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India's sliding exports front causes concern

Sentinel Digital DeskBy : Sentinel Digital Desk

  |  28 April 2015 12:00 AM GMT

Dr B K Mukhopadhyay

India’s exports declined 21 percent in March, 2015, pulling down the total exports in 2014-15 by 123 percent. The Federation of Indian Export Organizations has warned of a sharp fall in shipments from lndia in April 2015 and in the coming months, there has been a drop of about 50 percent in orders we are receiving now, saying the sector needs immediate government intervention to reverse the negative trend. A sharp appreciation in rupee against key currencies [viz. Euro and Yen] has not only put pressure on export margins but also market share, as counties with stable currencies such as Chi are able to competitively price their products compared with India, accordingly.

FIEO has also 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 margil drop in key rates by RBI has not lowered the borrowing rates. The present demand is that the government has to re-introduce interest subvention of 3percent immediately with effect from April 1. The exporters’ lobby has also asked for re-classification of tax incentive scheme for merchandise trade and inclusion of 70 more sectors in the scheme for services.

Let us have a quick look at the recent situation:

Merchandise Exports 2013 2014

Global Rank 19 19

Value $313bn $317bn

Growth 6% 1%

Share 1.7 1.7

Services Exports

Global Rank 6 8

Value $151bn $154bn

Growth 2% 4%

Share 3.2 3.2

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 realty now, which, in turn, may further affect Indian exports. WTO now has cut trade growth forecast for 2015 to 3.3 percent and feels the strong exchange rate fluctuations, including a 14 percent appreciation of US dollar complicated the situation. “Trade growth has been disappointing in recent years due largely to a 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 quarter of the WTO estimates growth to recover to 4 percent in 2016.

Last year [2014] was the third consecutive year in which global trade grew less than 3percent. 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 estimated by WTO last September. The slowing GDP in emerging market and uneven recovery in developed countries have been the realities. In services exports, India fell two places to the 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.

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.

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 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 scrips with reward rate ranging between2 percent and 5 percent. Exporters can use these scrip’s 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 in as much 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.’ It is true that 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.

On a broader vision: not for India alone, intertiol marketing has emerged as a targeted area of highest priority among the progressive tions globally. Intertiol business expanded at a jet speed in the current decade, due to rapid growth in technology, coming up of supportive institutions, openness of the different economies as well as increase in competition. Even minnows like Myanmar are now making a foray into the energy sector in particular. Not only this, even a latecomer like Bangladesh has emerged to be our tough competitor in the field of readymade garments (a sector from which even Russia also is now interested to learn) making full use of its competitive advantage (a country has a comparative advantage over another if in producing a commodity it can do so at a relatively lower opportunity cost in terms of the foregone altertive commodities that could be produced) in the are of cheap labour.

The WTO’s observation that- “We are not powerless in the face of this gloomy picture...By withdrawing protectionist measures, improving market access, avoiding policies which distort competition and striving to agree reforms to global trade rules, governments can boost trade and seize the opportunities that it offers for everyone” – is very significant to note on this score.

(The Writer, a noted Magement Economist and an Intertiol Commentator on contemporary business and economic affairs, attached to The West Bengal State University, can be reached at m.bibhas@gmail.com)

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