New Delhi: India’s merchandise exports have fallen by more than 7% over the last four years since the Narendra Modi government came to power, in a development that exposes the failure of the country’s trade diplomacy.
Significantly, the country has seen this dismal performance on the external trade front at a time when India is being led by an outward, foreign-facing government whose projected strength involves converting diplomatic relations into economic goals.
India’s merchandise exports stood at $302 billion in 2017-18, down 7.49% from 2014-15 when the country shipped products worth $310.33 billion overseas.
If we take 2013-14 as the base year, the decline in India’s exports is much sharper, at 11.56%.
Ironically, the factors that hurt India’s export performance were domestic, not external. World trade grew at its fastest pace in six years in 2017. However, India failed to benefit from the recovery in global trade due to the economic mayhem caused by demonetisation and shoddy implementation of the Goods and Services Tax (GST).
India’s export performance in recent years
|Year||Merchandise exports ($bn)|
Source: Commerce ministry
The supply chains of small and medium enterprises (SMEs), which account for nearly half of the country’s exports, were badly disrupted, first by demonetisation in November 2016 and then again by the GST rollout in July last year.
Meanwhile, data compiled by the Centre for Monitoring Indian Economy (CMIE) show that India’s export-GDP ratio stood at 11.65% in 2017-18, the lowest in 14 years.
Exports dipped 0.7% in March to $29.1 billion, led by a decline in shipments of gems and jewellery.
This was the first decline in four months as gems and jewellery exports fell nearly 17%. Scared by the mega scam in the Punjab National Bank that came to light in February, banks have tightened lending to diamond traders, hitting gems and jewellery exports in a big way.
In 2017-18, the trade deficit is estimated to have widened to $157 billion, from $109 billion the previous fiscal.
In July 2017, when the SME sector was still recovering from the impact of demonetisation, the government introduced the GST regime in haste.
Small manufacturers found the new indirect regime too complicated to comply with and had to halt operations, disrupting supply chains.
As a consequence of broken supply chains, exports turned negative in October, for the first time since July 2016.
Meanwhile, data also showed that the GDP growth slowed to 5.7% in April-June 2017 quarter, the lowest pace in three years, on manufacturing woes.
The fear of the economy further losing growth momentum forced the government to put in abeyance the complicated GST compliance procedures.
As part of the mid-term trade review policy for 2015-2020, the government also announced fresh export incentives to labour-intensive sectors and services.