Foreign trade: Straddling the East-West divide

Mr Sandu George, Secretary of Seafood Exporters Association of India (SEAI), is a worried man these days.

The seafood export business had suffered on account of anti-dumping duties imposed on Indian shrimp exports to the US. Now, the European economic crisis is taking its toll as well.

Single destination exporters paid a heavy price. The number of seafood exporters in the country has fallen sharply from over 1,700 in 2005 to around 650 in 2012. Merchant exporters have vanished while small exporters with couple of products targeting a single country have become a rarity.

As their tiny export world crashed around them the smaller players were often forced to sell their plant and machinery to big houses. The rich variety of seafood products and wide and diverse reach of the bigger players have helped them survive and flourish.

Something similar is happening to India's foreign trade. Business with rich developed countries has been looking down. Several versatile players in India's foreign trade have begun to fine tune their business strategies and are taking their wares to new and sometimes alien markets.

Nimble footed

Quite a large number of them have transformed successfully. The flat footed got stuck and have paid a heavy price. Innovation and agility to move with the times, and sometimes ahead of the times, is no longer the name of the game in business alone. It is equally true in foreign trade.

For India's foreign trade, it has been a slow and methodical shift from the West to the East, from the North to the South. First, several of the developed countries began erecting trade and non-trade barriers to limit India's export trade. As the pace of economic growth in the rich countries slowed, their demand for goods and services also weakened.

Sometimes, the demand even turned negative. India's imports from the OECD countries fell, quite dramatically at that. Imports from OECD countries plunged sharply, by almost 50 per cent between 1960-61 and 2000-01. Exports were not much different.

Meanwhile, trade with other parts of the world have been growing, at quite a rapid clip. The transformation of trade from the West to the East and from the North to South has not been smooth. In fact, the transition has been sudden and unprecedented.

Emerging Asia

The Asian and Asean region have moved into the void created by the rich countries. Growth in India's foreign trade with these regions has been surprisingly dramatic. For close to three decades, trade with Asia and Asean regions languished around 12-15 per cent.

The transformation started during the last decade. From slightly over 14 per cent of India's total trade in 2001, trade with Asia and Asean region jumped to over 56 per cent in 2005-06. There has been no looking back since then.

By 2011, India's trade with the region was over 68 per cent. And growth in trade with the region has been clocking an annual rate of over 35 per cent in recent times.

But what made India's trade with the Asian region tick?

It was no doubt the overall development of the region. The accelerated economic growth stimulated fresh industrialisation which in turn led to increased value addition. Raw materials were much in demand. The same was the case with finished goods. Trade flourished in the region. And India had a key role to play in the regional trade.

But there were regions which were developing far faster than others. WANA, West Asia and North Africa, has been gaining currency in India's foreign trade lexicon. As the name itself suggests, the region which was carved out from some parts of Asia and Africa, was virtually unheard of over a decade ago. Today, the WANA region alone accounts for over 25 per cent of India's foreign trade.

New Arabia

It is an ebullient and dynamic region with countries such as the UAE, Saudi Arabia, Israel, Qatar, Iran, Kuwait, Morocco, Jordan, Oman, Egypt, Bahrain, Tunisia, Sudan, Lebanon, Algeria, Libya, Yemen, Syria and Iraq on the list.

One would have presumed the Asean region comprising Singapore, Indonesia, Malaysia, Thailand, Myanmar, Vietnam, Cambodia and others would have been an equally important trading partner. Accounting for 9.6 per cent of India's foreign trade, the region is definitely important. But it remains a distant second cousin to WANA.

The other interesting region is North East Asia comprising China, Japan, Hong Kong, Korea and others which account for close to 20 per cent of India's trade. Trade with the region has also been growing at an accelerated clip of 44 per cent.

The poorer cousins in the region are countries of South-East Asia, which also include the SAARC countries. Despite its close proximity as well as political and economic ties, the region accounts for a meagre 2.85 per cent of the country's total trade. But it has a promising growth rate of over 42 per cent.

India in isolation seems to have handled the foreign trade crisis successfully. But it has miles to go in the global market place. India's contribution was a paltry 0.7 per cent of global trade in 2000. It increased to 1.3 per cent in 2009 and further to 1.5 per cent in 2010.

Miles to go

But it is tardy when compared to countries such as China with 10.5 per cent, South Korea with 3.1 per cent, Hong Kong 2.6 per cent, Singapore 2.3 per cent and Mexico with 2 per cent of global trade.

In a recent India Economic Update published in March, the World Bank had faulted India for its huge and burgeoning fiscal deficit. The sharp fall in foreign direct investments, portfolio investments as well as the spiralling inflation prevailing in the country also came in for criticism. But it had a word of praise for India's surging foreign trade. Foreign trade revealed dexterity to change with the times and to adapt its product mix to suit the ever changing global demands. And most importantly, it had the ability to shift focus from the tepidly growing rich and developed countries of the West to the energetic and dynamic economies of Asia and WANA.

>cj@thehindu.co.in

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