After drowning in demonetisation blues, there's a breath of air for Indian exports, which have apparently grown impressivley during the month of January.
Merchandise exports grew 4.3% year-on-year (YoY) to US$22 billion, probably due to improved demand from the US, Europe, and Japan. Further, oil exports also rose by 29% to US$ 2.7 billion, while non-petroleum exports rose by 1.6% on a YoY basis.
The above data has lit optimism among business circles and many expect the trend to continue into the following months. Some threats that can disrupt this momentum are global volatility, and protectionist and anti-trade sentiments in the US and Europe.
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But, even keeping the above data and threats aside, we're not certain Indian exports will do so well. Let us explain...
If you look at long term performance, Indian exports have been on a major slide. Demand slowdown in developed economies, lack of competitiveness, increasing competition from other developing countries, an over-valued currency, etc are some of the factors to blame for this slowdown. These factors have more or less remained the same.
Apart from that, limited diversification of India's export basket has led to a decline in Indian exports over time.
So how can India rise to its potential in this regard?
One way to improve India's competitiveness in exports can be reducing corruption and streamlining bureaucratic procedures.
But that alone won't be enough. To improve its competitiveness, India should be a part of global supply chains. Along with that, it also needs world class export-related infrastructure.
At a time when the world is heading towards protectionism, India needs holistic reforms to become the factory of the world.
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