Equitable populism, please

The rising rupee has certainly not gone down well with industry. Recently, Commerce Minister Kamal Nath informed Parliament that the problem was severe, having already scalped several thousands of jobs. A perfect preamble for his pitch with the Finance Ministry—the Rs 1,400-crore relief package in July this year is inadequate; more needs to be done. Finance minister P. Chidambaram, on the other hand, made his displeasure well known in July itself when the sops were given—industry needs to derive its competitiveness from innovative methods and must not rely on currency differentials.

No one can deny that exporters have a case—RBI has traditionally intervened when the rupee has appreciated. However, early this year, it let go without any warning. Worse, as the foreign currency regulator in the country, it did not develop a market for small businesses to hedge efficiently against currency movements.

The question then is: to what extent should the sops be extended beyond which it will reek of populism? A merit-based solution is difficult to implement—each export sector has a different level of import content in the final product, and that is what determines the profit margin.

For instance, the top exporter, petroleum sector, is least affected owing to the high degree of import content (crude oil). The second in line, jems and jewellery, however, has seen considerable job losses, even though the import content is very high— margins are squeezed and players lack scale for the most part.

In the case of software sector, which takes the third spot and accounts for a fourth of the country’s exports, the rising rupee has just about blunted profitability, notwithstanding the fact that two-thirds transaction are in dollars. In such a situation, Kamal Nath’s pitch on job losses is a powerful catalyst to deliver further sops to the industry. If Chidambaram is protesting, it is because he needs to balance his books against the onslaught of rising food, fertiliser and fuel subsidy bills, never mind rising revenues. Is then the story of the rising rupee and its impact complete? No.

The entire debate thus far has been about the exporting community. In five months, they billed $60 billion (Rs 2.4 lakh crore) in exports. By induction, the annual figure would be in the region of $140 billion (Rs 5.6 lakh crore). Contrast this with a force that has no voice—remittances of workers from overseas, which is expected to register as much as $30 billion (Rs 1.2 lakh crore) this year.

This account is a great leveller. As much as it meters the funds sent back by a Wall Steet banker to his parents in India, it also accounts for blue collar labourers working in West Asia, supporting their families back in rural India. While it does not hurt the banker to send back some more greenbacks, the labourer in Saudi Arabia has no further cash to send home. Yes, any remedy will be best described as populism. But, surely, it is no different in the case of the exports sector.