India’s Foreign Trade: Exports At 13-Year Low

The Union Commerce Ministry released the official data on April 1, 2009. According to the latest data, India's exports fell by 21.7 per cent in February, the lowest in 13 years, owing to a continued lack of demand for goods in the West--most of which is battling recession.India’s imports too fell by 23.3 per cent during the month under review, making it the second consecutive dip.The country’s exports dipped to $11.91 billion in February 2009 from $15.22 billion in the corresponding period in 2008. Imports declined to $16.82 billion from $21.93 billion, which as a result narrowed the trade deficit to $4.91 billion from $6.1 billion January 2009.

It was expected that the total exports in 2008-09 would touch $167-168 billion. In 2009-10, it was expected that the exports growth rate would be five per cent and would touch $175 billion against the target of $200 billion.

Even in rupee terms, both exports and imports showed contraction during the month. Exports fell three per cent to Rs. 58,685 crore from Rs. 60,476 crore in February 2007, while imports decreased by 4.9 per cent to Rs. 82,872 crore.

For the April-February 2008-09 period, the country's exports grew marginally by 7.3 per cent to $156.59 billion, while in April-January it was over 13 per cent. Imports were 19.1 per cent up at $271.68 billion from $228.08 billion a year ago.

The growth rate of India's export in the fiscal 2009-10 will be flat and the $200 billion target is not at all feasible.

Oil Imports
Oil imports during February 2009 dipped to $4.04 billion from $7.71 billion. India's oil imports during April- February were at $89.68 billion, 26.8 per cent up from $70.7 billion in the year-ago period.

Non-oil imports during the month were estimated at $12.77 billion from $14.22 billion in February 2008.

After registering an impressive growth at 30.9 per cent in the first half of the fiscal, exports slumped for the first time in October 2008 registering a fall of 12.1 per cent to $12.8 billion. The fall in November and December 2008 were at 9.9 per cent and 1.1 per cent respectively while the dip in January 2009 was about 16 per cent.

The World Trade Organisation (WTO) has stated that the world trade is likely to shrink by nine per cent in 2009. The Planning Commission, in a report, has stated that India's export growth could be as low as 3 per cent in 2009-10.

Key Aspects of Export Growth
It is not just increase in the amount of export of the country year after year which is making the economists and analysts happy. What is even more noteworthy is that India is now exporting some of the engineering goods such as automobiles and motorbikes all over the world including industrialised countries competing on both quality and price. Earlier India was considered to be a producer of mainly commodities and it was never recog­nised as a country which can produce engineering goods of high quality. The chart given shows contribution of various sectors in the growth of exports.

Adding to this buoyancy is the fact that Indian exports have become more resilient to exchange rate fluctuations. It is no longer a fear that a stronger rupee will lead to a drop in exports—a view that was quite common even in the late 90s. India no longer needs a weak rupee to make its products price competitive. However, one must not look at Indian exports in isolation.

Foreign Trade Policy 2004-09
A five-year Foreign Trade Policy regime was announced by the Commerce and Industry Minister, Kamal Nath in the year 2004. Stability of Trade Policy regime has yielded very positive results and in the three years since then, India’s merchandise exports have almost doubled. India’s share of world trade has moved from 0.76 per cent to above one per cent. Incremental exports in last 3 years have created additional 75 lakhs jobs.

The Policy states that India has scaled down its export target to around $170-175 billion for the current fiscal in the wake of current economic crisis. The Policy is confident of achieving the target of $200 billion in exports during 2009-10. Changes include the following major initiatives:
* Encouragement to agro exports and employment generation in the agriculture sector.
* New initiative for infrastructure development, namely cold storage units, pack houses, reefer vans/containers, etc., for agro sector, is being launched.
* In line with the government objective of having all inclusive growth, Vishesh Krishi and Gram Udyog Yojana scheme expanded further to include forest based and agricultural products.
* Exports of specified high tech products are proposed to be rewarded.
* Long standing major grievance of trade is being addressed by providing service tax exemption/remission on services rendered in India and utilised by exporters. This should bring cheers to the exporting fraternity.
* Services rendered abroad and charged on exports from India to be exempted from service tax.
* For effectively ensuring all-inclusive growth for farmers and tribals, focus products scheme expanded further to include new agro and forest products.
* For diversifying exports to tap hitherto unexplored markets, scope of focus market scheme is being expanded to include 16 new countries including 10 Commomwealth of Independent Countries (CIS) countries.
* Exports and employment in handloom and handicraft sectors provided further push through duty free access to machinery and equipment for effluent treatment plants.
* To sharpen core strength of promising gems and jewellery sectors and handicraft sector, duty-free access to tools, machinery and equipment proposed to be provided to give them competitive edge.
* Exporters affected by force majeure or other unforeseen circumstances/reasons, to be provided more time for completing their export obligation.
* For encouraging product development and diversification for competing in the international market, the limit for duty-free import of samples has also been increased.

* Duty on fuel and four per cent special additional duty to be factored in the DEPB scheme
* EPCG scheme revamped to achieve simplification and make it user friendly.
* Benefit of all duty exemption and remission schemes such as advance authorisation scheme, DEPB and DFIA extended to the supply of goods to developer and co-developer of the Special Economic Zones (SEZs).

What Needs to be Done
One of the important hindrances to the exporter is lack of infrastructure development. A large part of the country is still living without electricity and water. The roads within the country are not developed, taking a lot of time in transportation of goods. Indian ports lack the facilities for faster loading and unloading of goods. Unless these issues are addressed it will be very difficult for the Indian exporters to compete globally.

Apart from this, as the experience suggests, allowing Foreign Direct Investment (FDI) in any sector of economy have helped the economy in India. Keeping this in mind, the Government should open more and more industries to FDI with proper regulations. Issues like FDI in retail sector should be sorted out as soon as possible. This will help increasing export in many other industries.