India’s Exports Front Glimmer of Hope?

Dr B K Mukhopadhyay

(Professor of Management and author of the book ‘India’s Economy: Under a Tinsel still Tough’ and can be reached at m.bibhas@gmail.com)

Good news indeed: India’s merchandise exports registered a mild recovery in February, 2020, after contracting for six consecutive months amid fears that the Covid-19 pandemic could pause the recovery process. Exports rose 2.9 per cent in February, while imports grew at a slower pace of 2.5 per cent - leading to a narrowing of trade deficit at $9.8 billion in the month. So, despite global challenges, Indian exports once again enter into growth trajectory, inasmuch as in the wake of Novel coronavirus, which not only pulled down the global sentiments but also affected the supply chain both internationally and domestically, such modest growth is encouraging. While exports of pharmaceuticals grew 8.33 per cent, chemicals rose 16.3 per cent, engineering goods increased 8.7 per cent. Electronic goods expanded 37 per cent and petroleum products picked up 10.1 per cent in the month. But shipments of gems and jewellery and readymade garments continued to contract and shrank 20.1 per cent and 4.5 per cent, respectively. Side by side: among major imports, petroleum products were up 14.3 per cent, while plastic materials rose 0.45 per cent, and precious stones grew 13.2 per cent.

This is more so in view of the fact that major global players, including China, US, economies of Europe, Japan, South Korea, Australia, Russia and the Gulf countries are also facing the brunt as oil and commodity prices have shown a drastic decline in recent days.

Though the country had clocked $331 billion of exports in 2018-19, yet going with the current trend, FIEO [Federation of Indian Exports Organization] expects 2019-20 goods exports to remain in the range of $320-325 billion.

Can Indian economy performance on this score be belittled?

India is the 17th largest export economy in the world and the 45th most complex economy according to the Economic Complexity Index (ECI). So far as exports performance is concerned India has been able to better the performance in big markets - the top export destinations are still the United States, origins are China, the United States, the United Arab Emirates, Switzerland and Saudi Arabia. The plus point here is that India’s export basket has not been small – right from sports goods up to spices.

India has also been one of the largest 10 EU trading partners!

Yes, at this very juncture the situation cannot be termed as very good, but not bad also. The task is to better the performance of the economy where the exports occupy a very central place.

Newer items should be added over and above the traditional since performance in the global markets has been turning to be more intense - competition has been up not only from the traditional but from the new comers.

Bettering the performance: Difficult indeed

Though with WTO slashing its global trade growth forecast it may be difficult for India to boost exports significantly immediately, yet India has to give a concentrated push to both merchandise and services exports. It has been good to note that Government already announced tax incentives under Merchandize Exports from India Scheme (MEIS) and Services Exports from India Scheme (SEIS), which is in the form of fully transferable duty credit scrip’s with reward rate ranging between 2 per cent and 5 per cent. Exporters use these scrips to offset service tax, excise duty or customs duty. Besides, lower prices for oil and other primary commodities could provide some upside if the positive impact on net imports of these products outweighs negative impact on net exports.

When exports could move north steadily definitely a good performance would be registered – rise in international competitive strength gets established. In such an assessment vital indicators that are normally used include: the quality of six different components including efficiency of the clearance process, quality of trade and transport related infrastructure, ease of arranging competitively priced shipments, competence and quality of logistics services, ability to track and trace consignments and timeliness of delivery.

So, ultimately the performance of our blue-chip companies would be watched inasmuch as to what extent they could explore the salient features of the policy announced. On this score the benefits of following an appropriate strategy should not lose sight of - increased market size; greater returns on major capital investments or new products or processes; greater economies of scale, scope or learning and a competitive advantage through location. Mention on this score may be made of three strategies - multi-domestic strategy [when strategic and operating decisions are decentralized to the strategic business unit in each country to tailor products to the local market]; global strategy [that assumes more standardization of products across country markets] and transnational strategy [that seeks to achieve both global efficiency and local responsiveness]. No less important is bolstering trade with the neighboring economies. India borders Afghanistan, Bangladesh, Bhutan, China, Burma, Nepal and Pakistan by land and Indonesia, Sri Lanka, Maldives and Thailand by sea.

It is pure business after all

Keegan nicely stated that ‘the international market goes beyond the export marketer and becomes more involved in the marketing environment in the countries in which it is doing business.’ True - international marketing is the performance of business activities that direct the flow of a company’s goods and services to consumers or users in more than one nation for a profit and international marketing is simply the application of marketing principles to more than one country.

Clearly, international business includes all business transactions involving two or more countries, where these business relationships may be between private individuals, companies, groups of companies, non-profit organizations or government agencies. Though in some ways, international business is an extension of domestic business, but it is different mainly for two reasons (i) international business objectives are likely to be different from domestic business objectives; (ii) the environmental conditions in which international business is conducted are usually of greater complexity than is the case with domestic business. These complexities arise from differences in culture, currencies, legal systems and the endowment of national resources, among others. That is why all of the relevant factors are to be properly scanned, especially by the minnows, before embarking upon a big venture – spreading wings abroad!!

So, it is better to subscribe to the ongoing view ‘at the end of the day uncertainty and trade tensions are weighing on people, on consumers, on Europeans and global citizens… building institutions and rules, that would guarantee stability, transparency and reduce uncertainty.

It is very clear that exporting offers the prospect of new markets, more sales, better profits and a greater spread of customers and as such clear strategy makes it much more likely that the economy will succeed. The export strategy should be based on an assessment of own position and research into promising opportunities plus the very need to think about how to reach new customers and finance exports, not to give a back seat to legal and tax issues. Finally, the particular risks that need to address.