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India's export growth

Kashmir Times. Dated: 11/8/2019 11:55:35 AM

NDA-government needs to tackle trade deficit by boosting exports to European Union and other Western countries

Sharp decline in merchandise export growth in October to less than 3 percent compared to the corresponding period last year, as per the latest estimate should be a matter of concern for all the stakeholders. This is particularly a matter of serious concern for the NDA-government at the centre in view of the economic slowdown on exports front during the past few years including the one since last year. It has to be taken seriously in view of the fact that this decline is likely to have an adverse impact on foreign trade deficit, which has been on the incline due to wrong policies of the government. There has to be a realistic assessment of the exports that includes petroleum products, which are shipped abroad after refining in India. If this element of 31 percent hike in shipments of petroleum products to overseas markets is taken away, Indian exports of goods have actually contracted by over 3 percent in US Dollar terms last month. In comparison, the overall merchandise exports had increased by 11 percent year on year basis in March this year with the growth of shipments excluding petroleum products exceeding that pace by about 50 basis points compared to previous year. The decline in exports was fairly widespread, with 16 of the 30 major product groups listed by the Commerce Ministry reflecting contractions, compared with the 10 categories that had shrunk in March this year. It is worrisome that shipments of engineering goods declined by over 7 percent after having expanded by 16.3 percent in March, while the traditionally strong export sectors - gem and jewellery, leather and leather products, textiles and garments and drugs and pharmaceuticals - all sent down. These are all key providers of jobs and any protracted pain across these industries will impact jobs, wages and consumption demand in the domestic market. While the contraction in gem and jewellery exports widened to 13.4 percent in April, from 0.4 percent in March, the slump in the leather segment broadened to 15.3 percent from 6.4 percent. And the pace of growth of garment exports decelerated to 4.4 percent from 15.1 percent in March this year.
Compared to the decline in exports of merchandise from India, the imports grew by 4.5 percent to US $41.4 billion in April, accelerating from March's 1.4 percent pace as purchases of crude oil and gold continued to increase. In fact, the restrictions and cap on import of gold during the past three years had some impact due to decreased demand of gold in the domestic markets. While the 9.3 percent jump in the oil import bill, from March's 5.6 percent, can partly be explained by the rise in international crude prices (Brent crude futures, for instance, advanced 6.4 percent in April), India's insatiable appetite for gold, as reflected in the 54 percent surge in imports last month, must give policymakers cause for reflection. Excluding oil and gold as two major items, however, imports shrank by more than 2 percent last month, signalling that import demand in the real productive sectors is largely on the lower side. As a result of merchandise imports outpacing exports, the trade deficit widened to a five-month high of US $15.3 billion. The widening trade shortfall will add pressure on India's burgeoning current account deficit, which at a provisional US $51.9 billion in the first nine months of fiscal 2018-19 had already surpassed the preceding financial year's 12-month shortfall of US $48.7 billion. With stronger headwinds ahead in the form of an escalating trade war between the US and China, and its knock-on impact on global growth, the outlook for export demand is far from reassuring. The argument that Indian markets have remained insulated from the international economic slowdown cannot be accepted. The rising military tensions in West Asia and its potential to further push up in oil prices, and the scope to contain the trade and current account deficits seems significantly challenging. Clearly, this would be one more pressing concern for the new government to address after the elections are over. In fact, it will be horrendous task for the new government to contain prices in the domestic markets when the import bill is going up particularly the petroleum products, which will have a cumulative impact on other services.