Great fall of India’s exports

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%).