The Answer is Exports - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 22 June 2013
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- By Asad Dossani, Author, The Lucrative Derivative Report


Asad Dossani
In the last few weeks, sentiment surrounding the Indian economy has worsened dramatically. The rupee has hit record lows, the stock market is falling, and economic growth remains stagnant. Among all the factors causing this is a large current account deficit. The current account deficit is equal to imports minus exports.

Currently, we import much more than we export, and we have to fund the difference through the capital account. In general this means we need enough foreign inflows in order to make up the current account deficit. The current weak rupee can be attributed to a fall in foreign inflows.

One solution floated by the Chief Economic Advisor Raghuram Rajan is to further liberalize the capital market and encourage more foreign inflows. One such example suggested was to issue NRI bonds in order to raise foreign exchange. These solutions may be fine to deal with the short-term issue of the falling rupee. But they do a poor job of addressing the long-term problem of a high current account deficit.

In fact, if we issue NRI bonds all we are really doing is borrowing more in order to fund the current account deficit. What we need instead is a good long-term solution to addressing the current account deficit. From the title of this article, you can guess that the answer is exports.

If we increase our exports, this has numerous benefits. First, it will reduce the current account deficit. Second, it will create jobs at home. Third, it will result in higher economic growth. And finally, it will help the rupee's slide.

Some might claim that increasing exports is a difficult task. This is true, but that does not mean it can't be done. In fact, increasing exports is the only solution that is sustainable in the long term. Right now, we are not even talking about how to improve our exports. The first step is to recognize that exports are critical, and then policy makers can come up with the next steps to implement this.

The global economy has improved over the last one year, and continues to show promise of further growth in the near term. This means that global demand for exports will go up, and we need to make sure we cash in on this opportunity. Plenty of other countries want to increase their exports too, so it is critical that we take action immediately.

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is a financial analyst and columnist. He actively trades his own and others' funds, investing primarily in currency, commodity, and stock index derivative products. Prior to this, he worked at Deutsche Bank as an analyst in the FX derivatives team. He is a graduate of the London School of Economics. Asad is a keen observer of macroeconomic trends and their effects on global financial markets. He is deeply passionate about educating investors, and encouraging individuals to take part in and profit from financial markets. To put it colloquially, he wishes to take Wall Street products and turn them into Main Street profits!

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12 Responses to "The Answer is Exports"

Bala.S

Jul 3, 2013

as someone in IT services industry I see this as a difficult times for us as we cannot continue to keep exporting people as what in reality we are trying to take is jobs and that is a simple function of demand and supply. When low cost labor has now become high cost labor how can you sustain the man power export business..?

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PRASHANT BABU

Jun 30, 2013

It is said that we are running with the current account deficit, which is equal to imports minus exports. How to overcome this ? The suggested solution is exports. Sure, I agree with Mr.Asad Dossani. In my view the immediate action could be to restrict the quantum of imports by limiting to the necessities and to curtail all burdensome items coupled with increasing rather encouraging all types of exports; big, medium or small of whatever feasible.The restrictions on exports should be minimal. There may be two types of exports one from the Public Sector and another from the Private sector. The Public sector may concentrate more on the bulk items involving huge turnover whereas the Private sector may concentrate on value added goods. For example, the rough granite blocks are being exported now which may yield less revenue rather exporting semi-finished or finished product to encash on value addition. Explore all the registered exporters provide them incentives so as to enable them to compete with their counterparts in the international market. The incentives could be (i)subsidized transportation from production point to the port operations,(ii)reimbursement of packing/forwarding charges, (iii)sharing auxiliary expenses (iv) not only timely refund of local taxes[VAT] but also additional incentive, say VAT Plus will definitely encourage the Exports. The immediate stage is to achieve breakeven between imports and exports and later to escalate exports with a time bound program to widen the gap between both the imports and exports aiming to wipeout current account deficit.

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Manoj

Jun 28, 2013

CORRECT....
The root cause is the lack of exports, we import much much more than what we export and this will always have an impact.Now as many of us have pondered...what to export...how to export...where to export....
Building infrastructure (roads, ports, power plants, etc..etc) to improve competitiveness will take time..may be 5-8 yrs. What can we do right away...what is it that we can export right now....
1. Man power - India is blessed (or some may say cursed) with a huge population and consisting of youth. we need to evaluate ways and means of exporting man power that would increase remmitance (FOREX)
2. Tourism - With depreciating rupee, foreign tourists would find India a better destination.
3. anyother of this kind..that does NOT require GOVT to plan and spend much...

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nvs

Jun 26, 2013

I agree exports are the real solution. That will also make Indian industry competitive. But our businessmen look only to govt sops rather than trying to compete internationally.They are happy with domestic market where anything can be sold. Second, we should control petro products consumption by encouraging public transport. Govt is not doing anything worthwhile in this direction.

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K J JOISA

Jun 26, 2013

The observations in the article are correct. CAD can also be reduced by avoiding unnecessary imports of goods from China or on a/c of trade agreements with other countries, capital goods imports which are kiling indian jobs, foreign currency limit on going abroad for merry can be reduced instead of begging with FIIs every now and then.But policy makers do not have the will to do that

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Manjunath S K

Jun 24, 2013

Yes that is the only and right solution to increase the forex earnings. Hope the policy makers understand this and create suitable environment for the export to raise.

Like (1)

Anil Grover

Jun 24, 2013

Well said, Asad. Identifying the areas to improve is the first step towards right direction. This is the right time for us to put our thoughts together and take steps to increase our exports or ventures which bring the crucial forex earnings.

Like (1)

b.Prabhakar

Jun 24, 2013

I agree with Mr Assad Dossanis views on increasing exports which will be a win win situation any which way we see. But first reforms, policy, environmental clearances, financing, infrastructure like roads, power, transport bottlenecks, our congested cities traffic, state and central red tape for new industries. All these should be tackled in a wholesome way instead of a piecemeal attitude and our policy makers should show the urgency as time is running out.
We should remember our greatest advantage is a depreciated rupee for increased exports which is a limited window, but other countries too are sailing in the same boat and they are far ahead in terms of fast response, less corruption,and better infrastructure to start with and China cannot be discounted or ignored in this scenario.
prabhakar

Like (1)

Alphones Rayappan

Jun 23, 2013

Dear Assad, you are not looking at the root of the problem. My question is Where the govt have to spend huge amount of foreign curency? It is one and only for OIL import. Why the govt is silent? Do our oil drilling companies are busy? Where are they drilling now a days? Our oil drilling companies are drilling for India or for foreign countries? Do we have qualified manpower in oil drilling? Where are these technicaly capable people are working?
Another question- Why we need huge oil? It is for feeding the huge population at subsidy. This subsidy shall be limited to the X number of people in a family. Why the govt is not inplementing population control?
Our govt is trying to sell shares of indian companies at a scrap price to FIIS. Do this solve the problem? NOT at all.

Like (1)

Nandkishore

Jun 23, 2013

Excellent thoughts! This indeed ought to be the optimal solution to our problems. However, I think our thought leaders have known this but relegated it to the back of their minds because of the continuous degradation in the moral fabric not only of those in political power but also of the private sector. We are lacking in discipline and quality consciousness as well.
Else, what explains our poor competitiveness in exports in comparison to even teeny countries like Thailand, Korea Malaysia and Singapore etc.?
A liberal dose of corrupt "policy" making also hampers us of course!
Energy sufficiency, at least in regard to coal should have been achieved long time ago, had it not been for favouritism, nepotism and corruption. Coal India has virtually no competition and even its own ops are hindered due to lack of rakes and other machinery though we do have significant manufacturing capacity of wagons and rails both.

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