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India’s exports look up amidst US-China trade war

As fears of the US-China trade war becoming full-blown took hold, India’s exports started to look up in the first quarter of 2018-19, reflecting recovering GDP growth. This has opened up the possibility of India getting back on to a high export growth trajec The US-China trade war is cause for worry as it could pull down the reviving global trade after years of slow growth.
At the same time, it has opened up a window of opportunity for some countries, including India.

There are some low-hanging fruits, like export of cotton and soya beans to China, which were largely imported from the US. India can also step up exports of textiles and leather to the US, some of which used to go from China. These have to be worked upon on as challenges are many, but can they converted into opportunity.
India’s share in world merchandise exports at the moment is a mere 2%. There is scope to step it up to 5% over the next 4-5 years if some reforms are carried out. Enthused by the good showing of exports, a 20% growth in May and 18% in June the Ministry of Commerce is working on a strategy in consultation with the Federation of Indian Exporter Organisations (FIEO) to sustain a 20% growth in merchandise exports growth so to achieve $400 billion in annual exports in two years.

After clocking near double-digit growth, India’s exports touched $300 billion in 2017-18, following negative growth in the previous year at $275 billion in 2016-17. India’s exports had not been doing well after it touched $313 billion in 2013-14. That was due to global recession. In recent months, it has shown an upward trend. If there are problems now, they are from within and not external. They needs to be tackled immediately to ensure India does not miss the bus yet again.

The problem is not that severe in services exports, which has been growing steadily in double digits to touch $192 billion in 2017-18. One of the reasons why India needs to push merchandise exports is the widening trade deficit which is expected to be close to $200 billion this fiscal. This is because of higher oil, gold and electronics imports.

The depreciating rupee, though good for some exports, is aggravating the situation as oil imports become more expensive Also, the rupee depreciation is due to a weak macroeconomic situation, which could get worse if the trade war turns into a currency war as well.

One realisation that is sinking into government is that it needs to do some handholding for traditional export sectors, which were hit by demonetisation and the hastily implemented GST.

Sectors like textiles, handlooms, handicrafts, leather, gems and jewellery are yet to pick up. Aware of this problem, the government has expedited GST refunds so that they are not starved of working capital. These sectors are mostly in informal sectors, small and medium enterprises, which were starved of working capital.
The government is also seriously looking at reintroducing duty drawback scheme for GST to facilitate MSMEs. With the rollout of GST, the popular duty drawback scheme, which was earlier available for excise and countervailing duties as well, were withdrawn. Duty drawback is now available only for customs It is expected that duty drawback, which is a sort of refund of taxes paid on intermediary items that go into making of export items, will be reintroduced by October

This will ensure that their money does not get stuck in government, making it difficult for MSMEs to rotate money in business.