THE annual supplement to the foreign trade policy (FTP) (2004-09) has set new heights for India’s exports to ensure that merchandised export reaches a level of US $160 billion by 2007-08 and $200 billion by 2008-09. Further, the policy reinforces the twin objectives of achieving both higher growth as well as employment generation. It marks a clear shift from the traditional approach to the development of exports, earning more and more foreign exchange, along with employment generation.
It is evident from the accompanying table that India’s merchandise exports have consistently grown at a fast pace of more than 20% since 2002-03. Consequently, India’s share in world exports has increased from 0.7% in 2001 to 1% in 2005. This was made possible because our export growth was higher than the world average during the past few years. Further, it is a result of the sustained and continuous efforts taken in the past which created a favourable environment both at home and internationally.
Similarly, exports of the principal commodities have registered a growth of over 20% in dollar terms during 2006-07 over the previous year. It is indicative of the heavy diversification of export goods — away from the traditional exports. During 2006-07, the export share of the top five commodities, i.e., engineering goods, petroleum products, chemicals and related products, textiles and gems & jewellery was 74.5% while twelve other commodities of exports only have a share of 25.5% in India’s total exports.
Another distinct feature is that engineering goods have had an export share of more than 15% since 2004. This is in line with the India FTP (2004-09) which envisages India as an emerging auto hub, a destination of choice for the manufacture of automobiles and auto components. The region-wise break-up of exports depicts a continuous rise in India’s export share to Asia and Asean countries. This is in accordance with the newly found enthusiasm for the Look East Policy.
Despite the remarkable growth in exports, the merchandise trade balance has been widening. The growth in our imports has out-performed the exports growth. Consequently, there is a huge trade deficit. We are not generating the trade surplus necessary to finance the imports, unlike other countries including China, Japan and Russia. However, the positive side of the rising trade deficit is that India is investing more at home, which will help generate more employment.
Nevertheless, India is in a comfortable position in spite of the growing trade deficit. It is because the trade deficit is partially financed by the current account surplus because of export of services in general and software exports in particular. The other reason for this comfort level is the surging capital inflows, which include foreign portfolio investment, foreign direct investment and external commercial borrowings.
Thanks to the liberalisation and globalisation process, services exports from India contributed 2.7% to the total services exports of the world during 2005. India’s exports of services and software export have increased by 32.4% and 32.6% respectively in dollar terms during 2006-07 over the previous year.
AN IMPRESSIVE growth in the services sector exports has kept the current account deficit on the balance of payment at a sustainable level of less than 1.6%. Exports of the services together with capital inflows to the country have expanded the foreign exchange kitty. As per the latest data from the RBI Bulletin, foreign exchange reserves of India have crossed the landmark of $200 billion . The same stood at $228.85 billion as on August 31, 2007.
As far as the employment problem is concerned, not much benefits have been reaped from the FTP. This is because so many incentives have been extended to promote exports and high value-added products from the agriculture sector, gems & jewellary sector, tiny sector and the handicrafts and handloom sector.
The textile sector is the second largest employment provider, next only to agriculture, for the Indian workforce. The labour intensive textile sector, however, has not been able to leverage the benefits of globalisation, whether in terms of export growth or employment, to a significant extent. Although the rupee appreciation vis-à-vis the US dollar has affected overall exports, textile exports in particular have borne the brunt of the strengthening rupee to a significant extent. This has eroded the competitiveness of textile exports and their profit margin. This will affect employment generation adversely, particularly in the textile sector.
There is a need to revamp the approach to exports, since there is a limit to how far the Reserve Bank of India can intervene in the currency market to prevent the rupee from appreciating vis-àvis the US dollar. Nevertheless, we can adjust to the new situation. An all out effort should be directed towards adopting new strategies for exports.
In the emerging international scenario, the export strategy may, inter alia, include the enhancing of our product basket by adding new and innovative items, targeting new markets, increasing quantity and adding value to the product, acquiring new designs, reducing costs and thereby enhancing the competitiveness of our exports. Increased productivity would ensure competitiveness and a lower cost for our exports. Exporters need to place more emphasis on non-price factors such as product quality, brand image, packaging, delivery and after sales service.
We also need to unveil export strategies which are region and country specific. Further, there should be second generation reforms in trade facilitation which, among other things, include modernisation of customs, the removal of infrastructure bottlenecks as well as the streamlining of documentary requirements. Small and medium enterprises, which constitute a majority of exporters from India, may be used as an effective tool for employment genera