The commerce ministry thinks the slowdown has three causes: a slowdown in world trade, poor infrastructure, and lack of credit. The first reason is probably specious since a slowdown in world trade cannot matter much to a country which has no more than a 0.6 per cent share of world exports. Not very long ago, India's exports were growing at rates that exceeded the growth in world trade. It is probably not correct, therefore, to blame external factors for the slowdown. That leaves infrastructure and credit as the supposed villains of the piece. Here the ministry is on stronger ground because both are problematic. But while the credit problem can be solved fairly quickly "" indeed credit availability is no longer a problem, only the cost "" the infrastructure problem is more intractable. The government therefore needs to worry about whether in the next few years infrastructure bottlenecks are going to become a binding constraint on export growth. All the evidence points to this, and it is hard not to be pessimistic about export performance over the next five years. In that sense, the Reserve Bank of India is closer to the mark when it says that average export growth of between 15 and 16 per cent is all that India can expect in the medium term "" a great deal less than the 20 per cent which the commerce ministry has been projecting.
Import growth has also slowed down. During April-August this year, imports have grown by only 4.69 per cent. During the same months in 1995-96, they had grown by 37 per cent. This suggests a slowing down in the economy as a whole, and the export slowdown is probably a part of that overall cooling off. After the savage liquidity squeeze from September to March, such a slowdown was only to be expected, though the fact that oil imports are higher by 40 per cent this year compared to the same period last year, could become a cause for major concern.
Overall, what does all this mean for the balance of payments? Not much, because the critical variable, the current account deficit, will not go beyond the expected 2 per cent of GDP when the economy as a whole is slowing down. Also, there is enough by way of reserves to forestall a crisis well in time. For the policy-maker, the export slowdown presents a major dilemma: on the one hand there is growing demand to take measures to prop up domestic demand. But if this is done and imports pick up, exports will also have to accelerate.