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Manufacturing deficits PDF Print E-mail
Tuesday, 12 March 2013 01:02
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Inefficient industry, not global slump, to blame

Tucked away in the Economic Survey is a face-saving explanation for India’s dismal export performance—even after a 4% yoy hike in February exports, April-February exports are down 4% yoy. Roughly two-thirds of the slowdown in exports, the Survey’s economists tell us, is due to the slowdown in economic growth in India’s major trading partners. The problem with this analysis, however, is that the same global slowdown doesn’t seem to have hit other competitors like China. China’s share of global exports rose from 3.9% in 2000 to 10.5% in 2011 and then to 11.2% in January-October 2012 while India’s rose from 0.7% to 1.7% before falling to 1.6% in the same period. While India’s exports fell 4.5% yoy in the first 9 months of this year, China’s rose over 8%, Hong Kong 4.6%, Philippines 8.6%, Vietnam 16.4% and Thailand 4.6%. To be sure, India has diversified its exporting partners—the share of Africa in India’s total exports rose from 5.3% in FY01 to 8.1% in FY12 and to 9.6% in April-November FY13—but this is hardly enough given the change in the composition of global trade. While South-North trade has remained flat at around 19% of total global trade in the last decade, North-North trade share fell from 40% in 2005 to 30% in 2011 while South-South trade share rose from 19% to 28% in the same period.

Even more problematic is the change for the worse in the composition of India’s exports basket. Manufactured goods comprised 78.8% of India’s FY01 export basket but this was down to just 69% in FY11 and further to 64.5% in April-November FY13. Within this, textiles has collapsed from 23.6% in FY01 to a mere 8.7% in April-November FY13. Indeed, of the top 50 global imports, India has just 6 items. It has just 5 items in global imports with a share of more than 5% and 3 of these—oil, diamonds and jewelry—are based on imports and have low value-addition. To be sure, some part of the current collapse has some very specific reasons. The mining ban, for instance, robbed over $2bn of exports in the first nine months of the year. But this was more than made up by a $4bn of extra agriculture exports as compared to the same period last year. Similarly, the increased MAT on SEZs has clearly lowered potential exports—though these still grew 36% yoy in the first half of the year—which is why the buzz is the government may be looking at reducing MAT on SEZs. While this may help, the larger point is that India’s manufacturing is looking more uncompetitive—so much so that even the rupee collapse hasn’t really helped exports. On the plus side, while the $4.4 bn fall in February imports over those in January reflects the dramatic economic slowdown—around $0.8 bn of this is on account of oil and $2-2.5 bn due to lower gold imports—it will also ensure Q4’s current account deficit will be lower than that in the previous three quarters. At a time when forex flows are increasingly volatile, a large trade deficit driven by a manufacturing deficit is the last thing India can afford.

 
 

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