5 factors helping Indian exports

Weaker rupee, improved demand & increased competitiveness vis-à-vis China, Bangladesh push exports growth

There’s good news for the Indian economy. October saw the 4th straight month where India’s exports grew in double digits, supporting consensus belief that the current account deficit could be curtailed at under $70 billion as the positive underlining trends were visible despite a jump in the trade deficit. The near 14% rise in exports this month was of particular importance also in establishing a trend of a firm revival in overseas shipments, as the double digit rise in exports in the past 3 months was attributed primarily to a low base.

So here’s what’s helping Indian exports grow –

1.      Improved demand conditions in key markets

“Conditions in the US and Europe are improving and the UK has done extremely well. Consumer confidence is returning to those markets, jobs data is positive all of which is helping trade grow” Rafeeque Ahmed, President of FIEO (Federation of Indian Export Organization) told Business Standard. Growth in the US and European markets is key as they contribute to 30% of India’s overall shipments overseas, but across geographies growth has been strong barring South and Latin America.

2.      Weaker rupee to the aid

The rupee hit a 7 week low yesterday, and even as it has appreciated over 8% since the August all-time low of 68.85/$, the trend is expected to remain weak as taper concerns re-emerge and oil demand slips back into the market. This depreciation, while not good for the country’s import bill, has improved competitiveness of Indian exporters. In a recent research report, India Ratings said garment exporters in particular are running on full capacity and also outsourcing manufacturing on a job work basis as order books are growing ahead of the peak festive season (December).

3.      Bangladesh, China orders redirected to India

Export competitiveness has been further aided by an appreciating Yuan and rising labour costs in China as well as diversion of orders from Bangladesh on account of wage protests in September 2013, and a factory accident in April 2013 according to India Ratings.

4.      Government measures help

“The government’s measures on focused markets and focused product schemes have helped quite a bit” according to Ahmed. The government had earlier this year also announced several export boosting measures like extension of its interest subvention scheme to boost textile and engineering exports, and reports suggest more measures are in the anvil with new items likely to be added to the focused market scheme (FMS) and focus product scheme (FPS) to expand these lists. Drawback rates may also be revised upwards for a few sectors, and action may be taken on Gujral panel report’s recommendations which had recommended an additional interest subvention of two per cent for those exporters who repay on a timely basis, enhancement of budget and scope under export promotion schemes, and increase in capital investment limits in the definition of MSMEs, among others to boost exports according to a Business Standard report.

5.      FTAs have shown results

Notwithstanding the criticism of the finance ministry of the commerce ministry’s thrust on free trade agreements (FTA) with partner countries, the commerce minister claims free trade agreements have actually been helping Indian exports. Anand Sharma has said most of the regional/bilateral FTAs signed by India are either related to SAARC countries or to South East Asia and North East Asia. As far as SAFTA was concerned, India has huge trade surplus of about $12 billion and with ASEAN, exports have more than doubled after signing of the Indo-ASEAN Trade in Goods Agreement in 2009.

So what’s the road ahead?

Commerce Secretary S R Rao has said the government is confident of reaching its export target of $325 billion this year. Meanwhile industry lobby groups like FIEO reiterate that exports growth in the 2nd half of the year will be strong and expect the double digit growth to continue. FIEO has demanded that exports be brought back under priority sector lending and a separate cap be put on exports, within 40% norms. It also continues to demand that the interest subvention scheme to be extended to all export sectors to hold on to the momentum.