Is In­dia miss­ing out on the global trade re­cov­ery?

Mint Asia ST - - News - B Y TA DIT KU NDU

Even

as the out­look on the In­dian econ­omy has dark­ened over the past few weeks, the rest of Asia ap­pears to be re­joic­ing at the prospects of a re­cov­ery in global trade.

The Asian De­vel­op­ment Bank in its re­cent up­date noted that most of the emerg­ing economies in the re­gion, ex­clud­ing China, are wit­ness­ing a re­bound in man­u­fac­tur­ing ex­ports, “par­tic­u­larly in elec­tron­ics, where for­eign di­rect in­vest­ment has been strength­en­ing”.

The economies of south-east Asia are also gain­ing from in­creased ac­tiv­ity along cross­bor­der man­u­fac­tur­ing sup­ply chains. (bit.ly/2wznuak)

Even In­dia wit­nessed a mild re­bound in ex­ports in Au­gust. But a closer look at the data sug­gests that the 10% year-over-year growth in In­dia’s ex­ports in Au­gust was largely on the back of in­creased earn­ings from com­mod­ity ex­ports—in­dus­trial met­als and pe­tro­leum prod­ucts—amid a global rise in prices of th­ese prod­ucts.

Thus, it would be pre­ma­ture to hail the Au­gust trade num­bers. Us­ing a three-month mov­ing av­er­age ad­just­ment to smooth out monthly fluc­tu­a­tions, we find that In­dia has been lag­ging be­hind most ma­jor Asian economies in mer­chan­dise ex­ports. See chart 1 While the rest of Asia has wit­nessed a sharp rise in ex­ports of man­u­fac­tured goods, In­dia’s ex­ports of such items has reg­is­tered tepid growth. From be­ing a leader in Asia in man­u­fac­tur­ing ex­ports two years back, In­dia to­day is a lag­gard com­pared to its peers, as the chart be­low il­lus­trates. See chart 2 The twin shocks of de­mon­e­ti­za­tion and GST may have con­trib­uted to the ex­ports slow­down by dis­rupt­ing sup­ply chains, hurt­ing the small and medium scale en­ter­prises (SMES), as the econ­o­mist Sa­jjid Z. Chi­noy of JP Mor­gan has ar­gued (bit.ly/2xjb­wwf).

The de­cline in do­mes­tic man­u­fac­tur­ing out­put has dealt a dou­ble blow to In­dia’s ex­ter­nal bal­ances—by crimp­ing ex­ports, and rais­ing im­ports.

The num­bers sug­gest that In­dia’s eco­nomic pain is largely self-in­flicted. And the climb back to a high-growth path may take some time.

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