Headwinds to exports raise fears of stifled India growth story

The International Monetary Fund (IMF) forecasts the Indian economy to grow by 11.5 per cent in 2021 and 6.5 per cent in 2022. This would be difficult unless exports pick up. At present, there are many headwinds.

The problems of moving cargo to the destinations continue. Containers are not easily available in time as there aren’t enough vessels sailing to and from India. The ocean freight rates have gone up significantly. Some exporters had to dispatch goods by air to meet the delivery commitments. The airlines have raised the freight rates significantly. A quick end to these problems is not in sight.

With lots of foreign money flowing into the equity markets, the rupee has appreciated to around ~73 to a US dollar. The Merchandise Exports from India Scheme (MEIS) has been discontinued. Exporters are unable to file their

MEIS claims for exports made during 2019-20 and 2020-21. Remission of Duties and

Taxes on Export Products (RODTEP) Scheme has not yet been notified.

The costs of inputs required for manufacturing have gone up as the commodity prices have soared. There are global shortages of some items like semi-conductors due to supply chain disruptions that have pushed up prices. Due to delays in finding vessels sailing to India, some manufacturers had to airfreight their raw materials and components to keep their factories running.

The exporters say there are enough orders as many economies have revived. The IMF expects the global economy to grow by 5.5 per cent in 2021 and 4.2 per cent in 2022 and the global merchandise trade to grow by 8 per cent in 2021 before moderating to 6 per cent in 2022. However, worries persist about new variants of the novel coronavirus, vaccine efficacy, availability and distribution of vaccines and lockdowns in various countries in Western Europe. It is likely that many Asian countries that are part of the Regional Comprehensive Economic Partnership will integrate more with the global supply chains and to that extent our exporters will find it more difficult to penetrate many markets.

There is no dearth of working capital to tide over the immediate cash flow problems, as the banks are flush with enough money to lend. The financing costs are also low due to significant fall in interest rates. Most exporters have used information technology efficiently and brought down their administrative costs. Their travelrelated expenses have come down significantly. To that extent the exporters are able to cope with falling export realisations, withdrawal of MEIS and higher input and transportation costs.

Going forward, the major threats to economic and trade growth are inflation and protectionism. The IMF says that inflation is expected to remain subdued during 2021–22. In advanced economies, it is projected to remain generally below central bank targets at 1.5 per cent. Among emerging market and developing economies inflation is projected just over 4 per cent, which is lower than the historical average of the group. In India, the inflation has persistently remained close to 6 per cent since the past few months and may not come down soon, due to easy money policy.

For the past few years, India and many other countries have raised tariff and non-tariff barriers on one pretext or the other. This trend may not be reversed soon, which may not help exporters become more competitive.