Buoyed by rising international commodity prices and recovery of domestic manufacturing sector, exports rose 20.4 per cent during the first nine months of this fiscal but this growth rate hinges on hastening the pace of domestic reforms.
"Downside risks to exports in 2002-03, however, remain from a moderation of global recovery prospects and a lower-than-expected demand outlook for domestic economy due to deficient monsoon," according to the pre-Budget Economic Survey tabled in Parliament on Thursday.
"This underscores the importance of hastening the pace of domestic reforms, specially on various domestic impediments to export growth concomitantly with further tariff reforms to strengthen the country's competitiveness in global trade," it cautioned.
"The surge in exports has occurred inspite of the sluggish pace of global economic recovery and the slight appreciation of the rupee vis-a-vis the dollar and has contributed to domestic industrial growth," it added.
Expressing satisfaction over the revival of exports at 20.4 per cent growth during the first nine months this fiscal, the Economic Survey for 2003-04 says this has considerably enhanced the possibility of recording a surplus for the second year in a row.
An anticipated rise in international commodity prices in 2002 and the recovery of the domestic manufacturing sector is likely to aid this upturn in exports this fiscal, it added.
Robust export growth has resulted in narrowing of trade deficit in the current fiscal so far to 13.2 per cent. The deficit came down to 5767 million US dollars during April-December 2002 from 6643 million dollars during the corresponding period of 2001, the Survey said.
Overall trade deficit, which reflects excess of imports over exports, widened by 26.9 per cent in 2001-02 mainly because of a decline in exports.
The Survey lauded government's efforts to strengthen exports of major commodities like gems and jewellery, textiles, engineering goods, chemicals and related products and ores and minerals during the year.
"Although the trend of export recovery is in line with world economic recovery, the bouyant performance assumes significance given the slower than expected recovery in global economy and trade," it said.
Besides various domestic impediments to export growth including infrastructure constraints, high transaction costs, SSI reservations, inflexibility in labour laws and constraints in attracting foreign investments in export sector, slowdown in domestic manufacturing sector seems to have also impacted the supply response of exports during the year, it added.
On the balance of payments situation, the Survey said medium term BoP outlook would depend on several factors and a robust growth in exports remains one of the most critical factors in the long-term viability of the external sector.
"Uneven performance of merchandise exports in the recent past, if continued, could introduce a structural weakness in the BoP in the medium term. Exports thus hold the key to achieving a sustainable balance between the requirements of higher growth and the imperative of ensuring viability in the external sector," the Survey said.
Micro strategies for export growth based on various policy pronouncements therefore need to be designed to put export growth on a higher and sustainable growth trajectory.
On the import side, given India's rising dependence on imported crude oil, the economy needs to be insulated from continuing volatility in international crude oil prices, impacting on BoP and the country's oil security.
Efforts towards strengthening of the services sector also need to be sustained and intensified to capitalise on the growing opportunities in the sector.