India’s merchandise exports are increasingly becoming flat, with the monthly figures hovering in the range of $16-$18 billion, without much increase in terms of volume. While on the one hand, exporters blame the government’s faulty policy measures for making exports uncompetitive, analysts believe they are becoming ‘range bound’.
Exports have reached $16.88 billion, $16.14 billion, $17.74 billion, $16.24 billion and $16.64 billion in April, May, June, July and August, respectively. Thus, though exports are registering considerable growth annually, there is not much movement in the month-on-month figures.
On the other hand, imports are galloping since the beginning of the financial year, fuelling the trade deficit to rise to historic levels. Though the official numbers for August are yet to be released, according to initial estimates the trade deficit has reached $13.06 billion, highest in two years.
“Given the global demand conditions, exports have certainly become range-bound as the demand from the G-3 countries (US, EU and Japan) has sort of stagnated. The growth in imports is clearly due to domestic recovery. Till the time exporters do not seize the opportunity and galvanise the newer markets, exports would continue to remain flat. Looking at the current capital inflows, I don’t think balance of trade would be a concern,” said Shubhada Rao, chief economist of YES Bank.
After falling for 13 straight months owing to the global financial crisis, export of goods from India started growing from November 2009 on the back of growth in demand. Total exports in the first four months (April-July) of this financial year have reached $68.62 billion, which is 30.1 per cent more than $52.73 billion during the corresponding period last year.
According to exporters, while the government is focussing only on the job aspect of the sector by providing more and more incentives to the high-employment sectors, it is failing to make exports more competitive compared to emerging players like Bangladesh, Vietnam and Indonesia.
“Business is growing but not at the pace as they should have been. These days, all that a client is asking for is competitive pricing and they will buy the stuff from those who give it at a better price, as no one has that much of disposable money anymore. Orders are pouring in, there is no dearth of orders and there never was if one does the business diligently. But the problem arises when new players come in and take a major chunk of the business. Players like Bangladesh are grabbing the textile markets in countries like the US by leaps and bounds. There the government is focussed,” said Sudhir Dhingra, chairman and managing director of Orient Craft, one of the country’s largest garment exporters.
Besides urging for major policy decisions that would overhaul the country’s ailing infrastructure, which has become a major impediment for the exporters, Dhingra also asked for an increase in duty drawback rates and cheaper loans.
Recently, in a letter to Finance Minister Pranab Mukherjee, the Federation of Indian Export Organisations (FIEO) had urged him to increase the duty drawback rates by two per cent across the board for one year. It has also said that with the rupee getting harder on the back of huge capital inflows, exports are increasingly becoming uncompetitive.
“Orders are there but we are not able to execute them due to high input costs. It is impossible to venture into newer markets, as the government keeps harping, at this point of time. It takes a lot of time to develop new markets. They can only be incremental but not act as substitute. The government is only providing lip service to the problems faced by us,” said R C Kesar, director general, Okhla Garments Textile Cluster.
Bachchraj Bamalwa, a Kolkata-based owner of jewellery export firm Nemichand Bamalwa & Sons, also said the government was not focussing on the ‘pain areas’ but are providing sops to only a handful.
“Demand is flat. There is stagnancy in demand. Orders are coming in but to the extent it were in early 2008. The government should provide flexible loans and at cheaper rates, in line to what other countries are doing. That way we can see growth in terms of volume,” said Bamalwa, also the vice-chairman of the All India Gems and Jewellery Trade Federation.
According to Commerce Secretary Rahul Khullar, by the end of the current financial year, exports worth $200 billion would be achieved. However, imports could well end up around $350 billion, pushing the trade deficit to around $150 billion, about 10 per cent of the gross domestic product.
While releasing the initial estimates for August earlier this month, he said though the widening deficit of trade was a major concern, it could be financed easily. He had also warned of a further slowdown in exports owing to a deceleration of the recovery process in developed countries.
In August, the government had announced a series of incentives under the Foreign Trade Policy of 2009-2014 through extension of certain export promotion schemes, which were mainly targeted towards those sectors that have not been able to stabilise yet.
