Amidst the general lack of optimism on industrial growth, what has generally gone unnoticed is the quiet improvement in India’s merchandise export performance. This began in 2016-17 and has continued into this fiscal, with merchandise trade growth up 8.9 per cent in April-July 2017, even as July posted a growth of 4 per cent. While there can be no denying that a growth rate of 5.3 per cent in value terms in 2016-17 comes after two consecutive years of negative growth (minus 15.5 per cent in 2015-16), pointing to a ‘base effect’, it is surprising that improvement should have taken place amidst sluggish trends in world trade. Further, it seems to have bucked the demonetisation effect. A plausible factor at work here is the execution of earlier orders. What seems to have helped lift exports is the uptick in commodity prices, reflected in the turnaround in petroleum and ore and minerals exports. Engineering goods and gems and jewellery, which account for 38 per cent of India’s exports, recorded growth rates of nearly 11 per cent each, against minus 17.2 per cent and minus 4.8 per cent, respectively, in 2015-16. With agriculture and marine products exports also showing a sharp jump, after a degrowth in 2015-16, it would seem that the export turnaround in 2016-17 has been broadbased, even as labour-intensive sectors such as textiles and leather, besides drugs and pharma, registered negative growth. The growth has been geographically dispersed as well, with exports to Europe, the US and China up by 5.5 per cent, 5 per cent and 13.1 per cent, respectively, in 2016-17.
It is surprising that exports have performed well despite the rupee remaining firm right through the year. This raises larger questions about whether policymakers at times focus too much on the currency alone as a determinant of exports. India’s efforts at improving export and import procedures may have helped, a factor that has helped it improve its ‘ease of doing business’ ranking. It is important to focus on logistics, product development and quality as well.
While it certainly helps India’s cause that world trade growth (of goods and services) is expected to touch 4 per cent this year and 3.9 per cent in 2018, against 2.3 per cent in 2016 and 2.5 per cent in 2015, there are worries on the services trade front. Services exports were down 0.3 per cent in dollar terms this June, as against a positive growth of 4 per cent in May 2017. In 2016-17, net invisibles receipts fell 10 per cent, owing to, as Economic Survey 2016-17 puts it, “a decline in net receipts of software, insurance and pension services, charges for use of intellectual property rights...” The paradigm shift in services, led by technology and the anti-globalisation sentiment in the West, along with the collapse of the remittance economy with the end of the oil boom, poses a major economic challenge. While India’s external account looks comfortable owing to FDI flows, these issues require a considered response.