Global exports prospects revised sharply; why India must not miss this boat

27/09/2017 12:00 - 548 Views

The sharp revision in global export prospects for 2017—the WTO has raised its growth projections for trade volumes from 2.4% earlier to 3.6%, and trade grew at a mere 1.3% in 2016—represent an opportunity that India cannot afford to miss.

The sharp revision in global export prospects for 2017—the WTO has raised its growth projections for trade volumes from 2.4% earlier to 3.6%, and trade grew at a mere 1.3% in 2016—represent an opportunity that India cannot afford to miss. Indeed, the changed projections, reflecting a stronger growth in both the US and China, are even stronger for Asia where the IMF is now projecting a 6.4% growth in 2017 exports as compared to a mere 1.8% in 2016. Given the role of exports in raising GDP growth, particularly manufacturing, the prospects look alluring. More so when you consider that exports from India have actually contracted in three of the last seven years; in two of them, they grew by around 5% and it was only in two that growth was appreciable—dollar exports grew by over 40% in FY11 and by nearly 22% the year after.

Whether India will be able to capitalise on the boom will depend on several things, though the fact of the growth step-up will obviously help. If you look at textiles and apparel, India’s exports grew from $30 billion in 2011 to just $34 billion in 2016, while those of Vietnam grew from $20 billion to $32 billion and Bangladesh’s apparel exports rose from $19 billion to $28 billion. Certainly, the fact that the rupee is quite overvalued has played a factor in India’s exports slowing and factors like delays in GST credit are adding to the problem, but at a broad level, the problem is that India just isn’t competitive enough in labour-intensive exports like textiles and footwear since the bulk of its producers are small-scale units that don’t enjoy the kind of economies of scale that units in countries like Bangladesh and Vietnam have. That means, over the medium term, India’s exports strategy has to be based on a competitive exchange rate—that probably involves the central bank actively buying more dollars—as well as removing domestic hurdles in the form of, say, stifling labour laws or expensive/inefficient infrastructure. While all of that is in the medium- to long-term, were the government to completely free up agriculture exports, despite the current slump in prices, exports could pick up quite rapidly. Indeed, analysis by Shweta Saini and Ashok Gulati at ICRIER show that most agriculture commodities were export-competitive over the last decade—it is periodic export bans that prevented their sustained growth. Though global farm prices are much lower today, in the case of wheat, once the export ban was lifted in September 2011, exports rose to over $5 billion in 2012-13—between FY10 and FY13, total agriculture exports rose from $13 billion to $33 billion. So while India has to address domestic constraints for most exports, in the case of agriculture, the exports response could be much faster.

Source: Financial Express

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