Global pangs

India’s exports have declined again in April 2009 -- for the seventh month in a row -- by 33 per cent. This is also the sharpest fall in the country’s exports which has declined to $ 11 billion in April 2009 from $16 billion in April 2008. While the continuously falling exports is certainly a major cause for concern for the economy, we cannot do much to reverse the trend. As countries in Europe and the United States -- major export destinations for Indian goods -- are under sever economic recession, they have cutback on imports dramatically since the October 2008.

Many recession-hit countries have also imposed fresh restrictions against imports. And to make the matters worse, appreciating Indian rupee against the US dollar and the Euro is making Indian exports dearer. According to estimates by the Federation of Indian Export Organisations, falling exports has already cost India 10 million jobs. But along with exports our imports have fallen too bringing down the trade deficit for the country. Lower prices of oil in the international market and reduced investment in new plant and machinery for future projects are the reasons for reduced imports bill.

Fortunately for India, falling exports is not a major concern as it contributes only 16 per cent of the country’s gross domestic products (GDP). Unlike countries like China, Japan, Taiwan, South Korea, Thailand etc, India’s lower dependence on external market has helped it weather the onslaught of global recession better than many others. Since 84 per cent of the GDP is contributed by the domestic market, our policies should aim at boosting domestic demand for goods and services. In fact, this is what China’s policy makers are now trying to achieve. But, at the same time, there are many areas where we need urgent and integrated approach to remove hindrances and irritants to exports. The country has to de-bottleneck infrastructure like transport, power and ports so that exporters can deliver on time. To compete globally, with countries like China, south-east Asian and east European countries, our cost of production has to come down. This, in turn, means we must have manufacturing facilities of global sizes for achieving maximum economy of scale. A flexible labour law is essential to allow manufacturers to reduce wages and also manpower, to bring down costs in line with the global players. Policies regarding cheaper credit, subsidies, tax breaks and reimbursement have to be simplified so that exporters, who work on small margins, do not face any liquidity problem.

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