Unlocking India's export potential: How to overcome the slide

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REUTERS

Summary

Shrinking goods exports could dent the manufacturing sector and slow India’s growth momentum at a time when private investments— another key growth driver—is yet to take off in a big way

India’s goods exports fell 12.7% to $34.66 billion in April, the steepest slide in three years. This persistent decline has major implications for India’s growth story and, by extension, for job creation. Mint explains how businesses could deal with this problem going ahead.

What does the slide mean for GDP growth?

Shrinking goods exports could dent the manufacturing sector and slow India’s growth momentum at a time when private investments— another key growth driver—is yet to take off in a big way. This could put pressure on the government to explore more ways of boosting domestic demand with any eye on gross domestic product. A downturn in developed markets and the consequent dip in demand is seen by many as a downside risk to India’s projected 6.5% GDP growth rate in FY24, along with other risks like the impact of El Nino on farm output and a spillover of the banking sector stress in the US and EU.

Is there any bright spot at all?

Merchandise exports declined in five out of the last seven months, which is distressing for major labour-intensive sectors such as textile, leather, gems and jewellery as well as engineering goods. But services exports have continued to grow. According to a Morgan Stanley report, India’s services output has outperformed that of the US, Europe and China since late 2022. It has helped India narrow its current account deficit to 2.2% of GDP in the third quarter of the last fiscal from 3.7% in Q2. Strong services exports and moderating oil imports could lift the current account into a surplus of 0.4% of GDP in Q4 of FY23.

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What caused the fall in goods exports?

A key driver of exports in FY23 was petroleum products as refineries scooped up cheap Russian oil. However, global crude prices have softened and so has the value of Indian petroleum exports. The export decline in April was broad-based as non-oil exports also saw a y-o-y fall of 11.49% compared to a 17.64% fall in petro products due to slowing global demand.

How can India fix the problem?

Exporters said there is a need to provide marketing support for Indian products and services globally, and granting GST exemption on freight. Trade experts said diversifying exports destinations would help deal with the uncertainty in global trade. Despite 25 years of diversification, 40% of India’s export orders come from just seven countries. Rising interest rates globally resulted in higher cost of funds for small exporters. A long-standing demand from such exporters has been to lower the cost of funds.

Will things improve this financial year?

Exports are likely to remain under pressure for the next two to three months as demand in Europe and the US remains weak due to high inflation. However, China’s economic revival comes as a breather. China over the years, has also become an important export destination for India. It was India’s fourth largest export destination in April. A Sakthivel, president, Federation of Indian Export Organization, said exports could revive starting July this year with fresh orders for the festival season up to the new year.

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