India's Trade Competitiveness and Exchange Rate Policy

Abstract

There is a general view that the export performance of India is unsatisfactory because of its low competitiveness, but no systematic attempt has been made to validate this view. India needs a 12 per cent compound annual growth rate for exports during 2002–07 to reach 1 per cent of world exports of US$ 80.5 trillion. The Indian government has made serious efforts to reform trade policies to make exports more competitive globally. An attempt has been made in this article to measure India's trade competitiveness and examine the role of the exchange rate policy in trade competitiveness. The results indicate that when nominal and real exchange rates appreciate, export price competitiveness (Relative Export Price [REP]) improves, but the competitiveness of profitability (Relative Profitability of Exports and Profitability of Exports Index) deteriorates.

Keywords

Competitiveness Nominal and Real Effective Exchange Rates Price Index JEL Classification: F10 JEL Classification: F13

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