How India Missed The Export Recovery Bus
India’s major export destinations witnessed a cyclical economic recovery in 2017-18 with global trade rising higher. While that could indicate strength in the export sector, a closer look at the data suggests that India may have missed the recovery bus.
A global slowdown, a sharp fall in commodity prices and currency fluctuations kept Indian exports under pressure between fiscal 2014-15 and July 2016 when it started to recover. It has since been on an uptrend except for a lone decline in October 2017. The government is aiming to double Indian exports by 2020.
Indian exports were on a downtrend after fiscal 2014-15, hit by a global slowdown, a sharp fall in commodity prices and currency fluctuations. Exports started recovering in July 2016 and have kept rising since, except for a lone decline in October 2017. The government is also aiming to double Indian exports by 2020.
That's promising, but Asian peers have done much better. In the April-October 2017 period, countries like Vietnam, South Korea, Indonesia and Malaysia have outperformed India with outbound shipments growing in double digits, according to a report by rating agency CRISIL.
Besides, trade has also dragged economic growth in the country. The contribution of trade to India’s economic growth in the current fiscal has been negative, CRISIL said. India’s export growth at 4.5 percent in 2017-18, is the same as last year despite recovery in most regions that India ships goods to, except the Middle East and North Africa, the report said.
So why has India been left out of the global trade recovery party? Partly because of the twin shocks of demonetisation and the Goods and Services Tax.
The domestic disruptions “stymied” the country’s exports by hitting labour intensive sectors like textiles, leather and gems and jewellery which account for around 30 percent of the total outbound shipments from India. These sectors saw export growth but mainly due to a low-base of comparison in the previous year, CRISIL said.
But the scenario may improve in 2018. Global growth momentum is likely to continue this year with “strong broad-based cyclical recovery” in the U.S. and the European region “supported by consumption, investment and trade growth”, according to CRISIL. Saudi Arabia and UAE too may grow faster as political turmoil in the region eases.
This improves trade prospects for India. The government has stepped up its efforts to boost exports from labour-intensive sectors. It increased incentives available for exporters of leather, textiles and handloom goods by more than a third. It also scrapped GST for sale of duty credit scrips from 12 percent earlier. Exporters have been given an exemption from the new sales tax till the end of March 2018.
If implemented in a timely manner, these steps will place India in a better position to reap the benefits of the global economic and trade recovery in 2018.CRISIL Report