Govt must take steps to sustain the rebound
India’s merchandise exports went up nearly 200 per cent in April, year-on-year, to $30.21 billion. While a large part of the jump can be explained by the lower base of last year, exports are benefiting from the pickup in global demand. Even compared to April 2019, exports went up by about 16 per cent. The preliminary data suggests that the trend continues in May as well, led by petroleum products, engineering goods, and the gems and jewellery segments. Agricultural exports are also showing a huge increase. While India exported a record amount of rice last fiscal year, wheat exports too were at a multi-year high. Agricultural exports are likely to remain robust because of rising global food prices as evident from the fact that the FAO Food Price Index is at a multi-year high.
Encouraged by the recent rebound, Union Commerce and Industry Minister Piyush Goyal argued that India could achieve the ambitious target of merchandise exports worth $400 billion this year. To be sure, a sustained rebound in exports would help the Indian economy at a time when domestic demand is under significant pressure because of Covid-related lockdowns and restrictions on public mobility. The outlook for exports has improved because of faster than expected recovery in some of the advanced economies, particularly the US. While economic activity declined sharply in 2020 because of the pandemic, firms are pushing up production to meet the rebound in demand this year. As more and more people get vaccinated, demand is likely to increase further. Since higher demand is also pushing up prices, exporters are getting a much better realisation for their products. For example, global steel prices touched $830 per tonne in March, which was the highest in the past 12 years, bringing huge gains to Indian steel exporters. Thus, in order to take full advantage of the rebound in global demand, the government must ensure that activity is not affected in sectors and firms engaged in exports.
Although the near-term outlook for exports is encouraging, it is important to note that this may not significantly alter India’s trade dynamics. Exports have been virtually stagnant for several years. The level of exports in 2019-20, for instance, was roughly the same as in 2014-15. Thus, it is likely that the jump in exports would not be sustained in the medium term once global demand stabilises. India has shown a lack of export competitiveness over the years compared to some of its peers. For example, as highlighted in the latest Economic Survey, India’s exports went up by a compound annual growth rate of 0.9 per cent between 2011 and 2019. The comparable number for Bangladesh was 8.6 per cent. Notably, India has underperformed despite having a much broader industrial base.
The reasons for India’s underperformance on the export front are well documented. India has not been able to take advantage of its large pool of labour to push labour-intensive manufacturing and exports, which has significantly affected overall economic performance. It has also increased tariffs across the board in recent years. Besides, India decided to walk out of the Regional Comprehensive Economic Partnership — virtually disengaging itself from the most dynamic region in the world. This would affect India’s participation in the global value chain, which is critical for exports. Comprehensive trade agreements with the European Union and the US also remain elusive. Thus, to boost exports on a sustainable basis, which is absolutely critical for attaining higher economic growth and creating jobs, the government must review and reverse protectionist measures taken over the last few years.