Mumbai: Boosting export earnings has become the biggest challenge for India today. Exports have shrunk considerably due to the economic meltdown in the US, the biggest market for Indias goods and services.

Its quite evident that India has lost the race in manufacturing to China. Our textile exports and gems and jewellery sales are witnessing a continuous decline. In textile exports we are facing competition from China and even from smaller countries like Bangladesh, Sri Lanka and Pakistan.

Commodity exports are prone to business cycles. Under these adverse circumstances, exports in 2002-03 are unlikely to see even an estimated puny growth of 3 per cent as calculated earlier by knowledgeable sources.

Ground realities
We have comfortable foreign exchange reserves (read record reserves) at US $55.5 billion. But the rise in reserves is more due to depreciation of the dollar and the increase in gold value. But these reserves may not last us for even six months to meet the export bill.

The warlike situation on the Indo-Pakistan border, though it looks subsided, can end up in blowing into a full-scale war at any point of time. We may have to spend more and more on our defence. Already India has placed $2-billion worth of arms with the US.

The stock markets across the globe have touched a new nadir because of a series of corporate scandals in the US. Foreign institutional investors, who had invested in the last one decade over $15 billion in India, are of late turning sellers. They want liquidity and plan to recover their losses from the US stock markets.

Fresh tactics
In view of the war threat, India is again considering to approach the non-resident Indian (NRI) community for raising foreign exchange by selling sovereign bonds. Indian Millennium Bonds (IMBs) for overseas Indians were successful because India offered interest rates slightly higher than the London Inter-Bank Offered Rate.

Since loans are to be repaid in foreign exchange, the fall in rupee value encourages NRIs to invest in IMBs. This is because the continuing rupee weakness should fetch them more when they sell these bonds. But, as of today, the dollar is declining against other currencies and the rupee is getting more and more strong. Hence, raising foreign exchange through the sale of IMBs to NRIs may not be as rewarding as earlier.

Indias imports, as a matter of fact, are at an all-time high. It was the 1991 forex crisis (a time when foreign exchange reserves were enough for a fortnights import bill) that forced the country to pledge its gold reserves and launch reforms and liberalisation.

At a time when exports are declining, exports should not just be a priority but it is crucial. A weak dollar is already acting as a disincentive for exporters. Therefore, an unconventional way should be explored to raise exports.

In order to usher in any change, there should be an urgent need to change the bureaucratic mindset. Quite often, our bureaucrats think exporters are mainly interested in undervaluing their export earnings and are diverting a major chunk of them to Swiss banks. This misconception should be reversed urgently.

Our exporters earn valuable foreign exchange, which the country needs very badly amidst an unsteady global situation. The government should do away with the carrot-and-stick policy that it is accustomed to. Now it should only offer carrots.

Quick and easy finance should be made available to them. Although banks are flush with funds, they are reluctant to part with them. The banking industrys exposure to scams on the stock markets and their mounting non-performing assets, totalling Rs 83,000 crore since the last one decade, are making bankers cautious in lending to exporters. This is despite the government directive to give top priority to export-finance.

Hazards galore
To make things worse, exports have also become a costly affair because of the risk premium being charged by insurance companies following the 11 September terror attacks on the World Trade Center in New York.

Another aspect that should end is the customs department harassing our own exporters. India has had a long culture of enacting irritating and unnecessary regulations, which make commercial activity a difficult task to accomplish. Poor infrastructure facilities in the country, right from power, roads and port warehouses, tend to make export business a nightmare.

The government should study why so many companies, which raised money from the public to float companies for floricultural exports, mushroom exports and aquaculture, turned out to be a miserable failure. There is no harm in learning from past mistakes.

Kalantri is the president of All India Association of Industries