An early recovery of India’s economy seems a distant dream, as India’s merchandise exports have been contracting in double-digits since December 2014 due to tepid global demand and volatile global currency market.
Data recently released by the commerce ministry showed that during December 2015, exports contracted 14.75% to $22.3 billion, while imports shrank 3.9% to $33.9 billion, amounting to a trade deficit of $11.7 billion.
India’s overall exports are projected by the ministry to decline 13% from the last year’s level to $270 billion in 2015-16, with a trade deficit of around $120-125 billion.
“The two major reasons behind declining exports are — falling crude prices and the Indian rupee, which has not depreciated as much as the other currencies have. This has made exports from India less competitive. Oil crash is something on which India has no control. But, if the finance ministry does not react to the currency devaluation soon, then other countries will become protectionist to safeguard their own economies ,” Arvind Mehta, additional secretary in commerce ministry told HT.
Another senior ministry official said that the government will have to devise strategies to increase market access and raise the competitiveness of exporters.
“India has a tendency of looking only at traditional export markets, and focusing on only those commodities in which it has gained a strong foothold. Some of the markets such as China, Commonwealth of Independent States, Latin American nations, etc can prove to be a blessing in disguise for the falling exports, provided the right strategy is being adopted,” said the official who did not wish to be identified.
But is the government actually taking measures to arrest the declining exports?
“A fundamental magic fix to the falling exports is to devalue your currency, which traditionally economies have done in the past — Japan did it, China is doing it, Korea has done it,” Mehta said.
However, he added maintaining a healthy exchange rate comes under the domain of the RBI, and there is nothing much that the commerce ministry can do.
The commerce ministry is also mulling some other measures .
“Addressing the mounting trade deficit with China has finally gained some ground. India, which currently has a deficit of $49.5 billion (2014-15), is likely to further go up to around $60 billion in the short term. Cabinet Secretariat has constituted a task force of senior government secretaries and officials from the departments such as revenue, MEA, DEA to formulate a strategy to address this deficit,” the official said.
Commerce minister Nirmala Sitharaman herself is monitoring the situation and has decided to meet sector-wise export promotion councils to address issues.
The ministry is also mulling to have a bilateral trade agreement with the UAE, which is India’s largest export destination. “UAE has a huge opportunity and PM himself has asked the ministry to initiate a bilateral with the UAE. Commerce ministry has an agenda to increase the bilateral trade with the UAE by 60% over the next five years,” another official said.
“Bilateral trade agreements will definitely help India to increase exports. Diversification, in terms of both product and geography, helps in expanding export revenues as a country becomes less vulnerable to economic slowdown,” said DK Joshi, chief economist, CRISIL comment.