India’s exports registered a marginal annual growth of 3.4 % in dollar terms in the year 2008-09 over previous fiscal. But for the somewhat normal growth in exports during the first half of the fiscal, the year would have ended with significant negative growth.
Shrinkage of global demand has affected all trading nations. Different product sectors have faced divergent challenges. Further, some economies have felt minimal impact in certain sectors while there has been deeper impact on these sectors in India. There is a need is to look at the scenario, holistically.
Comparisons between economies with respect to their export performance could be misleading unless the underlying variables are realistically captured. The product-diversity of exports is a key determinant. A country like Vietnam, which has limited product diversity in exports has warded off the adverse effects of the global crisis because of relatively low income elasticity of demand of the products that country exports.
In 2008, the products which might have recorded sound growth in Vietnamese exports are garment and clothes, footwear, wooden products, tapioca, rice, tea etc. In the case of Indonesia the products of export significance are minerals, fats and oils, rubber, paper, wood and knit and woven apparel. Here except for knit apparel which is reported to have recorded 13% growth over previous year, other manufactured items do not seem to have experienced robust growth. In fact, exports of cotton, yarn and fabric is reported to have increased only by 0.48 % in case of Indonesia.
As for India, the adverse impact has been more visible in sectors such as gems & jewellery, handicrafts, carpets, textile and clothing and allied products. Cotton & raw waste recorded negative growth of 68%, carpets, – 7.9 %, gem & jewellery, – 6.9 % and handicrafts, – 42.7 %. The first two of these list of items have a high positive correlation with incomes and economic expectations of individuals and families.
However, the textiles & clothing sector of India and those of countries such as Vietnam, Bangladesh etc. should have witnessed similar trends. Have they? Indications are that Vietnamese garments & clothing exports might have grown 22 % in 2008 and Footwear by 18.6 %. Thus, the rather poor export performer in at least select product sectors do seek answers beyond global shrinkage in demand.
India’s export promotion policy lacks a cohesive and comprehensive approach. Different agents and agencies of government have been speaking in different voices, often implicitly questioning the relevance of exports as there are other means of earning foreign exchange. From an attitude of ‘export or perish,’ a complacency has developed overtime without realising that the only sure way of finding resources for meeting the import requirements are through a strong and diversified export growth coupled with inflows through FDI. Other means of foreign exchange inflows have inherent volatility and has low reliability.
Multiplicity of agencies and complex and user-unfriendly procedures are still imposing a heavy cost on the export sector. Developing countries like Philippines have been able to put in place a ‘One Stop Documentation Centre’ while Indian exporter is forced to wait for dozens of approvals. An e-enabled governance of trade related authorisations and approvals could easily be put up in place if the different government departments adopt a client-friendly approach.
The heavy transaction cost of doing business limits the Indian exporters’ capability to lower prices and be competitive when market shrinks and competition gets tighter. Growth of entrepreneurship in export sectors such as textile & clothing have of late been very low compared to early years. Many exporters have moved to other areas including real estate.
Further, poor productivity when compared to other competing developing economies like Vietnam and Bangladesh has also contributed to the current slowdown in India’s export of readymade garments and clothing.
Source:The Economic Times