Sustaining exports

| Updated on January 15, 2018 Published on March 17, 2017

While the recent recovery is heartening, India needs to diversify its export markets by focusing on other countries, especially in Asia

Following six straight months of growth, it is now probably fair to say that the trend of contraction in exports has been arrested. The 17.5 per cent year-on-year rise in February 2017, the highest expansion since October 2011, is encouraging, and may once again inspire ambitious target-setting. This will also be the first time since 2013-14 that India’s exports growth looks likely to end the fiscal year on a positive note. Exports in the fiscal year to February was estimated at $245.4 billion, up about 2.5 per cent from a year ago. Although, the headline numbers seem convincing, the Government would do well to be a little cautious when setting targets for the next year. First, the recent growth has been led by a sharp jump in a few items such as iron ore and engineering goods. The impact of recovery in oil prices also helped exports in the past few months but its influence on full year exports may be neutral. Second, there are still too many imponderables to live with as the world gets increasingly protectionist as opposed to more integrated on trade. Policies of the Trump administration to encourage made-in-America products and any such similar measures that may be adopted elsewhere in the world could dent the recent revival.

The movement of the oil prices will continue to be the single biggest factor for India’s external trade. While a recovery of prices will help India’s exports earning from petroleum products as well as demand for Indian goods from oil-rich nations in West Asia and elsewhere, it will also lead to a jump in India’s import bill — because petroleum crude is the nation’s largest import. However, over the past 10 days, oil prices have once again softened due to doubts over effectiveness of production cuts mandated by the Organisation of Petroleum Exporting Countries. Such volatility in oil prices may once again lead to a widening of trade deficit, as imports continue to rise much faster than exports.

There are no magic pills to help exports grow, though becoming more competitive through lower costs, including lower compliance costs, can help gain access to more markets. India also needs to continue diversifying its geographical spread given the risk posed by a possible US protectionist policy.. The US is the largest destination for Indian exports accounting for about 15 per cent of outbound merchandise. The good news is that India’s exports to Asian nations, including immediate neighbours such as Nepal, and to Vietnam and Malaysia have been rising. Additional efforts to increase demand in these countries will stand India in good stead.

Published on March 17, 2017

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