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India’s export slide began before the pandemic and has continued, with some rare instances of monthly uptick. The November data for merchandise exports shows a decline of 8.7%. This trend must be reversed. Exports matter, to raise GDP growth, productivity and foreign exchange earnings with few strings attached, save those on the import content of those exports.
A currency appreciating in real terms is one reason for exports’ loss of steam. When foreign capital pours in, to buy stakes in existing ventures and as portfolio flows, there is no immediate addition to investment and associated project imports. And RBI’s intervention in the currency market to prevent overvaluation of the rupee is constrained by the limit on sterilisation possible of the counterpart rupees created via sale of bonds, because of the need to keep interest rates low. So, the rupee has appreciated against the dollar, the currency in which the bulk of exports are invoiced. This cannot be helped. Nor can the fall in global demand for refined petroleum products, which are a major component of India’s exports. But some export items suffer because of bad policy. Overpriced farm produce is one example. Iron ore is another. This is one item in strong demand, particularly from China, which used to import the low-grade ore from Goa in large quantities. However, iron ore mining in Goa is in limbo. In the past, it has been banned on environmental grounds. The industry addressed those concerns, for the most part. Iron ore mining, Goa’s prime producer of jobs and government revenue, today stands suspended because of a legal vacuum. There is no clarity on who is entitled to mine, and for how long. The Supreme Court has been dragging its feet on the matter and the price is paid not just by the people of Goa but India’s export performance as well.
Sound policy and legal clarity boost exports, not export sops. This cannot be achieved by one ministry alone: governance must improve overall. And where the court throttles exports, it alone can remove that impediment.
This piece appeared as an editorial opinion in the print edition of The Economic Times.