Exports: India’s woeful performance is mostly of its own making

Even as the government rails against S&P or the World Bank for not taking into account the various changes in India’s macro and micro fundamentals, it would do well to look at the real-world story told by India’s exports.

Even as the government rails against S&P or the World Bank for not taking into account the various changes in India’s macro and micro fundamentals, it would do well to look at the real-world story told by India’s exports. There is little doubt, as Crisil points out, that while global trade has slowed to its worst since 2008, India’s performance is mostly of its own making. While India’s share of global trade fell from 1.68% in 2014 to 1.62% in 2015, China’s exports’ share rose from 12.42% to 13.96% (despite its rising wages and strengthening currency), Bangladesh’s from 0.18% to 0.22% and Vietnam’s from 0.8 to 1.15%. All of this, as Crisil says, has to do with India’s declining competitiveness including high logistics costs and, along with high wages, poor productivity—Crisil points out that, in a globalised world, if India’s local producers are not globally competitive, an increase in local demand will primarily benefit foreign producers and cause a trade deficit problem.

Linked to this is a more serious problem of creating jobs. While it is true the global economy can no longer sustain a Chinese-style tearing exports growth-led model, the fact that India’s exports share of GDP is falling, at a time when its export performance is also worsening, implies one avenue for creating jobs is closed—China’s exports-to-GDP fell from 25.2 in 2011 to a still-high 20.4 in 2015, India’s fell from 16.6 to 12.9, Bangladesh’s from 18.6 to 15.7 while Vietnam’s rose from 72 to 84.7. Indeed, as FE found, in response to the new garments package the government has just finalised, firms were looking at investing just around R1,000 crore and creating a mere 53,000 new jobs—a small fraction of the 7 million jobs Crisil estimates India needs to generate annually. The manufacturing sector may not be of much help with employment elasticity of non-agricultural GDP falling to 0.38% between FY05 and FY12 from 0.52% in the preceding five years—while the manufacturing sector’s potential to create jobs fell dramatically, even in the service sector, growth is driven increasingly by less labour-intensive services. While retaining global competitiveness in even the local market means liberalised FDI norms are critical—talk of banning Chinese imports has to be banned—the only way to prepare the labour force for new jobs is intense re-skilling and reimagining India’s education; without this, India’s demographic dividend isn’t going to be realised.

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express Telegram Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.