US Fed rate hike brings hope for Indian exporters

Deepak Kumar and Himanshu Vatsa | The Dollar Business

  With the US economy gaining strength as reflected in the interest rate hike by the US Federal Reserve, several countries including India can expect a revival in global demand of various export products and services. According to experts, the Wednesday’s decision of the US central bank to raise the rate by 25 basis points was quite expected and it will not have any major impact on Indian economy. Though the US dollar gained initially, several emerging markets witnessed controlled movement in their currencies as the Fed indicated that any further hike in the borrowing rates will be gradual. “While employment in the US economy has recovered considerably, the static rate of inflation growth is going to prevent the Federal Reserve from raising interest rates as often as the dot plot currently suggests,” said Lukman Otunuga, Research Analyst at ForexTime—a Europe-based forex market expert. Analysts believe that the positive sentiment towards dollar will trigger an upward movement in demand across commodity markets, giving a boost to countries shipping goods to the US. “The rate hike also signals a stronger US economy, which bodes well for the pick-up of demand globally and hence for Indian exports of goods and services,” said A Didar Singh, Secretary General, FICCI (Federation of Indian Chamber of Commerce and Industry). Several economists and market analysts are of the view that India is better placed to deal with the move. “India is much better placed today in terms of real GDP growth, lower inflation, lower current account deficit and on-going fiscal consolidation. We hope to sustain economic reforms going forward into the future,” Ministry of Finance said in a statement. However, some export bodies have cautioned that Indian shipment may face more competition as countries that have witnessed steeper fall in their currency against dollar will tend to increase their exports. “The increase in the interest rates would strengthen dollar further, exerting pressure on currencies of the emerging economies. While rupee may also find itself weakening, what is worrying for Indian exporters is the fact that the erosion in the currencies of the competing economies like Indonesia, the Philippines, Brazil, China, and Russia would be much sharper making their exports gain extra competitive edge,” Engineering Export Promotion Council (EEPC) Chairman T S Bhasin said. According to Praveen Khandelwal, National Secretary General, Confederation of All India Traders (CAIT), a weaker rupee will have a significant short term impact on India’s exports. “But once the global economy settles down with the rate change impacts, our exports, I think, will pick up considerably.” Khandelwal also pitched for a greater support to the Indian SME sector, which, he said, has tremendous potential for contributing towards exports. He stressed that any form of support, such as giving corporate training to the SMEs and establishing more SMEs in special economic zones (SEZs), would help in reviving the country’s exports. “Indian SMEs have tremendous potential for exports. We are, first of all, looking to compete with our neighbor, China. Unfortunately, we have a policy lacuna. So, the focus of the government should be to incentivise SMEs and encourage them to go for greater exports,” Khandelwal told the Dollar Business. In November, India’s merchandise exports fell for the 12th consecutive month; this time by 24.43% to $20.01 billion, mainly due to demand slump in the global market.  

December 18, 2015  | 03:40pm IST