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Bottlenecks in export growth

Growth depends not only on our ability to export but also on others' desire to import, writes DH Pai Panandikar.

india Updated: Nov 04, 2006 18:48 IST

Export performance in September was good. It enabled export growth in the first half of the year to reach 22 per cent.

If it is maintained for the rest of the financial year it should be possible to exceed the $125 billion target. But growth depends not only on our ability to export but also on the willingness of the other countries to import. The latter is likely to be a little more difficult.

World trade is increasing at 9.5 per cent in volume. Added to that is the 1.8 per cent rise in world trade prices. Most of this rise has, however, been in respect of crude oil and non-energy commodities. Prices of manufactures which have a dominant share in our exports have actually declined.

Thus our export growth to the extent of 10-11 per cent, or about a half of our total export growth, will depend upon the willingness of other countries to import from us.

Will that continue unabated? More than 73 per cent of our exports go to United States, Asia and Europe. The US is our single largest customer with a share of 16.7 per cent in our total exports. There are indications that the US economy is now slowing down and the dollar is weakening as a result. The combined effect will be that the Americans will import less. This is likely to hit ex ports of many countries, including ours.

From now on our exports are likely to come up against demand resistance by the US, if not Europe and Japan. Our export growth will be down because world exports will increase more slowly.

It is expected that world export growth will be about 7.5 per cent, two per cent less than in the first half of the year. Therefore chances are that our export growth will also be affected to that extent. The only way we can keep export growth going is by grabbing exports from our competitors. That is not easy but is dis tinctly possible.

It is our competitive advan tage that has enabled us to increase exports faster than world exports. That advantage depends partly on the rate of exchange and partly on the cost of production.

The exchange rate in recent years has not really offered much advantage to Indian exporters. It is the reduction in costs, improvement in quality and more aggressive marketing that enabled Indian industry to make internal inroads into the international market.

In five years the share of exports in total sales of industry rose from nine to 12 per cent. In many Asian countries exports of manufactures exceed 25 per cent of sales.

It is the exchange rate that can come in the way. The rupee has hardened by two per cent in the past four months. Chinese yuan, though freed from the dollar, has hardly moved. If the rupee remains hard and world economy slows down our export growth in the second half of the year may drop to 16-18 per cent.

The writer is president, RPG Foundation

First Published: Nov 04, 2006 18:48 IST