Exchange rate not impacting exports: Rajan

Brushing aside the contention that exchange rate is impacting exports, RBI Governor Raghuram Rajan today said the shipments can only be increased by raising productivity, improving infrastructure and simplifying regulations, which is in the domain of the government

PTI| Last Updated: Mar 13, 2016, 00:40 AM IST
Exchange rate not impacting exports: Rajan

New Delhi: Brushing aside the contention that exchange rate is impacting exports, RBI Governor Raghuram Rajan today said the shipments can only be increased by raising productivity, improving infrastructure and simplifying regulations, which is in the domain of the government.

"The bottom line is that even though Indian trade has been slowing, the slowdown is similar to what has been happening elsewhere, with a significant portion due to a fall in commodity prices and a smaller share due to a fall in trade volumes.

"While goods exports may have suffered a little more over the last year, it is too early to discern a clear pattern, and certainly hard to pin the slowdown on the exchange rate," Rajan said while addressing the first Ramnath Goenka Memorial Lecture.

India's exports have been falling continuously since December 2014. It has dipped for a 14th month in a row, down 13.6 percent in January to USD 21 billion due to fall in shipments of petroleum and engineering goods.

Observing that exchange rate is unlikely to be a helpful tool in increasing exports, Rajan said the "answer is simple improve productivity by building infrastructure; improve human capital with better schools, colleges, vocational and on-the- job training; simplify business regulation and taxation; and improve access to finance".

"Fortunately, all this is what the government is focused on," he added.

On what is the ideal exchange rate, he said it should neither be strong nor weak.

 

"While RBI would not claim to know precisely what the equilibrium level of the exchange rate is at any given point in time, we intervene to moderate adjustment whenever we believe the movement is extreme, driven by sentiment, and likely to be reversed.

"Our intent is to prevent overshooting and undue volatility, rather than to stand in the way of the needed adjustment," he added.

The governor said the country's exports were doing quite well relative to other emerging markets.

"Indeed, over the last year, when goods exports have slowed, the real effective exchange rate has been rather flat. So someone who wants to absolve the exchange rate of blame will point to the recent period," he added.

He further said the orderly movement of exchange rate can be maintained by good policies that ensure macroeconomic stability, stable capital flows and encouragement to foreign investors through policies like 'Make in India'.

The government should encourage business activity but not try to impose "too much design on it," he said adding India's first Prime Minister Jawaharlal Nehru created IITs to supply engineers to public sector but they supplied managers and programmers to body shops focused on dealing with Y2K bug.