Exporters remain optimistic with weaker rupee and low interest rates | Business Standard Column

Clipped from: https://www.business-standard.com/article/opinion/exporters-remain-optimistic-with-weaker-rupee-and-low-interest-rates-121041100938_1.html?utm_source=Spotlight&utm_medium=website&utm_campaign=Premium_11072018

Covid-19 continues to pose the greatest threat to trade outlook, as new waves of infection could easily undermine any hoped-for recovery, said the WTO

In its biggest drop since August 2019, the Indian rupee fell 105 paise against the US (United States) dollar on Wednesday, soon after the Reserve Bank of India (RBI) announced its monetary policy. By Friday noon, the rupee had fallen to Rs 74.94 to a US dollar. This can make exports more rewarding, imports more expensive and boost customs revenues. However, it may make reining in inflation below 6 per cent rather difficult.

The RBI, however, does not seem too perturbed by the prospects of inflation. It expects the Consumer Price Index (CPI) inflation to be 5.2 per cent, 5.2 per cent, 4.4 per cent and 5.1 per cent in the four quarters of the current financial year. Its focus is mainly on enabling economic growth by retaining interest rates at the same level and maintaining its accommodative stance on liquidity. It expects the real gross domestic product growth for 2021-22 to be 10.5 per cent. Most analysts find this estimate rather conservative.

Welcoming the RBI’s lower interest rate regime intended at supporting growth, the Chairman of Engineering Exports Promotion Council said that steps need to be taken for full transmission of lower interest rates to exporters and end-customers.

On the external sector, the RBI said that global growth was gradually recovering from the slowdown, but it remained uneven across countries and was supported by ongoing vaccination drives, sustained accommodative monetary policies and further sizeable fiscal stimulus. The Organisation for Economic Co-operation and Development (OECD) projected the world output to reach its pre-pandemic level by mid-2021, though it will be largely contingent on the pace of vaccine distribution and its efficacy against emerging variants of the virus. Stronger external demand should support India’s exports and investment demand. The survey of professional forecasters released by the RBI said that India’s merchandise exports and imports were expected to grow by 15 per cent and 24 per cent, respectively, in 2021-22.

The World Trade Organization (WTO), however, does not expect the world trade to reach the pre-pandemic trend till the end of 2022. Its recent forecast said the volume of world merchandise trade was expected to increase by 8 per cent in 2021 after falling 5.3 per cent in 2020, continuing its rebound from the pandemic-induced collapse that bottomed out in the second quarter of last year. Trade growth should then slow to 4 per cent in 2022 as effects of the pandemic will continue to be felt and this pace of expansion still leaves trade below its pre-pandemic trend. The relatively positive short-term outlook for global trade is marred by regional disparities, continued weakness in services trade, and lagging vaccination timetables, particularly in poor countries. Covid-19 continues to pose the greatest threat to trade outlook, as new waves of infection could easily undermine any hoped-for recovery, said the WTO.

The second wave of pandemic has forced many states to impose night curfews and restrain several economic activities. The prospects of increase in crude oil prices, weakening foreign fund inflows, strengthening US dollar and rising bond yields in the US are also seen as cause for concern. The RBI, however, sees upsides in the pace and wider coverage of vaccination, the gradual release of pent-up demand and the investment-enhancing and growth-supportive reform measures taken by the government.

Overall, exporters are happier with a weaker rupee, low interest rates, and better order books.

Email : tncrajagopalan@gmail.com

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