November 2: The recent currency crisis in South East Asia had a silver lining. The turmoil may have left the currencies of countries like Thailand and Indonesia devalued but the steep depreciation has also led to expectations of a robust growth on the export front.

In its latest report on export growth for India, Natwest Securities has painted a gloomy picture for the country's sector in the light of devaluation in currencies of other Asian countries. Thus, while Indonesia, Thailand, Malaysia and Philippines are expected to witness a 15-18 per cent growth in exports for 1998, the rupee's recent appreciation in comparison to other major Asian currencies will hit Indian exports.

The report states that the Indian currency is not under threat of any drastic depreciation but at the same time, it is currently overvalued by about 10 per cent in real effective exchange rate (REER) terms. Natwest expects the relative strength of the Indian rupee to prevail all through the second half of 1997-98. Thus, the export growth target for FY98 has been revised downwards. According to the report, India is set to face stiff competition in spheres like textile, machinery and leather while sectors like pharmaceuticals, gems and jewellery are expected to perform well. However, exports are expected to remain flat overall and the report forecasts a minus one per cent growth.

Exports for the first four months of the current fiscal have shown a growth of 1.6 per cent. However, the trade deficit for the first four months of fiscal 1998 is at $1.74 billion, which is 94.3 per cent higher than the deficit of $1.16 billion in the first four months of fiscal 1997. The trade deficit for the current fiscal is likely to be wider by $4 billion in comparison to the previous fiscal. This is based on the assumption of a one per cent fall in exports and an 11 per cent rise in merchandise imports.

Although exports will suffer, the report forecasts higher import growth in fiscals 1998 and 1999. Thus, this would lead to a widening of the trade gap and the current account deficit (CAD) is likely to witness a steep rise from 1 per cent of GDP in FY97 to 2 per cent in fiscal 1998 and further, to 2.5 per cent of GDP in fiscal 1999. Ironically, while the expected 2.5 per cent CAD is in line with the CAD target of 2.4 per cent for the Ninth Five-Year plan, it is at the expense of export growth. Thus, the report expects the Reserve Bank of India and the Ministry of Finance (MoF) to take corrective measures and gradually depreciate the rupee to a maximum of Rs 38 against the US dollar in the fourth quarter of fiscal 1998.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.