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India’s exports may get back on the fast track in the current fiscal after slowing down last year, as global output is projected to accelerate in the second half of 2019.
However, if exports and investments are to become the “new drivers of the Indian economy” and help contain the current account deficit (CAD) this fiscal — as suggested by the Economic Survey — the government needs to take seriously the Survey’s thrust on policy stability and also look at sustainable ways to push exports.
Pressure on crude prices
The oil-import bill is expected to keep rising this fiscal, but an increase in exports could help balance the situation, the Survey, prepared by Chief Economic Advisor (CEA) Krishnamurthy Subramanian, said.
“There could be pressure on crude prices to increase, as world output grows. Yet, that may not impact India since growth in world output will also favourably impact India’s exports, which is not decoupled from growth of world trade,” it said.
However, the increase in exports cannot be taken for granted, as the government’s efforts to revive manufacturing and exports over the last five years have not yielded tangible results, according to Biswajit Dhar, Professor, Jawaharlal Nehru University.
Need to change dynamics
“The pertinent question here is the different business model that the government will bring in to change the entire dynamics. We need to have a focussed industrial policy. Our IPR policy also needs to be robust and innovation-driven, as we cannot depend upon the developed countries to give us technology,” Dhar said.
The growth rate of merchandise exports and imports fell in 2018-19 compared to the previous year, attributable to the slower growth of world output and trade and the lower domestic GDP growth in 2018-19 among other factors, the Survey stated.
India’s balance of payment situation deteriorated in the first half of 2018-19 due to the sharp rise in crude oil prices, leading to a higher trade deficit and widening of the CAD.
The CAD moderated to an extent in the third quarter, as international crude oil prices eased sequentially in November and December 2018.
Investment uncertainty
On a positive note, the Survey noted that the government is expected to lift restrictions on FDI inflows further, which will continue to increase the stability of sources funding the CAD.
It, however, highlighted the negative correlation between foreign investments and economic uncertainty. . Not just short-term inflows, but also long-term capital inflows are affected by higher uncertainty in economic policy.
Changes made to the FDI policy relating to e-commerce recently have drawn lot of criticism from foreign investors and countries, including the US, for creating uncertainty.
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