Worrying trend

India’s export woes have little to do with global demand

Worrying signals are flashing for Indian exports, as growth slowed to 9 per cent in January 2018 from 12.3 per cent in December 2017, even as imports grew 26.1 per cent, widening the trade deficit to a four-and-a-half-year high of $16.3 billion. Overall, India’s exports grew just 11 per cent in April-January 2017-18 over the same period of 2016-17, almost exactly half the rate at which imports grew in the comparable period.

Expectedly, the trade deficit has expanded briskly; to $131 billion in the first 10 months of 2017-18 against $88 billion in the same period last year, raising fresh fears of a widening current account deficit just as oil prices have start hardening. On the basis of the first 10 months’ performance, India is likely to end the financial year with a modest 8 per cent export growth over 2016-17. While this is an improvement over 5 per cent growth in 2016-17, yet it keeps India in the $300-odd billion range achieved three years ago. This is lacklustre performance at a time when global trade has expanded 3.6 per cent in 2017, which is more than double of 2016’s 1.3 per cent.

Indeed, India’s sluggish export performance contrasts sharply with that of Southeast Asia, which is enjoying an export-led economic boom. Vietnam set to register record growth as a result. The irony of this fact is that bounding export growth in Vietnam — a $223 billion economy to India’s $2.5 trillion — has been the result of steady policy reform. Indian exporters, on the other hand, are suffering the effects of the disorganised implementation of a seminal tax reform. Coming soon after demonetisation, the challenging deadline that the government had set to introduce the goods and services tax (GST) on July 1, 2017, has taken its toll. Exports shrank in October 2017, the month after exporters made their first payments on a new system riddled with technology glitches and procedural anomalies.

With refunds delayed and working capital squeezed, exporters, especially in such employment-intensive sectors as leather and textiles, found themselves struggling to service overseas customers just as competitors upped their game. The government reacted promptly, with that month’s GST Council meeting deciding to process all refunds by the middle of the month and announcing the creation of an e-wallet for each exporter in which a nominal sum will be deposited for tax credit purposes, to be adjusted against the actual credit refund whenever it happens. Exporters were also allowed to file GST refund claims manually as part of this fast-track procedure.

The response to these reliefs was dramatic with exports soaring 30.5 per cent in November, suggesting that businesses were coming to terms with the GST. But concerns over refunds popped up again by January. The plastics and chemicals export councils, for instance, claim that their dues stand at nearly ~180 billion — this at a time when they are looking to expand India’s global market share from its meagre 1.8 per cent. Such critical issues, when added to the chronic problems of clunky trade facilitation processes, inefficient export infrastructure and an overvalued rupee urgently need to be addressed if India is to take advantage of the reviving global economy. Given the growing chill of protectionism, the opportunity may not last long.