Exports on a slippery slope

Geethanjali Nataraj Mridul Mohan | Updated on January 22, 2018

A big push Will put exports back in action koya979/shutterstock.com

They have fallen sharply in recent months. India should address ecosystem concerns and work out better trade deals

The continuous slowdown and negative growth of exports for the last 10 months is a major cause of concern for the government of India, which is keen to achieve a growth rate of 7.5 to 8 per cent this fiscal. India’s exports nosedived by 16 per cent between April and August 2015, compared to the same period in 2014. The slowdown of exports is progressive; exports in August 2015 witnessed the steepest decline year-on-year, almost 21 per cent.

There has been a fall in exports in 23 key sectors including leather and leather goods, iron ore, and electronics. But the hardest hit have been petroleum and engineering , the top two exports items, which saw a 47.9 per cent and 30 per cent decline respectively. Though imports also witnessed a negative growth of 11.61 per cent between April and August 2015, the steep fall in exports resulted in an increase in the trade deficit in recent months. There are estimates that the fall in exports is likely to reduce the GDP by 2 per cent.

The prime reasons for India’s exports contraction are a slowdown of demand in global markets and moderation in commodity prices. India’s export markets, mainly the US, China, the euro area, Singapore and Japan, are still going through either a slow revival or a decline. Prices have tanked and the impact is being felt through decline in the value of exports, particularly in top exports such as petroleum products, gems and jewellery, textiles, iron ore and so on. An uncertain global economic outlook has only added to the problem.

No help from fall in crude

Though the price of crude oil, the most important input for India’s manufacturing and merchandise exports, has fallen substantially, it has not helped merchandise exports, particularly petroleum products and lubricants which make up 20 per cent of India’s total exports. This is mainly due to weak global demand and the inability of Indian firms to take advantage of low international commodity prices. Further, not being a part of global value chains has also affected Indian firms.

To add to the exporters’ woes is the appreciation in the ‘real effective exchange rate’ of the rupee, when China, Brazil and Russia have either devalued or allowed a big depreciation of their respective currencies for price competitiveness of their exports. For instance, Brazilian and Russian currencies depreciated by nearly 30 per cent and 25 per cent respectively last year.

Domestic factors too are problematic, from infrastructure to stalled policy changes relating to domestic taxation systems. Infrastructure, particularly trade logistics, continues to be a major bottleneck affecting India’s exports. The delay and time consuming process for registration , clearance and customs adds to the costs.

Need sustained efforts

Apart from the existing domestic factors, the government needs to make proactive and sustained efforts to help India’s export sector growth. The Federation of Indian Exports Organisations (FIEO) has requested the government to declare exports a priority and restore the interest subvention scheme for exporters to arrest the fall in exports. We need a better intellectual property regime in order to become a part of global value chains.

India needs to take measures to be a part of the mega regionals which are going to shape the future of global trade architecture such as the Trans Pacific Partnership (TPP) and the Regional Comprehensive Economic Partnership (RCEP) agreement. Being a part of these mega regionals will go a long way in boosting Indian exports. One way to be part of the global value chain is to attract export-oriented FDI, but the success depends on improving ease of doing business.

The government should also try to conclude a few FTAs; this would boost to textile exports. At the same time, the government needs to do itshomework before signing FTAs or comprehensive agreements. India has had unfavourable trade with partners with whom it has signed trade agreements, particularly with big economies in Asia such as Korea and Japan.

In recent months exports contraction has occurred mainly because India finds it difficult to penetrate Asian markets such as China, Korea, Japan and Indonesia. It’s time to negotiate with these countries for market access and address tariff and non-tariff barriers.

The writers are with the Observer Research Foundation, New Delhi

Published on October 15, 2015

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