Economic Survey pessimistic on export growth prospects

The Economic Survey, tabled in Parliament last Monday, is not too sanguine about exports growth driving the economy forward and so recommends measures to boost domestic consumption which in turn can bring in more private investment. To quite an extent, the Budget speech and the proposals in the Finance Bill reflect the same view.

Global trade is getting fragmented with major trading powers increasing their share of imports and exports within their block. Established supply chains are getting distorted with more countries trying to source from friendly or nearby countries. The sea routes have become longer with Suez and Panama canals carrying very little cargo. More countries are resorting to resource nationalism and trying to raise tariff and non-tariff barriers on imports. Any development model has to take into consideration substantial funds to be diverted for fighting climate change. All these developments mean that globalisation, which helped China rise in the last three decades, has run its course.  It may not be reversed fully; it has peaked, says V Anantha Nageswaran, the chief economic advisor (CEA) to the government and the author of the Economic Survey.  So, for realising India’s aspirations, despite the changed circumstances, a good place to start is to acknowledge and recognise that the terrain has changed to be able to traverse through it and reach the destination, says the Economic Survey.

On the role of technology and especially, the advent of artificial intelligence, the Survey says that its productivity enhancing potential is beyond doubt, but the social impact of labour market disruptions and labour displacement is barely understood. It quotes a report by Capital Economics which argues that artificial intelligence could lead to a slowing down of India’s services export growth, cutting it by 0.3-0.4 percentage points a year over the next decade. The Survey gives a surprising finding that India is moving up the global value chains (GVCs), with the share of GVC-related trade in gross trade rising to 40.3 per cent in 2022 from 35.1 per cent in 2019. Another surprising statement is that China is now more aggressive in export of labour-intensive low-cost products. The CEA boldly says that to boost Indian manufacturing and plug India into the global supply chain, it is inevitable that India plugs itself into China’s supply chain. Whether we do so by relying solely on imports or partially through Chinese investments is a choice that India has to make.

In the future, the changing composition of India’s export basket, enhancement in trade-related infrastructure, enhanced quality consciousness and product safety considerations in the private sector, and stable policy environment are expected to play a significant role in driving India’s rise as a global supplier of goods and services. Ultimately, India needs to focus on improving its competitiveness in many product areas. Fostering stronger regional trade ties and adding more markets for Indian goods will help mitigate global demand fluctuations. 

In an era when global economic growth is likely to be buffeted by geopolitical tensions and protectionism, growing India’s exports of goods and services will be a stiffer challenge than before, says the Survey.

Overall, the Survey is quite realistic and forthright in its assessment and outlook. Its prescription to look inward to boost growth has won the attention of the government, as the Budget proposals show.

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