[op-ed snap] Unchecked decline

Context

India’s merchandise exports continued their subdued performance, contracting by 6.57% in September this year. Over the first half of this financial year, exports have contracted by 2.39%.

Cause for worry

• • This indicates that GDP growth is unlikely to have received a fillip from the external sector in the second quarter as well. 
  • Non-oil non-gold imports, an indicator of domestic demand, contracted for the 11th straight month. This indicates continued weakness in domestic demand. 
  • Exports of major labor-intensive segments such as gems and jewelry, garment and leather products, continue to decline
  • All these are coupled with sluggish investment activity. These numbers point towards a subdued economic outlook in the near term. 
  • The IMF has lowered its forecast for economic growth to 6.1% this year, down from its earlier estimate of 7%.

Reasons behind the decline

• • The decline in exports can be traced to a fall in petroleum exports. 
  • It can also be attributed to a synchronised global slowdown. The exports of other nations have also been weak during this period. 
  • The IMF has also lowered its forecast for global GDP growth to 3%. 
  • There are also issues of competitiveness that afflict exports. An overvalued exchange rate and a complicated GST process exacerbate matters. 
  • The collapse in imports is equally worrying. Imports have contracted by 13.85% in September, and by 7% over the first half of this year. This signals weak consumer and industrial demand. 
  • It is exacerbated by inventory destocking, along with risk aversion by banks, could explain the collapse in credit flow to the commercial sector during this period.

Way ahead

• • The government has announced several steps to boost exports. But these are not enough. 
  • The government must push through reforms that address the deeper structural issues plaguing the economy. 
  • In the current economic environment of subdued domestic demand and investment, exports could provide the much-needed boost to growth.

A fact to note:

• • India accounts for around 2% of global trade.