Global recovery boosts India's exports

When a government body sets a very ambitious target for itself, most people, generally,  don’t take it seriously because accomplishing a target is an exception rather than a rule.

Naturally, when the Union Commerce Ministry recently set an ambitious target of doubling the country’s export from the current level of $246 billion to $500 billion by 2013-14 most observers were unenthusiastic. But given the recent growth trends in exports, the target appears to be quite feasible.

The remarkable recovery in exports came after the country entered into a negative zone in 2008 due to a dramatic shrinkage in global demand for Indian merchandise in its key destinations like US, European Union (EU) and Japan.

Following the slowdown in the global economy prompted the Commerce Ministry to come out with a strategy to boost export manifold. However, despite bubbling optimism within the government about the future export growth, there is a lurking apprehension that it would not be that easy for country’s external merchandise to achieve such an ambitious target.

Given the fact that the major economies of the world like that of US, EU countries and Japan are still struggling to get back to the pre-crisis growth level, it is to be seen to what extent India’s export will expand in the coming years. Besides, the rise in global commodity prices including oil prices, coupled with continuing high level of inflation, may impact the expected growth momentum of export.

A leap forward

But all said and done, there is no doubt that the rebounce in growth momentum of export in the fiscal 2010-11 was really remarkable. Fueled by the revival in global demand, exports posted an impressive growth rate of 37.55 per cent to reach $246 billion in 2010-11 far exceeding the government’s revised target of $225 billion.

The surge has even surprised the Commerce Ministry officials. As Commerce Secretary Rahul Khullar said at a recent meeting, “It (growth rate) has surpassed all our expectations.” In the face of growth momentum in export, a few months ago, he had projected that going by rising surge in export growth rate, exports were expected to touch the level of $230 billion to $235 billion in 2010-11.

As analysts say: The country’s strategy of identifying emerging markets in Latin American and African countries and modest revival in demand in key developed economies like the US and EU markets have boosted export. The exploration of new destinations started in the wake of global slowdown in late 2008 when the government started identifying new emerging markets in Latin America and Africa countries and extended incentives to exporters to tap these markets.

As FIEO President Ramu S Deora says: “The country’s strategy of diversifying the export market to Latin America and Africa paid rich dividend. In the face of surge in export, the Commerce Ministry has put in place a multi-pronged strategy to achieve an ambitious target of more than doubling India’s exports to $500 billion by 2013-14.

The new export strategy paper primarily hinges on four specific areas having a crucial bearing on boosting export, which include strategy for boosting of export of specific products, development of format for marketing Indian products abroad, development of technologies and R&D for making Indian products competitive and building a brand image for Indian products.

New thrust

Significantly, the strategy paper suggests that export drive in the coming three years would be led by emerging sectors like engineering, electronic goods, biotech and pharmaceutical products. The focus will also be on boosting job-intensive sectors like gems and jewellery, leather products and textiles. The strategy paper suggests enhanced focus on market diversification by identifying new emerging overseas markets for Indian products.

As Commerce Minister Anand Sharma said, “We will now be focusing on markets in Asia, including Asean, Africa and Latin America and it will be our endeavour, through an active engagement by way of bilateral and regional trade agreements, to open new vistas for market access.” But he also added, “At the same time we will retain our presence and expanding our market share in established and developed markets in Europe and North America and move up the value chain with sophisticated value added products in these markets.”.

The third pillar of export strategy revolves around promoting high technology exports which will cover the entire pharmaceutical and biotech spectrum, electronic hardware, automobiles, computer based smart engineering, environmental goods, high end areas of aerospace, engineering and electronics.

The strategy paper also suggests building a ‘Brand India’ image, which will be through a thrust on improving quality processes and expanding certification of export products and undertaking aggressive promotional campaigns for key products. Analysts say if India wants to make a quantum jump in export it will have to identify the key goods and services, which are going to constitute the country’s export basket in the coming years.

Strategic plan

Data suggests that in the coming years, engineering goods will emerge as major a contributor to the country’s export basket. Engineering goods posted export worth $60.15 billion in 2010-11, registering a growth rate of 85 per cent. It is also expected to contribute more to export basket than software exports, which stood at $59.35 billion in 2010-11.

Experts believe export of engineering goods is going to dominate the country’s external trade in coming years. As it is, the government is making a deliberate policy shift towards building strength and competitiveness of basic engineering and chemical industries. The strategy paper has also identified engineering goods sector as one of the thrust areas of export and has set a target of $125 billion by 2013-14.

Another interesting feature of the emerging export basket is that petroleum products are increasingly contributing to export earnings. As the data show exports of petroleum, oil and lubricants stood at $42.45 billion in 2010-11, posting a growth of 50.6 per cent. With the country striving for acquiring oil and gas assets abroad and expanding its oil refinery infrastructure, export of value added petroleum products will also witness manifold increase in the future.

Similarly, great export potential is envisaged in employment-intensive sectors like ready made garments, leather products and gems and jewellery, etc. As China is becoming more expensive and also vacating some mass consumption items (like jeans), India can grab bigger share.

Despite robust optimism for buoyancy in export turnover in medium-term, there is an element of uncertainty about performance of export in short term. As Khullar says: “It is not going to be an easy summer for exporters in the current fiscal. Uncertainty in Europe and not-too encouraging data about the US economy remain areas of concern.”

Exporters are worried about Europe because the debt restructuring in some of the European economies will have a domino effect on others. Until clarity emerges, we will all live in some degree of uncertainty, he said. Even exporters are quite apprehensive about sustainability of high growth momentum in this fiscal.

The uncertainty about continuity of popular tax refund scheme-- DEPB and sharp rise in export credit are fast emerging as disturbing factors, which could impact export. The government payout on account of DEPB to exporters is worth Rs 8,000 crore per annum. The tax refund mechanism is to end on June 30, as it is considered to be non-compliant with the World Trade Organisation rules.

As FIEO President has cautioned: “Export growth may taper down from July onwards as uncertainty over DEPB scheme continues and cost of credit has gone up in geometric progression in last few months consequent to increase in base rate and withdrawal of interest subvention for exports.”

Even the rising inflation is a dampener because wage cost rises in tandem.  But experts say, if the government sincerely puts in place necessary policy initiatives to implement the road map of export promotion as laid out in the strategy paper, India has all potential to boost its export manifold in medium term.