But what signals a deeper problem in India’s export resurgence story is the loss of momentum since the 6% expansion in September, the first since February.
Its outbound shipments faltered by 5.1% in October and, according to preliminary estimates, the contraction just exacerbated to 9.1% in November.
India has emerged as the worst performer among key developing economies in Asia in merchandise exports in the aftermath of Covid-19, trailing not just the usual stars China and South Korea but also Vietnam, Indonesia, Malaysia and even Bangladesh. Between March and October, India’s exports grew year-on-year, in only one month (September), while both China and Vietnam recorded expansion in six of these eight months and Bangladesh in three months, according to the official data of these countries. Malaysia posted expansion in four months (based on export value in its local currency, and not dollar). Although outbound shipments from South Korea and Indonesia, too, faltered in seven of these eight months, their slide was far less steep than India’s.
The data show that while India’s exports, on an average, contracted in excess of 20% a month in the March-October period from a year before, China and Vietnam, in fact, saw a rise of about 4% each. Exports from South Korea slid by an average of about 9% a month during this period, while those from Indonesia shrank by more than 7% and Malaysia by over 4%.
Only Bangladesh, thanks to its excessive reliance on garment exports, saw the pace of decline closer to India’s, as dozens of large retail outlets in its biggest importers, the US and the EU, either went bankrupt or shut shop temporarily in the wake of the pandemic.
Not surprisingly, India is set to record a slide steeper than 9.2% forecast by the WTO for global exports in 2020 if the current trend holds through.
To be sure, India imposed a much more stringent lockdown (from March 25 until it was eased gradually from June) than any of these nations. A domestic demand compression battered its imports much harder than its exports. Consequently, import-sensitive export segments, too, saw a sharp drop. Also, India was among the last set of nations where the pandemic spread its tentacles, which means it should be among the last to stage a rebound. To that extent, the contraction in its exports is understandable.
But what signals a deeper problem in India’s export resurgence story is the loss of momentum since the 6% expansion in September, the first since February. Its outbound shipments faltered by 5.1% in October and, according to preliminary estimates, the contraction just exacerbated to 9.1% in November.
Exporters complain that a combination of a spike in shipping costs since August, the rupee appreciation and a huge reduction in government benefits when they are struggling to cope with the pandemic has eroded their competitiveness. The allocation under the Merchandise Exports from India Scheme for the first three quarters of this fiscal has been cut to less than 40% of last year’s total.
The rupee was “over-valued” by close to 21% vis-à-vis a basket of 36 export-sensitive currencies in September, against almost 19% in the previous month and just over 17% in March, according to the RBI’s real effective exchange rate index.
The government and the central bank have stepped in to boost liquidity for cash-strapped firms. But credit flow still remains stunted. Moreover, as the economy goes through a “reset” phase following the unlock and the government launches production-linked incentive schemes, manufacturing may see a sustained pick-up in the coming months and exporters will likely respond. But that revival will take time to materialise and is contingent upon sustained — and substantial — government benefits, exporters say.
The government is supposed to roll out a scheme from January 1, 2021, to reimburse various embedded taxes on inputs consumed in exports and replace the MEIS (the latter is considered by some wings of the government to be an inefficient programme that only drains the exchequer). But the extent of benefits under the proposed scheme is shrouded in uncertainty. Given the structural bottlenecks, including high logistics costs, exporters await the next foreign trade policy, which will remain in effect for five years from April 1, 2021, for a breather.