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Does Weak Rupee Matter for India's Manufacturing Exports?

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  • Bhanumurthy, N.R.

    () (National Institute of Public Finance and Policy)

  • Sharma, Chandan

    () (Indian Institute of Management)

Abstract

The role of weak exchange rate in stimulating exports is a foregone conclusion both at the theoretical as well as in empirical literature. This is more so in many of the emerging economies that are pursuing export-led growth strategy and led to currency intervention to contain any appreciation. In this context, this paper tries to empirically re-examine this issue in India as the recent trends does not suggest such relation between exports and exchange rate. The analysis is undertaken at two levels: at macro-aggregate level by using some time series models; and at the micro-firm level from the Indian manufacturing industries. At the macro level, by using both annual and monthly data, this study finds that exchange rate does not have theoretical (positive) relationship with exports. Rather it finds a negative relationship, which is unconventional. Further, it is also found that imports and the import tariffs playing a major role in boosting exports growth in India, thus indicating `import-led exports growth' mechanism. Subsequently, the paper examines the relationship between exports, imports, exchange rate and productivity using a panel of firms from the Indian manufacturing industries. Results indicate that, although imports and exports are inter-linked, import intensity, rather than exchange rate, is a major factor in boosting exports as well as productivity. Hence, this paper argues against currency intervention to maintain weak exchange rate as a policy option for export promotion. Rather, as exchange rates have differential impacts, we argue for sectoral policies, instead of exchange rate intervention, for enhancing productivity and, hence, exports in manufacturing sector.

Suggested Citation

  • Bhanumurthy, N.R. & Sharma, Chandan, 2013. "Does Weak Rupee Matter for India's Manufacturing Exports?," Working Papers 13/115, National Institute of Public Finance and Policy.
  • Handle: RePEc:npf:wpaper:13/115
    Note: Working Paper 115, 2013
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    References listed on IDEAS

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    Cited by:

    1. C Sharma, 2016. "Does importing more inputs raise productivity and exports? Some evidence from Indian manufacturing," Economic Issues Journal Articles, Economic Issues, vol. 21(1), pages 1-23, March.
    2. Bhanumurthy, N.R. & Bose, Sukanya & Panda, Swayamsiddha, 2014. "Modeling India's External Sector: Review and Some Empirics," Working Papers 14/138, National Institute of Public Finance and Policy.

    More about this item

    Keywords

    Exchange rate intervention ; Export ; Import ; Productivity ; India;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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