Great fall of In­dia’s ex­ports

The Pak Banker - - OPINION - Deepak Nay­yar

THE news about ex­ports was dis­mal through­out 2015. For 12 con­sec­u­tive months, from Jan­uary to De­cem­ber, In­dia's to­tal ex­ports, in terms of US dol­lars, were sig­nif­i­cantly lower than in the cor­re­spond­ing months of the pre­ced­ing year. This was, per­haps, a nadir. The prob­lem is not al­to­gether new. It has per­sisted for some time. Ex­port per­for­mance in the re­cent past has been poor in re­la­tion to the needs of the econ­omy and in com­par­i­son with some other de­vel­op­ing coun­tries. Ta­ble 1 presents the ba­sic con­tours of In­dia's for­eign trade from 2010-11 to 2014-15. It re­veals a stag­na­tion in the dol­lar value of ex­ports, around $300 bil­lion per an­num, in the past four years. It also shows that, on av­er­age, ex­ports were able to fi­nance just two-thirds of im­ports. Con­se­quently, the trade deficit reached alarm­ing lev­els, at 10% of gross do­mes­tic prod­uct (GDP), in 2011-12 and 2012-13. Even in the re­main­ing three years, its av­er­age level, at 7% of GDP, was among the high­est for coun­tries in the de­vel­op­ing world. The as­so­ci­ated cur­rent ac­count deficit would have been sim­ply un­man­age­able, were it not for soft­ware ex­ports at more than $70 bil­lion per an­num, and re­mit­tances in the range of $70 bil­lion per an­num, in the past three years.

In ad­di­tion, world prices of crude oil dropped from around $110 per bar­rel in end-June 2014 to less than $50 per bar­rel in end-Jan­uary 2015, to re­main in the range of $50 per bar­rel through the year. But, in mid-Jan­uary 2016, the price plunged below $30 per bar­rel, its low­est since 2004. This wind­fall gain has eased what could have been an ex­ceed­ingly dif­fi­cult sit­u­a­tion. It must be rec­og­nized that the global eco­nomic sit­u­a­tion has been dif­fi­cult for some time. The fi­nan­cial cri­sis that sur­faced in the US in late 2008 led to a sharp con­trac­tion in world trade that was much greater than the fall in global out­put. The Great Re­ces­sion, which fol­lowed in its af­ter­math, per­sists even now. Re­cov­ery in out­put is slow, un­even and frag­ile. The re­cov­ery in trade is just as slow. Dur­ing 2010-14, In­dia's ex­port per­for­mance con­formed to the av­er­age. Its share in world ex­ports stayed in the range of 1.5%, while its share in de­vel­op­ing coun­tries' ex­ports re­mained un­changed at 4%. Yet, over the same pe­riod, some Asian economies, such as China and Viet­nam, man­aged to in­crease their share in world ex­ports. In­dia prob­a­bly fared worse than the av­er­age in 2015. More im­por­tantly, its per­for­mance in ex­ports of man­u­fac­tured goods was clearly below par through­out, as its share in world man­u­fac­tured ex­ports (1.3%) was sig­nif­i­cantly less than its share in world man­u­fac­tur­ing value-added (2.3%).

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