Influential British weekly, “The Economist”, has regretted that India’s exports, which had reached a whopping 25% of Gross Domestic Product (GSP) in 2013, quadrupling since 1991, not far from the global average, thanks to the liberalising reforms which “helped integrate India into the global economy”, this year they have reached the “lowest level in 14 years”, around 17-18% of the GDP.
Pointing out that this has forced economists “to ponder why India has been unable to boost exports even as the global economy has purred along”, the top weekly says, “In the 12 months to March 2018, $303bn of Indian goods ended up overseas. That was up on the previous year, but still short of the $310bn achieved in 2014, when the Indian economy was a quarter smaller.”
It adds, “Imports, meanwhile, have increased to $460bn, pushing the merchandise deficit to $157bn last year, up from $109bn in 2016-17 and its highest level in five years. A surplus in services such as IT outsourcing helps reduce the overall trade deficit by around half, but even there imports are growing faster than exports.”
Asserting that India’s central bank, Reserve Bank of India, even today “holds enough foreign reserves to pay for nearly a year’s worth of imports”, “The Economist” warns, “India’s current-account deficit … is expected to reach 2% of GDP this fiscal year, triple last year’s reading”, adding, “Gold imports, used for saving or jewellery, have their own unpredictable rhythms, but also deepen the deficit.”
Suggesting that things have worsened because of oil prices, the weekly says, “The current trade lull extends beyond gold and oil, however. Exporters across the economy are being squeezed by the poor implementation of a goods-and-services tax (GST) that came into force last July.”
It adds, “Perhaps 100bn rupees ($1.5bn) of refunds due to exporters once they can prove they have shipped their wares abroad is being held up by sclerotic administration. That is working capital which small-time exporters cannot easily replace.”
“Worse”, “The Economist” says, “A $2bn suspected fraud by a diamond dealer in February has resulted in regulators banning certain types of bank guarantees that exporters use to ensure they get paid promptly, exacerbating their funding problems. These snafus come as many firms are still recovering from the ill-advised ‘demonetisation’ of November 2016, when most banknotes were taken out of circulation overnight.”
Noting that the move “snagged local supply chains, giving foreign rivals opportunities to fulfil orders that would have gone to hobbled Indian firms and to gain market share in India itself”, the weekly underlines, “Those woes come on top of perennial frailties”, especially “crippling red tape”.
Lamenting that, meanwhile, the Government of India is still “unwilling to enact labour and land-acquisition reforms that might foster larger firms”, the weekly says, instead, “it is trying to shield industry from foreign competition.” Thus, “In recent months it has imposed tariffs on a dizzying array of goods, from mobile phones to kites. Though those will no doubt help stymie imports, it is just as likely that trade measures imposed by other governments will hobble India’s exports.”
Especially taking on Modi’s friend US President Donald Trump, the weekly says, it is India’s misfortune that the US “has multiplied the salvos against India, whether decrying supposed export subsidies, making it harder for Indian IT workers to get visas or accusing India of artificially weakening its currency.” Thus, it adds, “Unlike many American allies, India has not been exempted from imminent steel tariffs.”