Declining exports tells all is not well
Amidst the high expectations generated in the Make in India week and high hopes from the Finance Minister in the upcoming Union Budget 2016-17, the latest trade data reports worrisome trends. The exports of non-petroleum products fell by 10.5% against the previous year to $19.12 billion in Jan'16. Even imports of capital goods fell in many categories- a sign of sluggish domestic investment recovery.
To arrest the declining trend in exports, the government launched the New Exports Subvention Scheme. The scheme provided 3% interest subsidy for 5 years to exports from Micro, Small and Medium Enterprises. It supported export sectors such as handicrafts, leather, processed foods, auto components, carpets, readymade garments, etc. to compete internationally. These sectors are labour intensive and would help generate employment.
The major reasons why exports are slowing down are, slowdown in the global economy, falling crude oil prices and the depreciating value of the Indian Rupee.
The latest trade data released by the Ministry of Commerce showed that exports declined by 13.6% in January to $21.07 billion. The exports, for the first 10 months of the fiscal year 2015-16 were $217.67 billion as against $264.32 billion in the same period last year. The imports also declined by 11% to $28.71 billion leaving a trade deficit of $7.63 billion.
Like India, trade also declined in China. In Jan'16 exports fell by 11.2% to $177.5 billion while the imports dropped by 18.8% to $114.2 billion.
The exchange rate of rupee falls under the domain of RBI which is weary of using devaluation as a tool for increasing exports. Experts believe that to boost exports, India will have to move beyond the traditional markets and commodities to newer products and frontiers such as Latin America, Commonwealth of Independent States, etc. Expectations to incentivise exports are high from the union budget.