Crisil flags trade growth barriers

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New Delhi | Updated: Dec 04, 2015 4:23 AM

India's merchandise exports plunged for the 11th straight month through October.

GST BillThe share of India’s trade in its GDP slid to just 42.6% in Q12015-16 from a peak of 55.6% in all of FY13, in what would be the most dramatic decline since liberalisation, says a Crisil study. (Reuters)

The share of India’s trade in its GDP slid to just 42.6% in Q12015-16 from a peak of 55.6% in all of FY13, in what would be the most dramatic decline since liberalisation, says a Crisil study, reports fe Bureau in New Delhi. While a global slowdown, as pointed out by policymakers like finance minister Arun Jaitley, did affect exports, that alone cannot cause such a huge plunge (5.6% in H1 this fiscal) in goods and services exports, the report said.

India is even trailing other major Asian countries in export growth, indicating that there is more than meets the eye and things like the adverse effect on export of petroleum products from the fall in crude oil prices won’t suffice to explain the country’s lukewarm show.

India’s merchandise exports plunged for the 11th straight month through October.

While the cyclical component of exports will inch up when cyclical factors (world GDP growth and commodity prices) turn favourable, it is structural issues such as falling competitiveness in the export market and both tariff and non-tariff barriers on which India can and has to work hard if it is to realise its ambitious export (both merchandise and services) target of $900 billion by 2019-20 from $470 billion in 2014-15, said the report.

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Pro-activeness in forging new trade pacts to counter the impact of the Trans Pacific Partnership (TPP) forged between 12 countries, including the US, is also required.

The World Trade Organisation has predicted stagnant trade growth at 2.8% in 2015, which would be below 3% for a fourth straight year and even lower than the global GDP growth of 3.1% projected by the IMF for the year, implying trade intensity of the world GDP has fallen. While it is legitimate to argue that India has also been caught in this storm, there are other indicators where India is performing very badly. For instance, while world real GDP growth improved from 3.2% in 2009-11 to 3.4% in 2012-14, India’s real growth of exports came down from 11.1% to 4.1%. “This suggests the decline isn’t merely cyclical; there are structural elements at play as well,” Crisil said.

Falling competitiveness is one of the structural factors restricting export growth and for key export items such as gems and jewellery, textiles and iron and steel products, the comparative advantage has come down in the decade through 2014, it added. Non-tariff barriers such as high transaction costs and infrastructure deficit, too, create a hindrance as India continues to lag most Asian peers on these parameters. The cost to export a container from India is as high as $1,332, much higher than that of $823 in China and more than double of $525 in Malaysia.

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Even various tariffs imposed by the country are very high, compared with some of the developed economies. For instance, one of the reasons India was not invited to join the TPP between the US and 11 other nations, which account for roughly a fourth of the global GDP, is that India has one of the highest average tariffs in the world — 13.5% against 3.4% in the US. And the ambition of the TPP parties is to reduce tariffs to zero.

India also needs to invest quickly in skilling its large manpower and developing infrastructure to be able to attract foreign investment and become a world-class exporting hub, it added.

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