The depreciation of the rupee from about Rs 44 two years to Rs 60 per dollar, and more now, is being portrayed by many pessimists as another blot on our economic performance. They assert that the lower value of the rupee makes imports more expensive and therefore worsens the trade gap and fuels inflation. Moreover, since a large part of our exports are import-based (like petro-based products and gems and jewellery), the cheaper rupee does not help our exports either. They are right on all these counts. But let us face it, it is the strong capital inflows in the past that have propped up the rupee, not our inherent ability to market more exports than we import. That's not sustainable, in my mind, and the day of reckoning has perhaps not come too soon in that sense. The issue is being treated as a financial/ fiscal problem. How do we attract back strong capital inflows? How do we tighten our belts at home, as the RBI has done, to shore up the rupee? How do we hold back imports to the extent possible to reduce the current account deficit?
My contention is that with the rupee reaching Rs 60/$, there are new opportunities being presented. Let's have a much more aggressive approach to use this slide to completely re-inspire our economy in a direction we have barely started moving in that of being a global marketer. Of course, it means we have to make some changes in the way we do things. That is always the biggest challenge. But if we can make this happen fast, we can reap the rewards of a new trajectory of growth.
First of all, we have to change our mindset towards depreciation. Many feel that a cheaper currency is a sign of weakness and has no advantage. However, let us consider China. For years, the Chinese have kept their currency from revaluing despite tremendous pressures from the West. This has been a key instrument to their strategy of export-led growth (which they followed despite having a large domestic economy). They too imported raw materials, added value and re-exported, but they never saw a cheaper Yuan as a weakness. Rather it was a key pillar to being a low-cost producer and thereby winning world market share. For India, export-led growth is something we have not really believed in. Our focus has been on domestic demand. This has led to change, fast. A determination to win significant shares of world markets and to use a lower currency as a strategic lever to accomplish that must be the new mindset for everyone in the government and the private sector.
Indeed, there perhaps could never be a better time for the rupee to be at 60. First, with reports of rising wages in China and the rupee devaluing an astonishing 15 per cent to the Yuan in the last six months, we are better placed to be more affordable to the rest of the world, including China, than ever before. Second, two of the three largest markets in the world, the US and Japan, are growing like they have not done in quite some time. (Europe still languishes, but may have bottomed out). The combination of these two events itself provides fertile ground for sowing the seeds of rapid export growth.
So what are the opportunities? Let us take a few examples to stimulate the creation of a complete list.
Manufacturing, textiles and garments sectors have seen lesser growth than several other producer-countries in the last few years. Of course, we have to increase productivity through capital investment, training and labour policies that promote flexibility. But even in the short-term, we can quickly win new customers or increase our share with existing ones. A concerted effort to do so can help us to generate tremendous growth in exports.
In the area of services, let us look at tourism. This is a major potential generator in foreign exchange inflows considering we have just 1 per cent of the world tourist trade. With the rupee slide, Indian tourism is 25-30 per cent more competitive in price than other countries as compared to two years ago and about 15 per cent less than it was a few months ago. That is a huge price decrease and should naturally fuel demand. Moreover, the improving situation of consumers in the US and Japan makes the timing perfect. If we provide excellent service and if we target segments with aggressive price points, the Indian tourism industry can witness growth like they have never seen. The same logic could apply to education services and medical services from India, besides of course, IT and outsourcing.
These are just some of the opportunities that present themselves when we have the mindset of marketing our way to growth. But here is where we need concerted, strong, swift action from everyone - the government, industry associations, companies and individuals alike. I'd like to stress on one action that could generate strong results, and that is to become aggressive in our export marketing. What does this mean? Marketing is not just about creating an emotionally endearing advertising film on "Incredible India"; nor is it about cutting prices. It is about deeply understanding consumers and their wants in the focus countries (for example, the US and Japan) and developing insight into how our goods and services can fulfil these needs more competitively than others can. We then need to develop our communication to be able to connect with them. Digital marketing now allows this to be done with utmost sharpness when we know who our customers are.
Much of this is classical, commonsense marketing, but when we do it in a concerted way, we can be sure the magic of increased export demand will happen. Usually when tough times come, companies cut marketing budgets. However, this is the time when the government and the private sector need to double their export marketing budgets or even more. With every challenge, we have a choice. Either we can pessimistically hunker down, and moan about our problems. Or we go out and grab the opportunity. In this case, we need to step up our marketing like never before, knowing that the rupee at 60 is a huge opportunity.