The Hindu Business Line : Indian exports yet to go places

India's export performance has improved considerably but the opportunities have barely been explored, especially the markets of Africa and Latin America.

India's merchandise trade has well maintained the tempo of strong growth supported by domestic policy measures and robust global economic growth. The credit goes to the government that India is rising up the ranks of large exporters by the increasing competitiveness of the manufacturing sector under-pinned by a rising technological superiority.

This is the why the exports-GDP ratio has gone up to 13.1 per cent and the invisible receipts-GDP ratio to 11.5 per cent in 2005-06 from 5.8 per cent and 2.4 per cent respectively in 1991. The Foreign Trade Policy is geared to put the country's exports on the path of exponential growth. Thus, merchandise exports in the preceding four years rose on average at 23 per cent-plus. If two schemes for export promotion — focus products selection and focus market scheme — are implemented successfully, the export growth may rise to 30 per cent per annum levels.

A welcome achievement

Yet, there are a number of issues too. For instance, India's trade deficit has bulged to $51.5 billion in 2005-06 from $36.6 billion in 2004-05. This negates all the gains on the invisibles account. In 2005-06, India imported goods worth $140 billion and exported to the tune of $100 billion. Thus, exports financed 72 per cent of total imports. This coverage was 76 per cent in 2004-05. This fall was aggravated by crude oil imports worth $44 billion. But for the massive crude oil imports, India would have been trade surplus. There is a loud and clear warning that India must contain oil imports or speed up export growth.

Production cost

Moreover, the rising price of imported crude oil has a cascading effect on the domestic cost of production of exportable goods. It is a matter of serious concern that the share of agriculture in total exports has declined from 20 per cent in 1995-96 to 15.5 per cent in 2005-06.

The same is true for manufacturing exports that slid in this period from 75 per cent to 70 per cent largely due to the fall in the contribution by leather and leather manufactures (from 5.4 per cent to 2.6 per cent), gems and jewellery (from 16.6 per cent to 11.6 per cent) and textiles and textile products (from 42.3 per cent to 14.6 per cent) despite the fact that textile exports are being expected to become the star performer.

Indian Textiles wrapped up foreign markets but not on the scale of Chinese products. Happily, India's share in world textiles exports is bound to grow as the US has capped China's exports.

Chemical and engineering goods were the star performers with a share at 14.5 per cent and 20 per cent respectively compared to 9.3 per cent and 13.7 per cent in 1995-96. The implications that can be drawn is that the Government has to encourage heavy investment in the agriculture sector and should create an export culture in this sector.

It is unfortunate that the farmers with 15 per cent exports are totally unaware of their obligations towards the World Trade Organisation, the challenges from world agriculture exports and the subsidies provided to the farm sector by the US and the European Union. Export houses and councils should interact with farmers to keep them abreast at least of the WTO requirements and the various standards being used or planned by developed countries to repel agricultural exports.

Directional change in exports

India's exports, which grew by more than 26 per cent in 2005-06, have shown massive directional changes in terms of sources of demand for Indian goods. Till 2000-01, each of the US and the EU markets shared nearly 21 per cent and 23 per cent respectively of total exports and rest of the world absorbed the remaining 58 per cent.

By 2005-06, the US accounted for only 17 per cent and the EU's share remained constant. In 2005-06, more than 30 per cent of India's exports was within Asia compared to 14 per cent in 2000-01 due to the buoyancy in demand in the continent, especially China. This trend is evidence of India's strengthened position, and can provide a hedge against the US/EU pressures.

India has been developing bilateral agreements with Asian countries to create free trade areas. If all bilateral and multilateral trade agreements in Asia are aggregated, economic policies harmonised and political dispute/ differences minimised, Asian countries can do 50-60 per cent of their trade within the continent. But this would call for a massive and integrated effort.

However, India has not yet been successful in synthesising trade relations with Africa and Latin America that now account for only six per cent and three per cent respectively of India's exports. India has to make product- and country-specific effort. For instance, India should focus on selling to Africa agriculture and allied products, chemicals and fertilisers and pharmaceuticals, textiles and garments, plastics, metals, and engineering goods.

Need for strategic export push

India should make a strategic export push into South Africa, Egypt, Nigeria, Morocco, Algeria, Tunisia, Libya, Sudan and Tanzania. It can export $10 billion worth of goods to Africa, whose import bill is $200 billion every year. India's share of only 2 per cent of this can be raised to 4 per cent with some, minimum effort.

It is the same with the Latin American market, which has been going through trade liberalisation. Of this region's imports worth $500 billion in 2005-06, India accounted for a mere $2 billion. Being in a position of comparative advantage, India could have leveraged its export potential in machinery and transport equipment, manufactured goods, foodstuffs, chemicals, pharmaceuticals, and gems and jewellery.

Trade barriers

Though distance, language barriers, lack of market survey and limited awareness of the consumption pattern are trotted out as road-blocks to Latin America , India has to cross these barriers. Indian exporters need to frame a commodity-specific strategy with the help of the Commerce Ministry and industry organisations. Software and pharmaceutical industries have not entered Latin American countries in any significant manner.

As for products, India is neglecting investments in agriculture. There is, thus, no innovation in agriculture work, lack of inputs, a weak credit system, inadequate cold storage and warehousing facilities, low literacy rate among farmers, stagnating farm productivity and widespread poverty in villages. Distribution of concessions and food subsidies is an insult to farmers who can export agricultural products. But will they get an opportunity to do so? India needs to usher in structural changes to create villages that can compete in world markets.

(The author is a former Economic Advisor to SEBI.)