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India's falling exports: Immediate need to reverse the trend

Sentinel Digital DeskBy : Sentinel Digital Desk

  |  18 Aug 2015 12:00 AM GMT

Dr B K Mukhopadhyay

The very question that hovers around now is: will Yuan devaluation put further stress India’s 8-month low exports?

India’s merchandise exports contracted for the eighth straight month in July, 2015, marking a 10.3 percent drop year-on-year because of continuing weak global demand and falling oil prices, among others. Imports fell 10.3 percent from a year earlier to $35.95 billion in July, 2015 while exports stood at $23.1 billion. The trade deficit widened to $12.8 billion last month from $10.8 billion in June, 2015.

Straightaway, India’s exports contracted for the eighth consecutive month in July, 2015. Actually, the last time exports expanded was in November, 2015, when shipments were up 7.27 percent. Incidentally, it may be mentioned here that oil products form about 31 percent of the total exports, while petroleum products account for 18 percent of the total exports. In the first four months of FY16, exports declined by 15.04percent to $89.82 billion, so did imports (down by 12.01percent), resulting in a trade deficit of $45 billion.

Actually speaking, at a time when India’s exports continued to remain a concern, Chi also devalued its currency by nearly 6 percent in three tranches, understandably to make its own products more competitive in the global market.

Clearly, effects of the Yuan devaluation were felt world wide, with the dollar firming, gold gaining some ground as safe-haven again, and Asian currencies tanking against the greenback.

Though the Chief Economic Advisor Arvind Subramanian tried to ease worries about the rupee by saying, ‘What is happening in Chi has introduced some amount of volatility. Because our macroeconomic situation is better, this should be seen as a temporary adjustment because our fundamentals are strong’, yet the degree of impact cannot be quantified at this juncture and there is no guarantee that Yuan will not be devalued again!! Rightly, Indian manufacturers and exporters are expressing concerns mainly about two things: (a) their exports to Chi and the rest of the world declining (b) dumping of cheaper imports from Chi.

Obviously enough, India has to take steps to protect the manufacturing sector and stop dumping of goods into India.

Specifically speaking, engineering and textile exports from India are expected to face a major hit with Chinese goods becoming more competitive, while steel firms fear that cheap imports from Chi could intensify further. The troubles may even increase in the coming months since the global demand remains quite subdued, with the exception of the US markets.

Major steel companies have already seen a dip in revenues due to cheaper imports from Chi and Korea. No doubt, the Yuan devaluation has only further deepened these concerns. Any further surge in imports will be hurting and causing injury to the domestic industry in as much as steel is being sold at a price significantly lower than the domestic home-country prices of exporters.

FIEO has already sought immediate reintroduction of the interest subvention scheme for exporters, timely reimbursement of input taxes and restoration of the higher rates of export incentives for both merchandise and services to help exporters overcome the current crisis. The exporters’ lobby also asked for re-classification of tax incentive scheme for merchandise trade and inclusion of 70 more sectors in the scheme for services.

India’s sliding export performance may be difficult to arrest if we specifically look at the ongoing global situation. Slowing global trade growth has been the reality now, which, in turn, may further affect Indian exports. WTO now has cut trade growth forecast for 2015 to 3.3 percent and feels strong exchange rate fluctuations, including a 14 percent appreciation of US dollar which complicated the situation. “Trade growth has been disappointing in recent years due largely to prolonged sluggish growth in GDP following the fincial crisis….We expect trade to continue its slow recovery but, with economic growth still fragile and continued geopolitical tensions, this trend could easily be undermined”, accordingly. The Geneva head quartered WTO estimates growth to recover to 4 percent in 2016.

Last year [2014] was the third consecutive year in which global trade grew at less than 3 percent. Growth averaged 2.4 percent over each of the last three years - the slowest rate on record for a three year period when trade was expanding. In fact in 2014 intertiol trade grew by 2.8 percent, much less than the origil forecast of 4.7 percent and also lower than the revised forecast of 3.1 percent as estimated by WTO in September, 2014. The slowing GDP in emerging market and uneven recovery in developed countries have been the realities.

India’s ranking in merchandise exports remained unchanged at 19 in 2014, with a share of 1.7 percent in global exports at $317 billion. India’s merchandise exports had contracted 15 percent in February, 2015, due to global slowdown as well as the appreciation of the rupee against a basket of currencies.

Merchandise exports account for about one-fifth of the country’s $2-trillion economy.

Also, in services exports, India fell two places to eighth position in 2014 down from sixth in the previous year India was overtaken by Japan and the Netherlands even as the value of the country’s commercial services exports went up to $154 billion from $151 billion.

Though with WTO slashing its global trade growth forecast it may be difficult for India to boost exports significantly immediately, yet India’s very recently announced Foreign Trade Policy [FTP 2014-19] to give a concentrated push to both merchandise and services exports to help double total exports to $900 billion by 2019-20, raises hopes. The Government 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 percent and 5 percent. 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 push if the positive impact on net imports of these products outweighs negative impact on net exports.

When exports could move north steadily definitely a god performance would be registered – rise in intertiol 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 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 be lost 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 transtiol strategy [that seeks to achieve both global efficiency and local responsiveness].

Keegan nicely stated that ‘the intertiol market goes beyond the export marketer and becomes more involved in the marketing environment in the countries in which it is doing business.’ True - intertiol 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 tion for a profit and intertiol marketing is simply the application of marketing principles to more than one country.

Let us watch carefully how the situation would go on and corrective measures become result oriented.

(The Writer, a noted Magement Economist, and an Intertiol Commentator on Business and Economic Affairs, attached to the West Bengal State University, can be reached at m.bibhas@gmail.com)

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