India’s export sector: Grim portrait

• HDFC
• 01 Sep 2018
• Knowledge Centre

HDFC, Tester

Export data for FY18 reveals that merchandise exports as a percentage of the country’s gross domestic product (GDP) for FY18 stood at its lowest since FY04. While this can be partially attributed to the introduction of the Goods and Services Tax Act (GST), there are other factors that have played a role in this scenario, according to data from the Centre for Monitoring the Indian Economy (CMIE).

 

Ramifications of the ongoing US-China trade spat have spilled into India’s economy too. An example of this can be seen in the notable dip in engineering exports. An online financial portal has quoted Mr Ravi Sehgal, Chairman EEPC (Engineering Export Promotion Council) India, stating, “The engineering sector, which had been leading the basket of goods exports, could manage to grow by a meager 2.62% in March 2018, making it imperative to redraw our external trade strategy. This is all the more important in the backdrop of more and more protectionism rearing its head. Rising raw material costs, among other factors, have had a crippling impact on shipments. Indian exports have been sluggish despite a pick-up in global growth.”

 

More trouble

 

Another dampener to the country’s export growth came in April 2018, when the US-India imbroglio over export subsidies was dragged to the World Trade Organization’s (WTO) dispute settlement mechanism. The US stated that export subsidies granted to India were proving to be harmful to companies in the US.

 

The WTO dispute settlement body agreed to set up a panel to examine America's allegations against certain alleged export subsidy measures. “At its meeting on 28th May, the WTO's Dispute Settlement Body agreed to a request from the United States for the establishment of a dispute panel to examine certain alleged export subsidy measures in India,” the WTO said in a statement.

 

According to a financial daily, India has taken the US to the WTO regarding the 25% steel tariff and 10% aluminum tariff levied by President Donald Trump. Other countries involved are China, the EU, Canada, Switzerland, Russia, Norway and Mexico.

 

Bigger picture

 

However, the long-term scenario for India-US trade had been recognized as being healthy.

 

US’ trade policy agenda and annual report has recognized India as an important player in the country’s export segment. “Although existing Indian trade and regulatory policies have inhibited an even more robust trade and investment relationship, India’s economic growth and development could support significantly more US exports in the future,” a US trade representative said in the country’s trade policy agenda and annual report.

 

The Economic Survey summarizes the problem faced by the country’s exports. It says, “the international competitiveness of manufacturing (in India) has not made great strides, (which is) reflected in the declining manufacturing export-GDP ratio and manufacturing trade balance”. However, the survey affirms the fact that exports have the greatest potential to boost to the country’s growth.

 

With India’s export saga taking a turn for the worse, the premise that growth in the Indian economy will have to come from the domestic market seems to hold true, as of now.