Despite Prime Minister Narendra Modi’s global outreach and popularity abroad, Indian exports have not grown much. The question is, ‘Can the Indian economy survive without exports?’
Since Narendra Modi became the Prime Minister in May 2014, he has visited 84 countries so far. No doubt India continues to be the fastest-growing major economy. In its Asian Development Outlook, the Asian Development Bank on July 19 has predicted that India will grow at 7.3 pc in 2018–19 and 7.6 pc in 2019–2020 ahead of China. Similarly, other multilateral financial institutions place India ahead of others. But one wonders, ‘What is happening to Indian exports?’
Crucial to fuelling the Indian economy, exports of goods and services contributed to about 12 pc of India’s GDP in 2017–18. Is it good enough? Other dynamic economies in the region have robust exports. For instance, in South Korea exports contribute over 42 pc of its GDP.
Global trade growth crossed the average annual rate of three percent and grew at the speed of 4.76 pc in 2017. The World Trade Organisation (WTO) anticipates global trade growth to remain strong over the next two years.
However, India’s export has failed to match the global trends. Exports of merchandise-from industrial to agricultural goods-to African countries, Latin America and Japan dropped during the last four years.
For instance, India’s exports to Africa between 2014 and 2018 dipped by 4.22 pc and imports increased one percent. Exports to China grew between 2014 and 2018, but at less than one percent, while imports grew at 11 pc. According to the latest trade figures, Britain’s goods and services exports to India have gone up by 31.8 pc till March 2018.
According to the International Monetary Fund (IMF) outlook report 2018, India’s exports to gross domestic product (GDP) ratio was at 11.44 pc in 2017, the lowest since 2005.
Also, the Indian rupee has been consistently falling against the dollar. It has touched an all-time low of INR 69. Depreciation of any currency is expected to boost its exports. However, India is not a trade- surplus country, such as China, Germany and South Korea. India is dependent on imports. About 80 pc of its oil requirement is met by imports.
India’s crude oil import bill rose by 25 pc in 2017-18 to USD 88 billion from USD 70 billion in the previous financial year due to rise in global crude oil price. The average price of India’s crude basket was up by 19 pc at USD 56.43 per barrel in 2017-18, from USD 47.56 in 2016–17.
Consequently, slowing exports and increase in imports (an average annual increase of 1.6 pc from 2014–15 to 2017–18) has pushed the trade deficit from USD 137 billion in 2014–15 to USD 162 billion in 2017–18, the highest since 2012–13.
While the note ban in 2016 and the new goods and services tax (GST) reforms implemented last year had dampening effects on the Indian economy, including exports, the sector has failed to adjust to emerging trends. For instance, China strategically started moving out from the export of cheap goods, such as garments, shoes and toys by concentrating more on products of medium or high technology. Countries, such as Bangladesh, Vietnam and Philippines are increasing its exports in garments, toys and shoes.
Exports of passenger vehicles declined 7.37 pc in the first quarter of 2018–19. The maximum decline came from the labour-intensive sectors, such as textile (17 pc) and jewellery (8.67 pc).
Despite Modi’s image as a strong leader, with a penchant for global jaunts, India has failed to get an export boost. It is time to rejig and reform India’s trade diplomacy in traditional markets and find a new export basket.