The protracted slump in merchandise exports, which rounded out a 12th straight drop in November, is a cause for serious concern. The sharp, almost 25 per cent, contraction in the overseas shipment of goods from a year earlier to $20 billion signals there is more to this extended contraction than just the global economic weakness that has cast its shadow across trade worldwide. While the slide in commodity prices, including that of oil and petroleum products, has contributed to the decline in the value of exports in dollar terms, of greater worry is the continuing fall in demand for Indian engineering goods, and leather and leather goods. The leather sector has been hurt by a combination of economic weakness in Europe, increased competition and poor infrastructure. The theme of infrastructure hobbling the country’s trade competitiveness has been an enduring one with the problems of power availability and inadequate road and port connectivity still continuing to dog exporters, especially the micro, small and medium enterprises (MSME) that together accounted for more than 44 per cent of India’s exports in the last fiscal year. The MSME sector also provides employment on a sizeable scale, including in semi-urban and rural areas, and the export slowdown is sure to result in widespread labour distress that can only weigh on savings and consumption in the broader economy. The slowdown also reflects on the low level of value-addition being achieved by India’s exporters, as is evident in the widening trade deficit with China — itself coping with declines in both exports and imports. While the main exports to the northern neighbour are low value-added commodities such as cotton, copper alloys and iron ore, the imports include machinery, electrical equipment and electronics that have resulted in the trade gap surging 32-fold to $48.5 billion in the decade through March 2015.
The export slowdown is at the same time both a symptom and a potential trigger for domestic economic weakness. Any effort to improve business competitiveness through reforms, including in areas such as labour and credit markets, especially for the MSME segment, can surely give a fillip to the overall environment. The Make in India programme, if pursued cogently, can also serve as a springboard for enhancing skills and technologies that can over time help reverse and possibly boost both volumes and the value of overseas shipments. Also, the monetary and fiscal authorities need to be mindful of the fact that the rupee — while having weakened against the dollar, thus appearing to offer a price advantage to exporters — has actually appreciated in real terms against a trade-weighted basket of 36 currencies, making India’s exports less competitive. For this reason, the Reserve Bank of India needs to continue its close vigil over inflation. Finally, even the pharmaceuticals sector, where exports have grown, can ill afford to be complacent as the U.S. and Europe tighten regulatory oversight of generics and manufacturing processes in India.
1. What do you mean by exports? What is the value of exports from India in FY 2014-15?
2. What all items does India export?
3. What are India's major export destinations?
4. Why is there a decline in exports from India over last few months?
5. What are the challenges being faced by Indian exporters?
6. What is MSME sector? What is its share in India's GDP and exports?
7. What is understood by trade gap? Why is India facing a huge trade gap with China?
8. What are the major items exported to and imported from China?
9. Is valuation of rupee against dollar a factor influencing the exports? If yes then how?
10. Suggest a few measures to boost exports from India?