|Swallows and exports|
|Thursday, 05 May 2011 00:00|
One swallow, the old saw goes, doesn’t make a summer. Though India’s exports rose nearly 38% in 2010-11, projecting a $500 bn target for 2013-14 is ambitious. Achieving the target will require exports to grow by under 27% per year, small by the 2010-11 standards, but last year’s growth was on the back of a fall in 2009-10 exports—overall growth in the last three years was a more sober 14% per annum. It is true the 2010-11 performance was brought about by Indian firms making forays into Latin America, Africa and West Asia to make up for the sluggish markets of the US and Europe. It is also true that engineering exports did well last year, and the 2013-14 targets build upon this new-found strength—the share of engineering exports is expected to rise from the current 18% share in overall exports to 25% by 2013-14. If China appreciates its currency, it will vacate some space that Indian firms could capture, though the experience of how India mucked up the opportunity afforded by the opening up of global textiles trade is sobering.
The larger point is that industrial exports cannot be expected to surge—and the bulk of export growth is to come from here—if industry doesn’t perform admirably. Apart from the sluggish growth we’re seeing, the slowing of reforms has played a role in industry slowing. The slowing in global trade growth projected by the IMF in 2011, and the near-collapse of the Doha Round suggest a further problem. Given India’s low market share, of course, raising growth levels is a lot easier, but this requires all policy wings of the government to pull together. If, as in the case of the textile trade, modernisation funds like TUFS start drying up and industry complains rising input (in this case, cotton) prices are hurting it, we have a problem. The government has said it plans to provide low-cost funds for investing in capital goods, build skill development facilities, simplify procedures … all of them need to click together. Contrast this with what’s happening on tax policy. Everyone knows exports shouldn’t be taxed, but the finance ministry has reportedly said the DEPB, which is meant to take care of the taxes paid on imported inputs, would be discontinued soon. The SEZ scheme, which was supposed to make exporters a lot more competitive, is also near-collapse. Don’t pop that champagne just yet.