Riding on recovery, foreign trade galloped

The most striking feature that emerges from a quick review of performance of Indian export in the year 2010 is that the year witnessed the much needed revival in overall growth of country’s merchandise trade.

While on one hand country’s merchandise trade appears to be on a strong wicket to enter the year 2011 with a good growth rate, the ongoing growth momentum of exports may be affected if the Euro crisis worsens further. After sovereign debt crisis in Greece, Spain and Portugal, banking crisis has erupted in Ireland. As a ripple effect of this the growth momentum of export may come under strain.

Apart from experiencing a severe recession, the Euro Zone — a grouping of 16 European countries that share a common currency, Euro — is now grappling with spiraling debt crisis.

The spreading euro area crisis has even raised concerns of hurting the fragile global economic recovery thereby affecting overall global trade. Finance Minister Pranab Mukherjee shared this concern when he said, “European countries are our major importers. If Euro crisis is further intensified it can affect our export.”     

The growth momentum of the country’s export, which was witnessing an average growth rate of over 25 per cent consistently, received a serious set back when the ripple effect of global slowdown started hitting the economy towards the end of 2008.

Export showed first sign of decline in October last year in the wake of shrinkage of demand for Indian merchandise in the country’s major importing countries like the United States and European countries following setting in of global slowdown triggered by financial meltdown in the US.

In fact, since October 2008 country’s export, which was acting as engine of growth, dropped consistently for the last 13 consecutive months. Only in November 2009 export turned positive posting an 18 per cent growth rate. This switchover of export to positive zone was carried forward all throughout 2010. The prime reason for revival in export growth rate was due to a series of stimulus packages offered by the government to boost export in various segments in early 2009 and its continuance all through 2010. As the latest data shows, exports in November posted a growth rate of 26.8 per cent giving rise to heightened hope that export target set at $200 billion in the current fiscal could well be exceeded.

As a jubilant Commerce Secretary Rahul Khullar said, “Export has touched 18.9 billion dollars in November this year posting a growth rate of 26.8 per cent. Export is now showing impressive growth rate. If this trend continues in coming months, we may exceed the export target of $200 billion in the current fiscal. Overall export may reach the level of 210 to 215 billion dollars this fiscal.”

Cumulatively, exports during the first eight months of current fiscal (April-November 2010) have reached a level of 140.3 billion dollars at a growth of 26.7 per cent.

Imports rising faster

At the same time, the country’s import is rising at a faster rate giving rise to ballooning of trade deficit — the net difference between export and import. As the data show country’s imports were valued at $222 billion with a growth of 24 per cent. Correspondingly, the trade deficit ballooned to 81 billion dollars.

Though the surge in import is giving rise to swelling of trade deficit analysts say the rise in import — both in value and volume terms — all throughout 2010 reflects the ongoing buoyancy in growth of key manufacturing and capital goods sector.

The rapid expansion of manufacturing and capital goods segments, which are dependent on imports of wide range of input products, automatically gives rise to import. But the primary reason behind ongoing surge in the country’s export is setting in of recovery — even though marginal — in major economies of the world like the US, the European Union countries and Japan, who are major importers of Indian merchandise.

The world trade growth, which started coming down as a result of the global financial crisis coupled with recession in advanced economies in 2008 and 2009, declined by 11 per cent in 2009. 

However, after this there has been a turnaround in both world trade growth and world GDP growth. As per the latest forecast by the International Monetary Fund (IMF), global trade is likely to grow by 11.4 per cent and 7.4 per cent for 2010 and 2011 respectively. This augurs well for Indian export.

However, analysts say the resurgence in recovery in export growth in the year 2010 is due to cumulative effect of export stimulus packages worth Rs 2,300 crore provided by the government coupled with series of policy initiatives unveiled in the annual supplement (2010-11) to the Foreign Trade Policy (FTP) (2009-2014) announced in August this year. In the annual supplement the government rolled out sops worth Rs 1,050 crore to exporters through extension of various export promotion schemes for the labour-intensive segments like textile, handicrafts and leather.

Continuing the overall tone of the FTP (2009-14) unveiled in August 2009 to arrest and reverse the declining trend of exports, the government while modifying the export policy extended continuation of virtually all schemes doling out sops in one form or other to exporters to help them see through the fragile economic recovery globally.

Summing up one can say though there is growing optimism for ongoing growth momentum of export spilling over to 2011still some element of uncertainty is round the corner in view of fragile nature of global economy especially because of emerging Euro crisis.

Besides, the economies around the world are still emerging out of the shadows of a grim recessionary period. It is expected that the developed countries would aim at economic recovery through consolidation and export led growth. This would continue to pose a challenge to Indian exporters in accessing overseas markets for their products.