Exports and revival

The coincidence is too conspicuous to go unnoticed. Exports have picked upin the wake of strong indications of an industrial recovery. True, there isno 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 overthe first quarter of last year, are encouraging. Similarly, CII's industrialsurvey captures the rise in industrial production across a wide spectrum.With improved capacity utilisation, exports acquire a bounce. The revival ofindustrial production and of exports go hand in hand. The linkage needs tobe noted, though the recovery in industrial production is sourced toimproved domestic demand, notably from prosperous agriculture. This iscorrect. But larger domestic sales mean larger profits; the latter is thebasis for apportioning profits to exports (which are tax-free) and thisprovides a leg-up to exports. Besides, improved capacity utilisation alsoyields a reduction in costs, and contributes to export competitiveness.Exports, in turn, improve capacity utilisation -- beyond that warranted by arise in domestic demand. This virtuous circle will gather strength as theindustrial recovery firms up -- by the end of this calendar year asvisualised by business. More. The last three years have have seen morerestructuring in industry -- in certain sections -- than in the previous 30years, as pointed out by business economist Fredie Mehta in an article inthis newspaper. Though fresh fruit and vegetables are seen as growth areasin exports along with information technology services, the point will not bemissed that manufacturing can afford to be less inward looking in theimmediate future.

The problem area is international demand. Global economic growth has beenweak: down from 4.2 per cent in 1997 to 2.5 per cent in 1998. The IMFexpects 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. Thishas generated export pessimism in the country. Export growth in 1999-00 isprojected at 7-8 per cent against the negative four per cent last year. Thistranslates into an improvement by 11 percentage points. On hand is theprospect of international trade growing by 7.6 per cent in 2000 (IMFforecast) and the on-going recovery of East Asia. Thus, even as the domesticrecession wanes to give a fillip to exports, international trade is slatedto rise.

This time round India should not miss the export bus. GDP growth of 7-8 percent a year cannot be fuelled by domestic demand alone. Exports are vitalfor full capacity utilisation. When the GDP growth slowed down after1995-96, export stagnation compounded the industrial recession. The moral isclear: industry must strengthen the revival with a bold export thrust.

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