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Exports are down

But the main concern that the Union budget must address is the ease of doing business.

By: Express News Service |
Updated: February 18, 2015 12:00:55 am

Amidst all the feel-good about official forex reserves crossing a record $330 billion and global oil prices ruling easy (despite some firming up, of late), it’s easy to lose sight of the bad news on the exports front. India’s merchandise exports fell 11.2 per cent year-on-year in dollar terms in January, while registering a measly 2.4 per cent growth during the first 10 months of this fiscal. If the present trend continues, even achieving the $313 billion level of 2013-14 may pose a challenge. Moreover, the worry isn’t just over foreign exchange reserves. Low, if not negative, export growth in labour-intensive sectors like textiles, handicrafts and gems and jewellery also translates into loss of jobs and incomes. Similarly, the roughly 8 per cent decline in agricultural exports has led to lower domestic crop realisations, impacting rural incomes as well.

Part of the export slowdown can be attributed to the rupee’s strengthening. Its real effective exchange rate against a basket of 36 currencies after adjusting for inflation differentials is today 8.5 per cent higher than a year ago. But there is also the problem of global economic weakness. Barring the US, every major economy from Europe and Japan to Brazil, Russia and South Africa is currently experiencing negative to very low growth. This, combined with loose monetary policies pursued by most central banks with a view to depreciate their currencies to fight deflationary pressures, has severely dented the competitiveness and prospects for Indian exports. It is obvious not much can be done to boost exports under the circumstances, at least in the short run. In fact, the government should avoid measures such as interest subvention, duty remission schemes, tax exemption for special economic zones and various sector-specific sops. These are counterproductive at best and distortionary in the long run.

Any “policy” to promote exports has to be less incentive-based and focused more on improving general cost competitiveness. The cause of exports is ultimately best served by investing in infrastructure — reliable power, warehousing and cold chain facilities, better road and rail connectivity, and state-of-the-art cargo handling facilities at ports — that make it economical to manufacture and move goods out of India. This is precisely what China — and to a limited extent, Gujarat too — has done. If the Union budget does enough to augment public infrastructure investments and adds to the overall ease of doing business, exports will take off on their own.

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