Predictions of a global slowdown do notaugur well for India
The feeble growth in India’s merchandise exports in December (0.34 per cent) should be seen against the backdrop of the world economy slipping into a slowdown. The signs are unmistakable: China’s overall December exports fell 4.4 per cent from the same period in the previous year, the sharpest monthly drop in two years. China’s imports contracted 7.6 per cent in the same month, the biggest fall since July 2016. China’s December trade surplus with the US fell to just below $30 billion, from $35.5 billion in November. China’s falling trade surplus is likely to be part of a larger trend of sluggish trade and economic growth in advanced and emerging economies in 2019. According to the World Bank’s recently released report Global Economic Prospects , growth among advanced economies is expected to “drop to 2 per cent this year”, against an estimated 2.2 per cent in 2018, owing to “slowing external demand, rising borrowing costs and persistent policy uncertainties”, while emerging economies too, are expected to grow at just 4.2 per cent (and India at just over 7 per cent). The latter, the report observes, have been impacted by “substantial financial market pressures” and trade tensions. India’s rise in exports in 2016-17 and 2017-18 coincides with a sharp increase in world growth rates from 2.4 per cent in 2016 to 3.1 per cent in 2017. While total exports have grown by 13.79 per cent in April-December this year (goods exports by 10.18 per cent and services exports by 20.18 per cent), it remains to be seen whether this trend continues.
It is notable that the export increase in 2017-18 (about 13 per cent for goods and services put together) came about in a year when the rupee was largely firm, in the range of 64-65 to the dollar. With import-dependent exports accounting for about 40 per cent of total exports, the role of a weaker rupee in spurring exports should not be over-estimated. It is hard to say whether a weaker rupee in 2018 acted as a major boost to all exports other than services; this is despite the fact that the rupee depreciated more sharply than competing currencies. Certain sectors performed well in April-November 2018, such as chemicals, machinery and transport equipment, while textiles, agriculture, and gems and jewellery did not. GST-related glitches seem to have impacted sectors such as textiles with a large intermediary chain, despite the Centre’s efforts to sort these out.
It would seem that global growth is the biggest driver of exports. Even as India seeks to negotiate trade pacts to its advantage, it should work towards improving its agri-products exports, at a time when farmers are struggling with deflation. The agri-exports policy, unveiled last month, has come at the right time. Its focus on doubling farm exports to $60 billion by 2022 by diversifying the basket of products and destinations could lift both the trade numbers as well as livelihoods of millions.