Exports and revival

The coincidence is too conspicuous to go unnoticed. Exports have picked up in the wake of strong indications of an industrial recovery. True, there is no telling by how much exports or industrial production will rise this year. But the April-June data, which show a 10-per cent rise in export growth over the first quarter of last year, are encouraging. Similarly, CII's industrial survey captures the rise in industrial production across a wide spectrum. With improved capacity utilisation, exports acquire a bounce. The revival of industrial production and of exports go hand in hand. The linkage needs to be noted, though the recovery in industrial production is sourced to improved domestic demand, notably from prosperous agriculture. This is correct. But larger domestic sales mean larger profits; the latter is the basis for apportioning profits to exports (which are tax-free) and this provides a leg-up to exports. Besides, improved capacity utilisation also yields a reduction in costs, and contributes to exportcompetitiveness. Exports, in turn, improve capacity utilisation -- beyond that warranted by a rise in domestic demand. This virtuous circle will gather strength as the industrial recovery firms up -- by the end of this calendar year as visualised by business. More. The last three years have have seen more restructuring in industry -- in certain sections -- than in the previous 30 years, as pointed out by business economist Fredie Mehta in an article in this newspaper. Though fresh fruit and vegetables are seen as growth areas in exports along with information technology services, the point will not be missed that manufacturing can afford to be less inward looking in the immediate future.

The problem area is international demand. Global economic growth has been weak: down from 4.2 per cent in 1997 to 2.5 per cent in 1998. The IMF expects global growth to be 2.3 per cent this year. Correspondingly, international trade is projected to grow by just 3.4 per cent in 1999. This has generated export pessimism inthe country. Export growth in 1999-00 is projected at 7-8 per cent against the negative four per cent last year. This translates into an improvement by 11 percentage points. On hand is the prospect of international trade growing by 7.6 per cent in 2000 (IMF forecast) and the on-going recovery of East Asia. Thus, even as the domestic recession wanes to give a fillip to exports, international trade is slated to rise.

This time round India should not miss the export bus. GDP growth of 7-8 per cent a year cannot be fuelled by domestic demand alone. Exports are vital for full capacity utilisation. When the GDP growth slowed down after 1995-96, export stagnation compounded the industrial recession. The moral is clear: industry must strengthen the revival with a bold export thrust.

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