By Mithun Dasgupta, IANS,
Kolkata : Even as India’s commerce ministry wants the exporting community to diversify into new markets to combat the downturn in the developed world, Indian industry says it is easier said that done for a variety of reasons, notably high interest rates.
The reaction comes against the backdrop of Commerce Secretary Rahul Khullar asking members of the Federation of Indian Export Organisations (FIEO), an umbrella agency of the government to promote exports, to look beyond the US, Europe and Japan.
“Start looking at new markets. Go to Colombia and similar countries. Do not think that the world stops with the US and Europe. I think you need to diversify the markets. You need not to worry about crisis in Europe,” Khullar told exporters here.
But the exporting community says simply market diversification will not do, especially when they face high export finance rates, high volatility in foreign exchange rate and stiff competition from China in other export hubs.
“We have already diversified to Asia, Latin America, Middle East and Africa. But the interest rate on export finance in India is the highest in the world,” FIEO president Ramu Deora told IANS over phone from Mumbai.
“The export finance rate has gone up by about 75 percent in one year. Last year, it was 7.10 percent and now it is 11.75 percent,” Deora said, adding: “In China it is 6.56 percent, in the US it is 0.5 percent and in Europe it is 1 percent.”
He said India’s export sector was getting badly affected by this and demanded a cut in the interest rate on export finance by three percentage points for small and medium units and two percentage points for the larger corporate sector.
Deora said a depreciating rupee against the dollar will not benefit exporters as they were concerned about too much volatility. “Volatility is causing concern. Exporters resort to hedging — they are hedging 50-0 percent.”
He also predicted a fall in export growth after a significant rise in the first two quarters of this fiscal. “Export will decline in the third and fourth quarters due to the slowdown in the US and Europe.”
According to Rakesh Shah, former chairman of the Engineering Export Promotion Council (EEPC), another government-affiliated agency, diversifying into other markets would not be easy for Indian exporters given China’s aggressively strategies.
“Slowdown in the US will result in stiff competition from China. It will aggressively export to retain its volumes. So making entry in other countries will be very difficult for us. We will not be able to compete with China because of its price cuts.”
Shah said the cost of marketing in new countries will also be high, particularly to the Latin American countries.
Sanjay Budhia, who heads the export committee of the Confederation of Indian Industry (CII), echoed Shah’s views. “In the coming months export will be coming down. The market has shrunk. Going to the new markets will take time. It will be very tough,” he said.
“Future is not looking good.”
Pankaj Parekh of the Gems and Jewellery Export Promotion Council said while the crises in the US and Europe may affect India’s gold jewellery export, the sector was facing the heat of severe fluctuations in the prices of the yellow metal.
“Jewellery exporters had shifted their focus on penetrating untapped markets five years ago. Now the US accounts for only 18 percent of India’s total jewellery export as against 39 percent 10 years ago. Now, 39 percent of the total export goes to Gulf countries.”
But this sector is badly hit by severe fluctuations in gold prices, he added.
“Can you imagine gold price has fluctuated in a range of about Rs.1,200 in a day? Can one digest this fluctuation? In this market, jewellery business is very difficult. As a result business is affected in foreign markets.”
(Mithun Dasgupta can be contacted at [email protected])