Indian Journal of Science and Technology

Abstract

Background/Objectives: Export competitiveness of an economy is determined by exchange rate and price level movements. This paper endeavors to analyze relative price and exchange rate movements in selected Asian countries visà-vis India and theirimplications for trade policy. Methods/Statistical analysis: The trends in changes in relative prices, exchange rates and trade are analyzed for years 1993, 2003 and 2013. Unit value index for exports is used to calculate relative price ratios. The relative prices and exchange rates are calculated using simple mathematical equations. Then, the price ratios and exchange rates are compared with export and imports movements of each country vis-à-vis another to assess effects of these movements on trade competitiveness. Findings: The study elucidates thatthe greater the increase in the exchange rate than the increase in the relative price level, the beneficial it is for a country to trade with another country. India’s exports to selected five countries reflected an upward trend whenever the depreciation of currency was greater that the upward movements in the price levels. An analysis of percentage changes in price and exchange rates and growth rates of exports and imports also reflects that India experienced a slow growth in exports in all those years when price rise was not compensated equally by exchange rate depreciations.It also indicates that whenever the price rise was compensated by the equivalent or greater depreciation of currency, there was surplus in trade with the competing country. These findings are in tune with fundamental macroeconomic theory of exchange rates and price movements. This analysis clearly indicates that unlike other competing economies India lacks active policy interventions that will help in enhancing export competitiveness through precise exchange rate movements. Applications/Improvements: The study puts forward a strong case in favor of an exchange rate policy that brings about the movements in exchange rate in such a manner as to compensate for the changing price level in India.

Keywords: Exchange Rate Movements, Export Competitiveness, Price Level, Trade Policy