Falling exports

Greater need to stimulate domestic growth drivers

The September numbers for merchandise trade add to the overall gloominess about India's exports performance. Ten months have gone by with continuous year-on-year declines in exports. Of course, imports have also declined, which has prevented the balance of trade and, through it, the current account deficit, from widening. In September 2015, exports were $21.8 billion, almost 25 per cent below their value in September 2014. This took the cumulative exports during the first half of 2015-16 to $133 billion, 17.6 per cent below exports in the corresponding period of last year. Imports in September were also down by about 25 per cent, while for the first half, they were down by about 14 per cent. Consequently, the trade deficit for September was $10.5 billion, about $ 4 billion less than in 2014, while for the first half, it was about $68 billion, an estimated $4.7 billion lower than in the same period last year.

It is important to recognise that India's performance is not unique; China is experiencing a similar persistent decline and global trade volumes are also showing a decline. To some extent, the global fall in trade can be explained by the sharp decline in commodity prices, which has particularly impacted large commodity exporters. But, it is also the case that other exports have fallen. In such a scenario, every country, particularly the ones that are most dependent on exports, is going to fight aggressively to retain, if not expand, its market share in a sluggish global environment. While India is not among those countries whose growth process can be completely undermined by an export slowdown, there is no question that, both at the macro and micro levels, the persistence of the decline could do serious damage. At the macro level, all drivers of demand are required to contribute to sustain and accelerate growth. At this point, domestic consumption and government expenditure are the only two contributing factors. Without investment and exports also chipping in, the room for accelerating growth is unquestionably limited. At the micro level, several sectors, with many of them relatively labour-intensive, are significantly dependent on exports for their volumes of business. A persistent slowdown will have an adverse impact on production and employment levels.

In the larger global and domestic context, this is a problem. It needs to be addressed on two fronts. One, efforts need to be made to revive exports growth by removing all roadblocks. This is a simple extension of the ease of doing business approach that the government is taking to revive investment, but it takes on special urgency in the case of exports because India risks falling behind other countries in the race and this will be very difficult ground to make up. The long-term dimension of this strategy is the imperative that India should not be excluded from large export markets in the ongoing restructuring of the world trade order. Two, India's great advantage in a situation of global stagnation is the potential that its domestic market offers. The weaker global prospects become, the greater is the pressure to stimulate domestic drivers of growth. Reviving private sector investment, in turn, requires a concerted push on infrastructure, structural reforms and the costs of and access to funds. While there are positive signs on some of these, several weak links continue to be a hindrance.