Global woes may derail export growth soon

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Bikky Khosla | 25 Oct, 2011
In the last few months, Indian exports have sidestepped the global downs to a significant extent. $23.8 billion in April, $25.9 billion in May, $29.2 billion in June, $29.3 billion in July, $24.3 billion in August, and $24.8 billion in September - these export figures are great news; however, the last two-month trade data signals to a declining trend, which is quite expected considering the ongoing economic turmoil in Europe and the US.

Interestingly, China is witnessing a similar trend in exports. In September, its export growth plummeted to 7-month low of 7.1 percent to $169.6 billion. In the previous months of August and July, exports stood at $173.31 billion (24.5 percent y-o-y growth) and $175.1 billion (20.4 percent y-o-y growth), respectively. It seems that the Chinese export sector is also heading for a gradual slowdown.

Exporters' body FIEO is of the view that further decline in export growth is likely in third and fourth quarters. Last week, Finance Minister Pranab Mukherjee also admitted that the economic crisis in Europe and the slowdown in the US were concerning. In addition, I feel that the global reach of the economic turmoil is also underlined by a number of recent industry surveys showing drain in confidence, and a 14 percent decline in September engineering exports, the largest contributor to India's export basket in 2010-11.

So, our exporters indeed have every reason to feel pessimistic. A few exceptions are the recently announced benefits for the export sector in the annual supplement to the 2009-14 Foreign Trade Policy. The decision to avail 2 percent interest subsidy on Rupee export credit to SME, handicraft, handloom and carpet sectors also assumes significance in view of compressed global demand.

I think the aforesaid measures will certainly help absorb the negative effects of the global economic turmoil to some extent. But at the same time, I am of the opinion that the government needs to take some immediate steps in terms of tax reforms and export transaction costs in order to enhance the competitiveness of the export sector.

The rising cost of credit has also been of lingering concern over a long period of time. Today, the RBI has hiked key interest rates again - the 13th hike since March 2010. This move will certainly fuel troubles further. I think there is an urgent need for better coordination between monetary and fiscal policies to ensure that the industry gets rid of the two pronged attack of high inflation and costly credit.