Trade threats

Export numbers show 'Make in India' has little time to take off

Concerns have repeatedly been expressed about the negative trend in Indian exports. They have been declining on a year-on-year basis for the last seven months. In the first quarter of 2015-16, merchandise exports declined by 16.8 per cent over the corresponding period of last year. This newspaper reported on Saturday that several key labour-intensive sectors, like leather and textiles, were witnessing significant reductions in their export volumes, which was driving producers to shut down factories. There are a number of risks emerging from this situation, both at the macro and micro levels. At the aggregate level, India has been enjoying the benefits of a considerably narrowed current account deficit on account of lower global commodity prices. If exports continue to decline, the vulnerability on this front may increase. As far as sectors and businesses are concerned, clearly, a persistent decline in volumes is going to hit employment, with a disproportionate impact on jobs because of the relatively high labour-intensity of manufactured exports.

At the aggregate level, while exports declined by 16.8 per cent, imports also declined by 12.6 per cent during the first quarter. There was a significant decline in oil prices over this period; oil and petroleum product imports were almost 40 per cent lower during April-June 2015 over the same period last year. While oil exports are not separately reported in the monthly press releases, they have been a large contributor to export revenues due to high crude oil prices and would have declined commensurately with these. Overall, the trade deficit for the first quarter came in at $32.2 billion, only about $0.8 billion lower than the first quarter of last year. This does not suggest an imminent threat to India's balance of payments. Obviously, though, if exports continue to decline, even a moderate increase in the prices of crude oil and other commodities could exert pressure on the current account.

It is the sectoral picture that highlights the factors behind the decline and possible policy responses. Adversely impacted firms are pointing to stiff competition from countries like Bangladesh and Vietnam in leather and textile products. China's slowdown is impacting the exports of textile intermediates. The underlying theme is one of a relatively weak competitive position in a situation in which surplus global capacity has caused producers in competing companies to create aggressive strategies to capture and retain market share. Currency appreciation in real terms is one contributory factor. Other problems include high unit labour costs, and huge disadvantages on the logistics front, both in terms of time and expense. Add to this the deterioration in the ease of doing business and the disadvantage increases. What the export numbers underline is that the time frame in which the pieces need to be put together is shrinking. Declining export earnings are inconsistent with the growth acceleration to which the government aspires.