The latest in the string of bad economic numbers is that India’s exports in October have shrunk — an eye-popping 15 per cent— for the first time since 2003. Hit hardest are labour-intensive sectors like textiles, leather, and gems and jewellery. This makes it unlikely that the target of $200 billion for the year will be achieved although till September merchandise exports, at $95 billion, were on track. No prizes for guessing this contraction is due to precipitously falling demand in the US and Europe, where 35 per cent of our exports are headed. At stake is not merely the prospect of slower economic growth, the immediate urgency is the 100 million Indians who work in the textiles, leather and jewellery industries. The story in textiles is particularly horrifying — 1.2 million of the 88 million people employed there have or are in the process of losing their jobs. As exporters struggle to sign new contracts amid growing bankruptcies in the US, the global financial meltdown has hit small-town India: Panipat, Ludhiana, Tirupur, Madurai, Kanpur. In Moradabad, skilled brassware artisans are plying rickshaws; in Panipat, the factories have fallen silent.
There is precious little the government can do to mitigate the small exporters’ distress till the West begins buying again. Indian exports are plummeting alongside a falling rupee, which makes nonsense of textbook prescriptions: tax incentives and currency devaluation. The rupee has weakened to a record Rs 50 to a dollar, but the problem is on the demand side.
The question is, how long the slump in the US and Europe will last? A weaker rupee doesn’t help when demand destruction is taking place. As the Prime Minister’s economic advisory council has suggested, a transitional package targeted specifically at labour–intensive export industries that have been the worst hit is called for. The staple advice is to move up the value chain instead of being dependent on the advantage of a competitive exchange rate. That involves upgrading both technology and scale. Pity, the only technology upgradation fund announced so far — for textiles — has not yet paid out its commitment of Rs 2,000 crore. Greater pity, the government would have had more room for manoeuvre if there were a social security net in place to take care of the human cost of the export squeeze — a cost no government going into elections in a few months can afford.