Challenges facing India' exports
India's export growth has been slowing amidst the global turmoil and the weakening demand from its traditional markets -USA and Europe- which are struggling to stave off an economic crisis.
Cumulative value of exports for the period April-September 2011 -12 was US $ 160048.51 million ) as against US $ 105240.82 million registering a growth of 52.08 per cent in Dollar terms and 49.26 per cent in Rupee terms over the same period last year.
Cumulative value of imports for the period April-September, 2011-12 was US $ 233509.85 million as against US$ 176360.05 million registering a growth of 32.41 per cent in Dollar terms and 30.00 per cent in Rupee terms over the same period last year.
The trade deficit for April - September, 2011-12 was estimated at US $ 73461.34 million which was higher than the deficit of US $ 71119.23 million during April -September, 2010-11.
EXPORTS & IMPORTS : (US $ Million)
(PROVISIONAL)
| |
SEPTEMBER |
APRIL-SEPTEMBER |
| EXPORTS(including re-exports) |
|
|
| 2010-11 |
18203.53 |
105240.82 |
| 2011-12 |
24821.59 |
160048.51 |
| %Growth2011-12/ 2010-2011 |
36.36 |
52.08 |
| IMPORTS |
|
|
| 2010-11 |
29511.78 |
176360.05 |
| 2011-12 |
34588.89 |
233509.85 |
| %Growth2011-12/ 2010-2011 |
17.20 |
32.41 |
| TRADE BALANCE |
|
|
| 2010-11 |
-11308.25 |
-71119.23 |
| 2011-12 |
-9767.30 |
-73461.34 |
Slowing down of exports
India's exports and imports are now in a distinct slowdown mode, with September trade figures confirming the trend that began in August. Exports in September grew only at 36.3 per cent to $24.8 billion, while imports increased just 17.2 per cent to $34.6 billion. Exports in July had soared by almost 82 per cent and slowed down to 44.25 per cent in August.
"Exports continue to grow over last year, but the heady numbers have gone, it is clear there is deceleration. That is the surest sign of times to come," according to the Commerce Secretary, Dr Rahul Khullar,
The slowing down of export growth underlines some of the daunting challenges India is facing .
- Falling demand in US and Europe The prognosis for the next six months is a slowdown in export growth because of demand in traditional markets such as the US and the European Union have fallen off. Europe is one of the largest trading blocs for India. The austerity measures by European countries and falling consumer expenditures may affect exports, more so services exports from India.To make matters worse India's other export destinations are not faring well either. Japan is also not in great shape, China is slowing, Brazil also has problem.
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Widening trade deficit The government has set an export target of $300 billion-target for 2011-12. Despite robust growth of exports, India continues to import more than it exports. The gap is ever widening. In the first half, merchandise exports grew by 52.1 per cent to $160 billion compared to the corresponding period in the last financial year, and merchandise imports by 32.4 per cent to $233.5 billion, netting trade deficit at $73.5 billion. On a pro rata basis, it means $147 billion of trade deficit this year. Even though the commerce ministry believes that trade deficit will not rise as high as $147 billion this financial year, double of the $73.5 billion in the first half, C.Rangarajan , Chairman of the Prime Minister's Economic Advisory Council (PMEAC) has pegged it higher at $150 billion.The exporters body, the Federation of Indian Export Organisations (FIEO), also pegged the trade deficit at $150 billion for the current financial year.
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Turmoil in the Middle East and Greece The political turmoil in several countries in the Middle east and the continuing economic problems of Greece have impacted Indian exports . The risk element is very high in countries like Greece, Syria, Egypt and some other Middle East countries. ECGC - the government organisation that provides insurance cover to exporters - reclassified exports to Greece as "risky" by withdrawing open cover insurance scheme for them. India exports to Greece halved to $ 452 million in 2009-10, against $878 million in 2008-09. In August, ECGC had issued similar notices for exports to Syria - and in February for Egypt, Tunisia and Yemen.The political turmoil in Egypt may impact Indian exports more, than in any other economy, as the African nation had emerged as one of the important trading partners for India in the recent past.
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Trade deficit with China is widening India's trade gap with China is widening . India's trade deficit with China, its biggest trading partner, jumped 160% to $23.9 billion in the five years to 2010-11.While imports of Chinese goods rose to $43.5 billion in 2010-11 from $17.5 billion in 2006-07, exports lagged far behind, up to just $19.6 billion from $8.3 billion over five years.
- Falling rupee The rupee has depreciated "quite significantly" in the last few months pushing up import costs, The rupee's fall "certainly has had an adverse impact on the cost of India's imports, especially the cost of oil. If European banks become insolvent, capital will fly back, leading to a sharp depreciation of the rupee which is already weak. Given the higher intra-industry trade today than before and the high import intensity of Indian exports, a falling rupee would hurt industries and their profit margins both within and outside the country. The fall in the rupee would, however, benefit industries such as tea, coffee, cotton yarn and sugar, which have no import input. But others will be impacted as most of the exporters also import raw materials.
Steps taken to increase exports
What is India doing to meet the challenges ? The government and industry have taken some steps .
- Diversifying exports beyond the US and Eurozone . US and the European Union accounted for one-third India's merchandise exports of USD 246 billion in 2010-11. The worsening Eurozone crisis and sluggish trend in the American economy - mandates that India diversity its exports . There has been a conscious effort for diversification in the recent past, with exports to the OECD countries falling consistently. The latest policy emphasis is to promote exports to Latin America, Africa and the Commonwealth of Independent States. During the first quarter of 2011-12, country's exports to Africa and Latin America grew around 120 per cent and 74 per cent, respectively.
- Incentives for shipments to new geographies. The government has announced a 900 crore incentive package which seeks to reward exporters who move into newer markets in Latin America, Africa, and the Commonwealth of Independent States (CIS). Fifty products in pharmaceuticals, chemicals, engineering would get special bonus of one per cent of export value; shipments to Latin America, Africa and CIS regions will be eligible for one percent duty credit. Ficci has welcomed the export incentives and stated "The measures would help Indian exporters in the current challenging global environment. It would be vital in stepping up the competitiveness of our exports."
- Sops to make exports competitive. The Reserve Bank of India announced a Diwali package, worth Rs 8 billion for exporters who have been seeking support from the government to tide over their recent problems. The RBI notified a 2 per cent interest subsidy to export oriented units in small-scale employment oriented sectors such as handicrafts, handlooms, and carpets.
- Completion of pending reforms India needs to look inward and boost domestic demand to compensate for the shrinking world market. Some of the long pending reforms- foreign direct investment in retail, labour reforms, allowing 49% foreign equity in insurance ventures, financial and banking sector reforms- need to be pushed to keep the growth and investment momentum going. It's time to show that India is a safe haven for investment, and for that bold reforms, which will improve overall competitiveness, are needed.
- Improve infrastructure There is a need for more investment in power, rail, road and port infrastructure. Goods move much more slowly in India than in other countries with comparable growth and they take more time to be loaded on to ships. Most SMEs, which form the backbone of India's trade economy, battle with basic infrastructure issues that have only compounded over the years. A majority of SMEs run on generators because of erratic power supply - making these units far less competitive. The government must ensure better coordination between various ministries such as finance, commerce, road and transport, shipping, power
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