Share of export in GDP at 14-year lowof 19.4% SAILING THROUGH TROUBLED WATERS
The share of export in India’s gross domestic product (GDP) declined to a 14-year low during the first quarter (Q1) of the current financial year (FY18). Growth in export of goods and services has remained below overall economic growth since FY15.
Exports were up only 1.2 per cent at constant prices during the first quarter of FY18, against 5.7 per cent year-on-year (YoY) growth in GDP during the period.
In value terms, India’s exports has been stagnant at around ~24 lakh crore (at 2011-12 prices) in the past three years, against 24 per cent cumulative growth in GDP during the period.
Export of goods and services accounted for 19.4 per cent of India’s GDP at constant prices during April-June 2017 period, down from 20 per cent during FY17 and 20.2 per cent during the corresponding quarter a year ago. At its peak, exports accounted for a little over a quarter of India’s GDP during the financial year 2013-14. On the eve of economic reforms in 1991, exports accounted for just seven per cent of the country’s GDP.
Experts say the sluggishness in exports has been one of the prime reasons for the slowdown in the economic growth in the past three years.
“Acceleration in export growth was a key component of India’s faster GDP growth during the post-1991 period. Exports have now crashed, pulling down India’s overall GDP growth. Merchandise exports that used to be around $27 billion per month three years ago are now down to around $23 billion a month, creating an equivalent hole in the economy,” says G Chokkalingam, founder and managing director, Equinomics Research & Advisory.
After liberalisation in 1991, exports have Export share in India’s GDP (% YoY) grew at twice the pace of underlying growth in the country’s GDP for a significant period. For example, exports (at constant prices) grew at an average annualised rate of 13 per cent between FY91 and FY14, against 6.5 per cent annualised growth in GDP during the period.
India’s exports are struggling despite a strong rebound in global trade. The World Trade Organization (WTO) has raised its forecast for 2017 trade expansion, following an acceleration in global trade growth in the first half of the year. Global merchandise trade volume is now estimated to grow by 3.6 per cent, against a previous estimate of 2.4 per cent.
In comparison, the volume of global merchandise trade was up only 1.3 per cent in 2016. Stronger growth in the current calendar year is attributed to a resurgence of Asian trade flows and a recovery in North America’s import demand. Goods exports from Asian countries are expected to grow by 6.4 per cent in the current calendar year, a sharp rebound from 1.8 per cent YoY growth last year. Similarly, global services exports were up 2.6 per cent during the first quarter of 2017 calendar year, against 0.4 per cent growth last year, according to the data from the WTO.
Services, including software services, are one of India’s biggest exports, valued at around $161 billion in the 2016 calendar year.
India’s inability to participate in the global trade boom is largely attributed to the country’s export basket becoming increasingly uncompetitive due to a steady appreciation of the rupee, besides the economic disruption caused by demonetisation and the goods and services tax (GST).
“There is a sense that the recent appreciation in the rupee is hurting India’s export, especially in the price-sensitive segments. Besides, economic activity in farm products, textiles, and gems and jewellery has been impacted by the note ban and the roll-out of GST, hurting exports further,” says Dhananjay Sinha, head of research, Emkay Global Financial Services.
At the same time, exports of information technology services and generic drugs have been hurt by growing protectionism in the US, their biggest market.
Analysts don’t expect the trend to change in the near-term, given the government focus on using fiscal stimulus and consumption demand to boost growth rather than exports. “No one is losing sleep over the slowdown in exports. We expect an uptick in GDP growth during the second quarter of FY18, boosted by higher government and consumer spending,” adds Sinha.