Trade conundrum

Updated: May 25 2014, 03:18am hrs
While bringing the domestic economy back to track is going to be the top priority of the new government, it will also have to quickly fix the export sector. Trade data for FY14 from the ministry of commerce indicate that the growth of merchandise exports is failing to pick up. From an year-on-year growth of 29% in FY08, it contracted to 1% in FY13 and grew by just 4% in FY14. Trade deficit, however, narrowed as imports slumped on the back of sharp contraction in gold imports after RBI imposed restrictions on imports of the yellow metal and the government raised the import duty from 2% to 10% between January 2012 and August 2013.

Sector-wise exports data show that the biggest problem area is the manufacturing sector. Half of Indias total exports are in the non-manufacturing sectors such as petroleum products, agriculture and allied products, and gems and jewellery. Growth in exports of engineering goods moderated from 27% in FY08 to around 9% in FY14, and that of electronic goods slumped from 19% to 9% during the same period. The share of engineering goods and chemicals has been stagnant at 18-19% and 13-14%, respectively.

While Indias share of global goods exports grew from 0.8% in 2002 to 1.6% in 2013, it still remains far below Chinas share of 11%. Over the years, the country has lost marketshare in important regions like America and Europe as the share of Indias exports to America and Europe declined from 46% in FY02 to 36% in FY14. The country will have to overhaul its manufacturing business environment to improve its share in the global goods exports. The key factors constraining manufacturing are the lack of world-class infrastructure, rigid labour laws, inefficient tax laws and regulatory delays. Reviving the growth in exports will be imperative to create employment opportunities.