart from global demand, another major driver of Indian exports is established competitive advantage in specific sectors (like refining, precious metals, pharmaceuticals).
However, with global growth outlook subdued, recovery in Indian exports is likely to be protracted. Export performance is likely to stay weak in FY17, as globally economies struggle to stabilise. The rupee, can act as an enabler for export revival. Ind-Ra expects the rupee to weaken and trade at an average of 67.5/USD in FY17. Evidences of linkages between exchange rate and trade performance are weak and do not suggest a strong relation.
Baring the recent past, on real effective exchange rate basis, the appreciation of the rupee has been accompanied with relatively robust export growth. Headline export growth currently overstates the impact of the slowdown. Comparison of volume and value of exports suggest that, moderation in exports is not as severe as indicated by the headline number.
At the same time, as Indian exports are increasingly become commodity-linked, the impact of global deflationary pressures has weighed in on the exports. India’s stance of calibrating its exposure both through exports’ composition and destination has supported overall export performance. In order to maintain its overall competitiveness, India’s focus on infrastructural development is likely to have multi-linked benefits. While enabling private sector to enhance their cost competencies, infrastructure investment will also act as a trigger for domestic growth revival.