By :Ashok Handoo :If there is any sector in India’s economy that has suffered the most in the current global economic downturn it is the export sector. It has been recording consistent fall for the last 10 months now. In July, it registered a 28% fall. Merchandise exports fell by 27.7 % in July. In the first four months of the current fiscal exports have come down by 34% to $49.65 billion compared to $75.2 billion in the corresponding period in the last financial year. The overall growth in exports in 2008-09 has been just 3.4 % against over 20 % in the preceding 4 years. In volume terms it was $168 billion in 2008-09.
The only consolation however was that the Imports too registered an even steeper fall of 37% in July, which reduced the trade deficit by as much as 50 percent to $6 billion. But this was primarily due to fall in crude oil prices in the international market. Yes, the non- oil imports too fell by 24.5% which means there was less import of machinery and capital goods. But that may not be a flattering situation as it appears. Economists believe that a fall in both imports and exports is indicative of slower economic activity which is harmful in the long run. Imports in July fell for the 7th consecutive month.
The persistent fall in exports is due to contraction of world demand in countries which import goods and services from India. These are primarily Europe (36%) US (18 %) UK (16 %) and Japan (16 %). An ideal situation would be a rise in both imports and exports which, in the current economic scenario, will have to wait for some time. Protectionist measures adopted by the western countries have complicated the situation.
It is with this ground situation in view that the new Foreign Trade Policy, announced recently by the government seeks to tackle the issues that confront our economy. First, it aims at increasing the level of exports by providing as many incentives as possible to the exporters. This includes extension of Income Tax holiday for exporters for one more year and continuance of duty refund scheme till December 2010.The incentives available under the Focus Market Scheme has been raised from 2.5 to 3 %. Under the Focus Product Scheme these have been raised from 1.25 to 2 percent. Their validity periods have also been extended. Besides, a number of engineering goods and certain electronic items have been included in the Focus Product Scheme.
The exporters will now be able to import machinery and technology that they need to improve their competitiveness in the manufacturing sector, in certain cases duty free. Exporters will also be provided with adequate finances in dollars for this purpose by cutting down transaction costs. The fiscal burden on the government on all these measures is estimated at Rs. 2200 crores .
In a bid to extend the area of operation, 26 new markets have been identified for exports which include countries like Algeria, Egypt, Kenya, Nigeria, South Africa, Tanzania, Brazil, Mexico, Ukraine, Vietnam, Cambodia, Australia and New Zealand. These are the countries which have been least affected by the global economic downturn.
With these measures the Government hopes to achieve the annual export growth rate of 15% in 2010 and 2011 against just 3.4 % recorded in 2008. In volume terms it will be raised from last years $ 168.7 billion to $ 200 billion by March 2011. In the next three years this growth is targeted to rise to about 25 percent per annum. By 2014 India’s exports of goods and services is expected to be doubled. The long term objective would be to double India’s share in the global trade by 2020, which last year was just 1.64%. But keeping in view the global economic downturn it is important to pay attention to the immediate goals. As the Commerce and Industry Minister Shri Anand Sharma put it, it is “arresting and reversing the declining trend of exports and to provide additional support especially to those sectors that have been hit badly in the developed world.” Fortunately our software exports continue to maintain their level.
The question now is whether these goals will be met. There is sufficient reason to be optimistic. There is mounting evidence on international scene that the worst global recession in decades is finally drawing to a close. There are signs that global economy was beginning to heal as there were slightly fewer job losses in August. The IMF now forecasts global shrinkage of 1.3 % in 2009 a little less than its April forecast. It has also revised growth rate from 2.5 to 2.9 percent
Trade pacts with South Korea and the ASIAN will also help boost the countries exports.
Fortunately, there is a forward movement in completing the Doha Round of trade talks which had been stalled for long, due to differences between the developed and the developing countries. The recent meeting of trade representatives of 36 WTO countries in New Delhi ended on a happy note of a consensus to do everything possible to conclude the Doha round by the end of next year, though a number of differences continue to be there. Prime Minister Dr. Manmohan Singh too welcomed the resumption of trade talks saying a continued deadlock would only raise voices of protectionism and hit all economies, especially the ones hit by the financial crisis. If all goes well, this too will help give a push to international trade.
Planning commission says exports will pick up after 2010 when developed countries will return to positive growth.
A blessing in disguise in the current situation has been that exports contribute only 17 percent to India’s gross domestic product, smaller than many Asian countries. Unlike China, whose economy is heavily based on international trade, India could largely insulate itself from the effects of financial crisis.
The new Foreign Trade Policy lays special thrust, and rightly so, on employment oriented sectors that have suffered job losses, like textiles, leather, handicrafts and gems and jewellry. This should arrest further job losses to a large extent. The state governments can play a significant role in this field.
The scene, therefore, is one of hope and optimism. But there is still a long, long way to go.