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Tapping into the changing trend of exports

The extent of market loss for India’s exports underscores the need for policy support to boost manufacturing.

analysis Updated: Nov 19, 2015 09:11 IST
Biswajit Dhar

India’s exports are currently going through a phase that should be cause for concern among the policymakers. In the first nine months of calendar year 2015, exports have been lower in every month as compared to the corresponding month in 2014. The figures for September 2015 should be particularly disconcerting for two reasons: One, exports were lower year-on-year by nearly 25%, and two, this month saw an absolute decline in exports as compared to the preceding month by nearly 16%. The upshot of these numbers is that in the first six months of 2015-16, exports have been lower than in the corresponding period of 2014-15 by over 17%.

A further problem is that India’s exports to every region of the world have declined in April-September when compared to the same period in 2014. Exports to Africa have declined the most: In September, the year-on-year decline was more than 25%. India has been making consistent efforts to diversify its export markets by reaching out to regions like Africa, and therefore, these export numbers should be disappointing. More worrisome are the export numbers for the three regions India sees as its largest potential markets, namely, Europe, West Asia and East Asia. Over the past decade, India has been engaged in formalising free trade agreements to deepen its economic relations. Exports to the Asean member countries have declined by nearly 25% during April-September 2015 year-on-year, while exports to the three North Asian countries, namely China, Japan and South Korea, have declined in excess of 16%, essentially due to a steep fall in exports to China (nearly 19%). The drop in exports to China implies that the trade imbalance with India’s largest trade partner, which was more than four times its exports, will increase even further.

To understand this, we must look at the performance of the commodities in India’s export basket. This dimension becomes more important in the light of the fact that industrial production seems to have recovered from the trough. This recovery can be manifold if the policymakers can strategically move to support the sectors in which the country has displayed inherent strengths.

India’s exports have been driven by two commodity groups — petroleum products and gems and jewellery — for nearly a decade. Since the beginning of the current decade, these commodity groups have been accounting for more than a third of the exports. The peak was reached in 2012-13, when the combined share of these two commodity groups in exports was nearly 35%. At the same time, the share of India’s core manufacturing sectors, including chemicals, metals, textiles and clothing, machinery, including electronic equipment, and transport equipment, declined to below 50%, which was followed by a stagnation in their share at around 45%. These are clear signs that Indian manufacturing is losing its competitive edge.

Exports of petroleum products and gems and jewellery have declined in April-September 2015, year-on-year, in varying magnitudes. While the former declined by more than 50%, the latter was less than 6%. The share of petroleum products in exports was 18% in 2014-15, down from its high of 20% in 2013-14. But in the first half of 2015-16, petroleum exports have declined to below 13%, the lowest in nine years. Petroleum products exports have suffered not just because of their declining prices globally; they have been also impacted by declining export volumes. Each of the three products in this group — high-speed diesel, other spirits and aviation fuel, which accounted for nearly 80% of the export earnings from petroleum — saw its volume dip by almost two-thirds of the level seen last year. This seems to be a bigger problem since Indian firms are losing their market shares in international markets.

Exports of the core manufacturing sectors during April-September 2015 show interesting tendencies, to which the policymakers must pay attention. Several sub-groups of the machinery — the textiles and clothing and the chemicals sectors — have gone against the general trend and recorded positive growth in exports. It is therefore important for the policymakers to ensure that these sectors are able to develop their existing capacities to meet the challenges they face from the global integration of the Indian economy.

It is interesting that machinery sub-groups, including machine tools and industrial machinery, which were among the more vibrant segments of the industry in the past, have avoided the export slump. Equally interesting is the export growth registered by some segments of the garment industry when it is facing stiff competition in the global markets. In recent years, these high-employment sectors were unable to keep pace with their competitors, and were overtaken by Bangladesh and Vietnam. Importantly, the automobile industry was able to continue its expansion as an export sector during the current financial year, even when there are gaps in policy support that Indian industry suffers from vis-a-vis its competitors.

Finally, exports of chemicals have been propelled by the pharmaceuticals sector, in which the generics have continued their strong export performance despite the constant threats posed by advanced countries, the US particularly. Since the early part of the last decade, generics firms have been able to increase their presence in the Western markets, thus meeting the growing demand for affordable medicines in these countries.

The export performance of the manufacturing sector has an important takeaway for the government and its agencies: they could lend dynamism to the ‘Make in India’ programme by providing strategic support to these better performing sectors. All successful examples of strong and resilient manufacturing sectors around the world have relied on effective policy support. The government could take this much-needed step.

Biswajit Dhar is professor of economics at JNU

The views expressed are personal