'Global factors led to decline in exports'

Arbind Prasad

is the Director General of Federation of Indian Chambers of Commerce and Industry (Ficci), an association of business organisations in India. In an interview with Furquan Moharkan of Deccan Herald, Prasad says that Yuan devaluation is a serious cause of concern for the Indian economy, as it can affect the latter’s balance of payments.

Why is it that despite the government’s pro-business pitches, exports are shrinking?

Significant decline in India’s exports for the thirteenth consecutive month in December 2015 is a serious cause for worry. A feeble global economic situation has adversely affected India’s exports in the past several months, and is likely to do so in the near future. Fall in demand from traditional markets of the US and Europe, rising volatility in currency markets, accompanied by fall in commodity prices including petroleum, and declining manufacturing productivity domestically, have contributed to the dismal performance of our exports.

As per WTO data, similar trends were witnessed by other major exporting nations, including the US, the EU and China, whose export growths declined by 10.30 per cent, 10.83 per cent, 6.94 per cent, respectively, in October 2015, over the previous year. It is important that both the government and trade come together to look for a way forward.
 
How has Yuan devaluation impacted Indian exports?

Devaluation in the Chinese currency has triggered turmoil in the global financial markets. China’s central bank has devalued its currency to the lowest level in five years. It is a serious cause of concern for the Indian economy too, as it can affect our balance of payments. Furthermore, it could also make it difficult for Indian products to compete with Chinese products in third markets. If that happens, several export sectors could risk losing their share in the global market.
 
How has the ‘Make in India’ campaign impacted Indian exports, given that despite so much brouhaha surrounding it, it doesn’t seem to have any made much impact?

The ‘Make in India’ initiative, launched last year, has the primary objective of making India a global manufacturing hub and in turn, creating employment and inclusive growth in the country. In the last one year, the government successfully introduced a gamut of measures to improve the business environment by easing processes to do business in the country and attract foreign investments. The campaign also gained a lot of traction globally. However, this is just the beginning, and more steps need to be taken to achieve the desired objective.

The past two years have been difficult for Indian exports. While ‘Make in India’ was doing its bit, weak global demand, coupled with falling industrial activity, contributed to dwindling exports. The latest figures of industrial production are not very impressive, having fallen by 3.2 per cent in November 2015 year-o-year. There is no denying that a critical factor in improving export performance is to improve manufacturing competitiveness.

With the rapid rise of global economic convergence and integration through production networks, Indian manufacturing exports are loaded with opportunities. We need to overcome the technological backwardness of manufacturing exports and expedite the work on developing efficient export infrastructure, to emerge as a key manufacturing hub in the region. Over the years, India’s exports have expanded both in terms of markets and products, and the export sector has moved up the value chain. I think, we are on the right track, but time is of the essence and hopefully, the coming year would see better performance on all these fronts.
 
Is it the time that the government should think about rupee devaluation to prompt exports?

It is always a difficult decision to make. In the context of devaluation, it needs to be recognised that the current situation of depressed demand in our traditional markets is one of the major factors that has contributed to the dismal performance of our exports. Also, as it typically happens with devaluation, it could negatively impact those sectors that are import-intensive in terms of raw materials and intermediates.
 
Any specific measures that you suggest the government should take in this regard?

India is a key player in the global economy today. The latest IMF forecast projects India to continue growing at a robust pace in 2016. Global demand however, continues to remain weak, which could further impact India’s exports. In order to remain competitive globally, we first need to address the challenges on the domestic front. Firstly, we are struggling with a lacklustre manufacturing sector.

The government should prioritise manufacturing-led exports and work towards upgrading competitiveness of the manufacturing sector. The government has set an ambitious target of increasing the contribution of manufacturing output to 25 per cent of the GDP by 2025, from the current 16 per cent. This would require consistent increase in manufacturing productivity. Secondly, we lack an efficient export infrastructure. There is an urgent need to enhance export-related infrastructure by way of developing smart gateways (Sea Ports / Airports / Land Borders / ICDs), and building the necessary soft infrastructure and efficient electronic platforms.

Soft infrastructure such as a transition towards a truly single-window clearance, technology ugradation, transparent and uniform tax regime, and reforms in labour laws, among others need to be developed. It is critical to address high transaction costs faced by exports. ‘Ease of doing business’ should continue to remain a high priority issue. Excessive documentation and repetitive requirements, long turnaround times, difficulties at the factory level, high degree of manual intervention, lack of clarity or adequate information in fulfilling procedural requirements, difficulties in inland communication — from factory to port, problems at port and with customs and shipping lines, non-functioning of EDI system — are just some of the operational difficulties that exporters face every day. Thirdly, cost and availability of credit remains a central issue for most of the small- and medium-scale exporters.
 
Any specific measures that you suggest the industry takes in this regard?

The Indian industry worked hard and came out of the last global crisis, despite sluggish recovery in other parts of the world. Since demand from our traditional export markets is likely to be stagnant (or even slowed down), it is important for us to look out for newer markets with high potential. The industry should continue to focus on diversification of export destinations. Product diversification is also necessary. Another critical area is to seize the opportunities in regional/global value chains and integration with emerging production networks involving multiple countries.