What Lies Behind the Fall in Indian Exports?

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If one has to track the performance over the long term, Indian exports have been on a major slide. The reasons for this are many. Demand slowdown in the developed world, lack of competitiveness, increasing competition from other developing countries, an over-valued currency, etc. are some of the factors to blame. These factors have more or less remained the same. While the positive performance in recent months have sparked optimism, the issue is far from being out of the doldrums. Let us explain.

If one has to go by the monthly performance, Indian exports during 2016 have performed well in September and October on a YoY basis. However, if we take the period April to October 2016, the growth in the dollar value of exports has stagnated. But this is nothing new. Indian exports have been declining over a relatively longer period starting from 2011-12.

The above scenario begs two questions. One, what are the reasons behind this declining trend? Two, what can be done about the same? Let us deal with each of them separately in brief.

The reasons behind the decline in exports are manifold. However, the reasons have varied over time. We came across an article in the Hindu Business Line that underlines three factors that are accountable for the recent decline in exports.

The first is the limited diversification of India's export basket. As per the article, the top 10 principal exports from India account for as much as 78% of total merchandise exports. This overexposure turns negative when the market for these exports runs into a slowdown. In the end, the drawdown also weighs on total exports from India.

Second, the export performance of some of the above goods have deteriorated. In some cases, even the performance has been characterised by lack of dynamism. For instance, four of India's lead exports witnessed negative or near-zero growth rates during 2015-16. And the fall in these lead exports has affected the aggregate growth of Indian exports.

Lastly, the slowdown in global economy has affected many low value exports from India that form a major chunk of the aggregate exports. The classic example here can be iron ore exports that took a hit after the slowdown in China.

The above factors, coupled with the volatility in crude oil prices, have led to the declining trend and volatility in India exports lately.

So, how can India rise to its true potential in this regard? The answer lies in looking beyond the hype of low wages and demographic dividend and put them to use by improving the investment climate in the country.

India's competitiveness is well below potential. Reducing corruption and red-tape, streamlining bureaucratic procedures will help mitigate these to a large extent. But it won't be enough. To improve our competitiveness, the country must be part of global supply chains. India also needs world class export-related infrastructure.

At a time when the world is progressing more towards protectionism, India needs holistic reforms rather than jingoistic rhetoric to become the factory of the world.

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