Though India’s export competitiveness has been improving since 2019, but may lose momentum if inflation remains high. Examine (200 Words)
Refer - Financial Express
Enrich the answer from other sources, if the question demands.
IAS Parliament 3 years
KEY POINTS
· With the rupee losing significant value against the dollar, the exchange rate can be a possible indicator of the economy’s competitiveness.
· When the rupee depreciates, it gives a boost to exports as these become cheaper overseas.
· This is akin to CPI or WPI to show how the prices of goods in general have changed. The index is a basket of six-currencies and 40-currencies (with FY16 as the base year).
· REER, however, is considered a better measure than NEER, since it also considers the domestic inflation in the various economies.
· Higher REER meant exports were more expensive in FY20, and imports were cheaper as compared to FY21.
· The continued increase in crude oil prices is expected to add to the fire. Core inflation the non-food, non-fuel component was at 6.4% 2021.
· The increasing difference between trends of NEER and REER in the last 26 months was due to India’s domestic inflation being higher relative to the six major currencies considered.
· With the majority of India’s exports being agricultural products, textiles, jewellery, etc, the rise in inflation will adversely impact these.
· Such sectors tend to benefit the most when there is a significant depreciation in the rupee.
Abdul hakkim 3 years
Please review mam/sir
Thanks
IAS Parliament 3 years
Avoid using short forms frequently. Keep Writing.
