With India’s exports falling for the second time this fiscal year in August, the government has announced a new set of measures for exporters.  (Mint)
With India’s exports falling for the second time this fiscal year in August, the government has announced a new set of measures for exporters. (Mint)

Centre’s latest measures are of little help to India’s exports

  • Export growth responds more to global demand than just an improvement in the supply-side issues
  • India’s merchandise exports declined 6% in August, owing to a steep fall in exports of textiles, engineering goods and organic chemicals

With India’s exports falling for the second time this fiscal year in August, the government has announced a new set of measures for exporters, which aim to lower cost of credit, increase availability of bank credit and speed up tax refunds.

But economists say that these changes, at best, will help at the margin. This is simply because export growth responds more to global demand than just improvement in supply-side issues. Unless global demand woes ease, exports won’t see a meaningful turnaround. “Based on the latest announcements, we haven’t changed our outlook on India’s exports. Replacing the earlier Merchandise Exports from India Scheme (revenue forgone 45,000 crore) with the new one (revenue forgone 50,000 crore) isn’t the kind of boost that can facilitate a massive improvement in exports," said Indranil Pan, chief economist, IDFC First Bank.

Graphic by Paras Jain/Mint
Graphic by Paras Jain/Mint

India’s merchandise exports declined 6% in August, owing to a steep fall in exports of textiles, engineering goods and organic chemicals. While a part of the decline can be attributed to a higher base, continued weakness in global demand remains a drag, economists said. “With the global economy facing a slowdown, the government needs to address measures to increase domestic demand. Exports may not be an immediate answer to work ourselves out of the slowdown," Pan added.

To get a sense of how grim the global demand picture is, one can look at JPMorgan’s Global Composite Purchase Managers’ Index survey. The monthly private survey showed that new export orders for global manufacturers and services providers combined, contracted further in August from 48.9 in July to 48. A reading above 50 indicates expansion and below that threshold points to contraction. As a result, business confidence among manufacturers and services providers regarding future output fell.

“The outlook for the global economy showed signs of further potential weakness to come. New orders fell at the joint-fastest rate in almost seven years in August, while business optimism sank to a fresh series-record low," said the 5 September survey report.

Close