India faces competition from Southeast Asia
India faces competition from Southeast Asia
NEW DELHI (Reuters): India is facing growing competition from Southeast Asia where currencies have slumped, business leaders said yesterday.
They said the falls in the currencies of Southeast Asian countries, which are major producers of polymers, synthetic fibers, rice and other plantation crops, had thrown up a challenge for Indian exporters.
"Currencies in Thailand, Indonesia, Malaysia have fallen and the question is can we withstand competition from these nations which sell nearly the same products in the global markets as us?" asked D.H. Pai Panandikar, corporate adviser to India's RPG Group.
India's businessmen are closely watching the currency markets.
"We have to keep a watch on the rupee and also the global stock markets as the economy recovers patchily," V. Raghuraman, secretary general of the Associated Chambers of Commerce and Industry (Assocham) told Reuters.
A dip in business confidence, sluggishness in investment activities, political uncertainty, and lack of demand had slowed down the economy in the first half of fiscal 1997/98 (April- March), industry leaders said.
But they said latest economic data showed clear signs of revival and were optimistic the economy would gather momentum by the last quarter of 1997/98.
Industrial output grew by 9.2 percent in the year to July.
Exports in September rose by 11.63 percent to US$2.89 billion from $2.59 billion in the same month in 1996.
"A bold initiative from the government to boost investment and hasten big projects is needed now," A.S. Kasliwal, president of the Federation of Indian Chambers of Commerce (FICCI), said.
There was concern that India, whose foreign exchange reserves and current account deficit are at healthy levels and inflation is under control, might still catch the Asian flu.
"The rupee is overvalued and this is a distress point for exporters," Raghuraman said.
The rupee hit a 21-month low of 36.75 against the dollar last week. The currency ended Thursday weaker at 36.75/76 to the dollar as the Reserve Bank of India (RBI) warned the markets not to overreact and pay heed to economic fundamentals.
"The RBI must not intervene and allow the rupee to depreciate a little," Panandikar said. The RBI sold about $400 million on Wednesday after the rupee hit a 21-month low.
While the foreign exchange market was suffering nervous tics, the turmoil in Asian stock markets has shaken India's ambitious plans for tapping global markets for Euroissues of global depositary receipts (GDRs) of state-run firms.
India, responding to market conditions, two weeks ago deferred a $800 million GDR issue by the state-run gas monopoly, Gas Authority of India Ltd (GAIL) after it failed to muster a floor price of 125 rupees ($3.4) per share.
Last Friday the government also announced a 40 percent reduction in the size of a proposed GDR issue by state-controlled Mahanagar Telephone Nigam Ltd.
"The government's revenue, disinvestment and fiscal targets will go awry if market conditions remain depressed," said an economist with a foreign brokerage.
The government has ambitiously raised its target for partial disinvestment of shares in state-owned firms in fiscal 1997/98 to 70 billion rupees from an earlier projected 48 billion.
A shortfall in the disinvestment target would hamper revenue estimates and hit the government's fiscal deficit goal in the current fiscal year.
India hopes to reduce its fiscal deficit as a proportion of its gross domestic product (GDP) in fiscal 1997/98 to 4.5 percent against 5.0 percent last year.