Mumbai, Feb 19: Finance secretary Monket Singh Ahluwalia has ruled out any competitive devaluation of the rupee to boost exports."We should not focus too much on export competitiveness purely in terms of exchange rates. It is a wrong notion that the devaluation of currencies will benefit exporters in south-east Asian countries. The entire financial system has collapsed there...," Ahluwalia told a seminar on "South-east Asian currency crisis: The Indian response" organised by Ficci in Mumbai on Thursday. "The movement in real effective exchange rate (REER) is only one of the aspects of competitiveness. In the medium-term, export growth does not hinge on the exchange rate. Increase in productivity can to some extent solve the problem. Some competitive pressure is good for business," the finance secretary told exporters present at the seminar.
Industry interpreted the finance secretary's statement as a signal that the rupee will not be allowed to depreciate beyond the present level of 38.50 to 38.90 againstthe dollar. Exporters have been lobbying with the government to depreciate the rupee to Rs 40-42 against the dollar to make exports competitive. According to Ahluwalia, the south-east Asian crisis has had some impact on the Indian economy. "I am not saying that India is not going to be affected. What I am saying is that India has not been crippled," he said. Admitting that sluggish exports growth is a matter of concern, the finance secretary said that growth in exports, currently pegged at eight per cent of the GDP, should be raised to about 12 to 14 per cent of the GDP. "In volume terms, exports must grow faster than the GDP in India," he said.
Continued on Page 2However, Ahluwalia added that the slowdown in exports will not jeopardise the balance-of-payments situation."In the short-term, our GDP growth is not dependent on growth in exports," he said. Rejecting the demand for a dumping duty on cheap imports to protect the Indian industry, Ahluwalia said: "This is not relevant in the context of thesouth-east Asian crisis. We are watching... The rest of the world is not erecting protecting barriers in advance (to save local industry). The south-east Asian countries are not targeting India exclusively (to dump stuff)." Indian industry, according to him, enjoys the highest level of protection.
"The kind of export boom the south-east Asian countries had showed earlier will now be difficult for some time as the high rates of inflation will eat into their competitiveness," Alhuwalia said. "The disruption of economic activities in these countries is quite high and it would take some time to witness any return of an export boom from these countries," he added.
According to him, the inflation figures of these countries are grossly understated and by the time the financial system in these countries is put into place, inflation will eat into the price competitiveness of their exports. "The exchange rates of their currencies will also appreciate. The Chinese government has also said that it will not allowtheir currency to depreciate and would like a stable one," the finance secretary assured exporters.
Ahluwalia warned exporters of difficult times in the next two years as there was a general slowdown in the world economy. "There will be a slowdown in exports for everybody and not just for India. There will be a global slowdown and the deceleration in the OECD countries is expected to be by 0.5 per cent," he said.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
