Share of labour-rich exports starts to fall, threatens jobs; major drop in these key sectors

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Updated: Jul 07, 2020 9:39 AM

The International Monetary Fund (IMF) has predicted a 4.9% contraction for 2020 global GDP, warning that the Covid-19 outbreak has plunged the global economy into its worst recession since the Great Depression in 1930s.

The faster decline in exports from job-intensive sectors also indicates the loss of jobs in the formal and informal sectors, which are corroborated by surveys and analysis of the job market.

Growth of India’s exports from labour-intensive sectors has been slowing at a faster pace in recent years than overall outbound shipments, according to official data. While exports of merchandise dropped by 5.1% in FY20 to $313 billion, those from job-sensitive sectors — such as textiles & garments, farm, plantation, marine, gems & jewellery, leather, stone, cement, ceramic and some other allied segments — slid by 8.4% to $114.2 billion.

Consequently, the share of such sectors in merchandise exports came down to just 36.5% in FY20 from close to 43.7% in FY17, according to the official data. This also partly explains why not enough jobs are being seen to have been created.

The faster decline in exports from job-intensive sectors also indicates the loss of jobs in the formal and informal sectors, which are corroborated by surveys and analysis of the job market.

First-time jobs, as reflected in EPF and New Pension System (NPS) payroll data, showed a significant decline on year in FY20 itself, according to an analysis by SBI Ecowrap. New EPF payroll or ‘first jobs’ in FY20 were 60.8 lakh, down 28.9 lakh from the previous year.

The slowdown in job-intensive exports is set to accentuate further in the current fiscal, with vast swathes of key markets — the US and the EU — badly bruised by the pandemic and scared migrant workers back home in the wake of a nation-wide lockdown. Even before the Covid-19 outbreak, policy-makers were grappling with options to contain the fallout of an escalating global trade war.

Although a weak rupee is expected to offer some cushion, the domestic currency is still “over-valued” by over 17% vis-à-vis a basket of 36 export-sensitive currencies, despite its depreciation in recent months, according to the RBI’s real effective exchange rate (REER) index. The domestic currency had remained “overvalued” by just over 16% in FY19 and close to 20% in FY20, according to the index. Also, currencies of some of India’s competitors, including Malaysia, Indonesia, Singapore and Pakistani, too, have weakened, blunting the advantage for New Delhi.

Analysts have pointed out that with hefty hikes in the minimum support prices of a range of commodities in recent years to ensure farmers get a 50% premium over costs, our farm and allied sector exports have lost competitive edge in many commodities as well as finished goods. More importantly, thanks to its handicap in several segments—elevated expenses on logistics (as much as 15-16% of consignment value) and elevated costs of raw materials and labour — India has been beaten by countries like Bangladesh and Vietnam in segments like textiles and garments where China has been trimming its dominant exposure.

In an earlier interview to FE, Pronab Sen, former chairman of the National Statistical Commission, had said the note ban continued to haunt employment-sensitive sectors. “Most of these sectors have a fairly large component of non-corporate sector in production. I suspect, a lot of it (drop in exports) could be due to the supply problem—that such units are simply not able to produce much,” he had said. “All these sectors are very sensitive to the informal financial sector that was badly bruised by demonetisation. And the banking sector — which could have possibly replaced it (in terms of lending) — is struggling with a balance-sheet problem. So these sectors are squeezed from both sides,” he had added.

Apart from the note ban, the export sector has also been affected by a hasty GST roll-out, trade finance pangs and subdued global growth prospects. While overall non-food credit grew 6.8% as of May 22 from a year earlier, loans to MSMEs rose just 1.7%. Of course, with the implementation of the Rs 3-lakh-crore guaranteed loan scheme from June 1, credit flow to these businesses is expected to rise.

Also, as pointed out in a 2016 report by HSBC, India’s domestic bottlenecks explain 50% of the recent slowdown in overall exports (remaining the biggest threat to its outbound shipments), followed by world growth (33%) and the exchange rate (just 17%).

The International Monetary Fund (IMF) has predicted a 4.9% contraction for 2020 global GDP, warning that the Covid-19 outbreak has plunged the global economy into its worst recession since the Great Depression in 1930s. The WTO, too, has warned that global trade volume growth could crash by 13% in 2020. These would weigh on the Indian exports as well.

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