The Hindu Business Line : Robust exports: The invisible realities

THERE has been robust export growth on both merchandise and invisibles performing well. Though India has moved towards technology-intensive products, the export structure has not shown any significant change.

The main contributor to the export effort is the merchandise segment. Its growth has been improving though, in 2003-04, according to the RB Annual Report, in absolute terms its performance was not as good as in 2002-03.

For instance, engineering goods exports rose by Rs 12,406 crore in 2003-04 compared to Rs 10,532 crore in 2002-03. The chemicals and related products accounted for more than 16 per cent of merchandise exports, but the absolute growth was lower at Rs 5,346 crore (Rs 7,218 crore). As can be expected, the trade deficit widened, even with invisibles covering some of the gap. Even the direction of exports has not been encouraging. No doubt India's exports to China, Singapore, Sri Lanka, Bangladesh, Indonesia, Malaysia, South Korea and Thailand were from 18 per cent to 50 per cent higher, but these markets account for a small amount of the exports.

On the other hand, the rate of growth of exports to the US (5.2 per cent), Japan (-8 per cent), Canada (18 per cent) and Russia (0.7 per cent) was small, though these are the major markets for India. The decline in growth rate of exports to these markets in spite of increase in their GDP growth is of concern. India has to concentrate on Japan and the American market for higher additions.

Europe is another significant market where India achieved a growth of 20 per cent in 2003-04. In the European Union, India has a good presence in the markets of Italy, the UK, Germany and France. It has been repeatedly recognised that the performance of India's exports is determined by a number of exogenous factors. For instance, trends in world trade, international price changes and developments in major markets, cross currency and dollar-rupee exchange rates and the strength of bilateral trade agreements among India's major trade partners. As trade liberalisation gathers momentum, the Indian exporter is going to face tough competition, especially from China, East Asian nations, Bangladesh and Sri Lanka.

The solution to the problem lies in making productivity improvements in all the three sectors of agriculture, manufacturing industry and services. What India needs is large-scale production in garments, fabrics, leather products, automobiles, exportable consumer goods, software and processed agricultural products. Crucial is mass production at comparatively lower prices. Equally important is infrastructure such as modern storage facilities, and fast and safe transport.

There is also an argument in favour of reduction of tariff rates. It is essential to have a transparent tariff structure on imports and to augment investment in export-friendly projects and infrastructure. A public-private sector partnership, including foreign investors, can expedite such projects.

(The author is Economic Advisor to the Securities and Exchange Board of India. The views are personal.)

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