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Export contracted despite depreciating Rupee
Why is it in the news ?
- Exports contracted by 2.34% in September, albeit on a high base, despite the rupee averaging more than 72 a dollar during that month.
- Exporters in India are not happy with the current policy and exchange rate situation even though they should be cheering the depreciating rupee.
- Several reasons are behind the contraction predicted to be as folows :
1. A combination of higher input costs.
2. Uncertainty over tariffs.
3. The fact that the government has said it would not be refunding them the Integrated Goods and Services Tax (IGST) they have paid.
- Over August and September, when the rupee averaged 70.8 per dollar, India’s average export growth stood at 8.5%.
- A depreciating rupee should ideally be good for exporters, since it means that India’s exports are relatively cheaper than they were before.
- However, export bodies such as the Federation of Indian Export Organisations (FIEO) have said that this benefit is not passing through to exporters.
- According to FIEO, the depreciation has resulted in an increase in the cost of imported capital goods, inputs and various services used by exporters paid in foreign currency.
Issue of GSP
- Several exporters have complained that the confusion surrounding India’s eligibility for the U.S. Generalised System of Preferences(GSP).
- Further compounding this issue is that there is a complete lack of clarity among exporters on whether India’s exports currently can get the GSP benefits or not.
- The Generalized System of Preferences (GSP) is a U.S. trade program designed to promote economic growth in the developing world.
- It provides preferential duty-free entry for up to 4,800 products from 129 designated beneficiary countries and territories.
- India’s case, GSP enables duty-free entry of 3,500 product lines in US markets.
Source
The Hindu.