The rise in the value of the rupee against the dollar is a useful lesson, says India’s finance minister
When the rupee rose sharply against the dollar last year, Indian exporters lobbied government to extract sops worth about Rs80 billion ($350 million). Now that several countries are adjusting their exchange rates in line with the fall in the dollar, the rupee’s rise may not hurt so much – unless exports drop sharply as a result of a global slowdown.
Finance minister Chidambaram points out this is the case “for every [exporting] country”.
“Indian exporters must also learn to win and retain markets not on the basis of exchange rate alone, but [they must do it] on efficiency, post export services, productivity gains and other factors,” he says. “In the short term, where they have required help, the government has extended help to them. Our exchange rate is market determined. RBI [Reserve Bank of India] intervenes selectively. Where we found the appreciation in the rupee has been too rapid, and caused some difficulties to exporters, we have come out with packages from time to time.”
Authorities also take comfort from the fact that there is no visible dent so far in the growth of Indian exports. Exports in dollars grew annually by 22–25% until February, compared to about 24% in the previous year.
“This is reasonably good,” says Arvind Virmani, the government’s chief economic adviser. “We don’t have an objective of increasing exports for its own sake. Unlike some countries in East Asia, exports are not a driver of economic growth here. Our objective is to improve the efficiency of the economy.”
As developing countries in Asia and elsewhere adjust their currencies to the declining dollar, India is keen not to lose competitiveness because it has a relatively flexible exchange rate compared to some others.
“It is good that the ADB is discussing how policy changes in Asian countries can be coordinated. Perhaps if there were some sort of mechanism of cooperation, then everybody could adjust [their exchange rates] broadly in the appropriate direction,” Virmani points out. —K.R.