The promising Indian exports scene

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Ashok Handoo | 20 Sep, 2010
When the Commerce Ministry released the countryâs Foreign Trade policy document for 2009-14, in August last year it envisaged to reach the export target of $200 billion in 2010-11. The trade figures released by the Ministry recently are indeed quite reassuring. Exports increased by 22.5 percent in August this year compared to the same period last year. In July this year the growth was only 13.8 percent over the same period last year.

In terms of value, exports in August were worth $16.64 billion. This figure may be less than $17.8 billion that we recorded in August 2008. But then one has to factor-in the global economic slowdown that followed soon after.

Now look at the April- August picture this year. Exports grew by 28.6 percent on a year on year basis to $85.27 billion. This figure in the first quarter was a robust 32%. If this growth rate continues, there is not only optimism but confidence too that the goal of $200 billion exports will be achieved. Federation of Indian Export Organization is confident that we may even surpass it and touch the $210 billion mark. That would indeed be excellent, which could send a clear message that we are successfully getting over the hump of deceleration.

This growth has become possible essentially because of the diversification in export markets as envisaged in the Foreign Trade Policy. Our exports to countries in Africa and Latin America, ASEAN and Korea have increased compared to the traditional markets in the US, Europe and other countries. That is because the global economic slowdown has affected the US and the European countries much more than other countries, leading to shrinkage in demand for goods and services from these traditional markets.

But before we start celebrating we have to take a look at the imports picture too. The position in this regard is that imports have been growing faster than exports, leading to a bigger trade gap. In August this year, imports grew by 32.2 percent to $29.7 billion, compared to August last year, leaving a trade deficit of $13 billion. Imports between April-August this year grew by 33 %, to $141.89 billion.

Between April and August the trade deficit aggregated to $56.62 billion. If this trend continues we my touch the trade gap of $135 billion dollars at the end of the year. This would be $17 billion dollars more than what we recorded in 2008.

Part of the imports so far were needed to meet the immediate requirements at home and to increase the supply of goods in view of the rising inflation and could thus not be avoided. But bulk of it was because of rise in international prices of petroleum products which again became unavoidable.

The very fact that exports are picking up and have been doing well in the current financial year is a clear indication of global recovery. One has to take into account that the world lost as many as 50 million jobs during the economic crisis and there was a 12 % contraction in international trade.

The sectors which performed well this year are iron ore, engineering, cotton yarn and fabric sector etc. But readymade garments, handicrafts, and handloom sectors are lagging behind. The Government did well in announcing a Rs.100 crore package of fresh incentives to exporters recently, that is still struggling to fight back an uncertain global market. As the Commerce Minister, Shri Anand Sharma put it, while reviewing the annual trade policy, âwe are not out of the woods yetâ. âThe uncertainty surrounding exporterâs prospects continues to lingerâ, he said. Most of the incentives are targeted at labour intensive export sectors. These include jute and ready made garments, leather, carpets, handicrafts etc.

Yes, the export sector constitutes less than 20 percent of Indiaâs GDP growth but then itsâ reach is so widespread that it provides employment to million of people in the interiors of the country where large scale economic activity has not reached yet. That is what makes the performance of the sector crucial.

The Government has been undertaking periodic reviews of the export sector performance to adjust its policies in the right direction. The next review is scheduled to be undertaken by the year end.

Since overall GDP growth of a country has a direct bearing on various sectors of the economy, India is doing its best to have a sustained economic growth which this year is expected to be somewhere between 8.5 to 9 percent. The IMF has already upgraded it to 9.4 percent. It has also upgraded the global economic growth for the current year to 4.6%. The Fund had projected growth for this year at only 2.5 percent, around this time last year. Since most of this growth is confined to China and India, export sector may not benefit much out of this. That calls for redoubled efforts to boost the export sector, particularly the areas which are not keeping pace with other fields of activity. The incentives needed would include availability of cheap credit and that is where the countryâs monetary and fiscal policy comes into picture. The Reserve Bank has been adopting a calibrated approach in raising key interest rates, to withdraw from the easy money supply policy adopted during the global economic slowdown, so as to check inflation which has been a cause of serious concern to the country. The latest hike in rates is a part of this process. But while doing so, it has to ensure that credit remains easily available to the sectors which need it the most. The export sector is on the top of the list.

* Ashok Handoo is a freelance writer
* The views expressed by the author in this feature are entirely his own and do not necessarily reflect the views of SME Times.ÂÂÂÂÂÂÂÂÂÂÂÂÂÂ