US President Donald Trump has threatened to impose retaliatory tariffs on Indian goods, if we do not lower our duties on American exports. If the threat is carried out, it will exacerbate an already difficult situation for Indian exports.

The seriousness of the problem is best illustrated by the fact that Indian exports of goods and services, as a percentage of gross domestic product (GDP) in the September 2017 quarter, was lower than what it was 12 years ago, in the September 2005 quarter.

The accompanying chart has the details. It shows that Indian exports of goods and services as a percentage of GDP went up steadily during the last boom till the September 2008 quarter.

The rise in exports contributed significantly to the high growth rates achieved by the Indian economy during that period.

The financial crisis then affected our exports and the exports/GDP ratio plummeted. But it recovered during 2010-13, before falling again. Since the December 2015 quarter it has stagnated at around 19.5% of GDP, far below the peak of 27.27% of GDP reached in the September 2013 quarter.

Further, the latest GDP estimates show that exports increased by 6.3% at current prices in the December 2017 quarter, well below the 11.9% growth in GDP at current prices. That indicates the exports to GDP ratio continues to deteriorate.

In contrast, International Monetary Fund (IMF) data for emerging and developing Asia show that the volume of export of goods and services from the region picked up smartly in 2016 and 2017. No such improvement is visible in Indian exports.

The last Economic Survey put its finger on the problem when it said, “the international competitiveness of manufacturing has not made great strides, reflected in the declining manufacturing export-GDP ratio and manufacturing trade balance". Bluntly put, it raises a question on how competitive Indian industry is. For the immediate future, addressing exporters’ concerns on the implementation of the goods and services tax is imperative.

The survey also added, however, that the biggest source of upside potential for Indian growth lies in exports.

“If the relationship between India’s exports and world growth returns to that in the boom phase, and if world growth in 2018 is as projected by the IMF, then that could add another 0.5 percentage point to growth," it said. If the trade wars happen, of course, we would be looking at subtracting from growth instead of adding to it.

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