Mixed bag : on Indian merchandise exports
Restoring health of every constituent sector is a must for long-term growth in exports
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India’s merchandise exports reached an all-time quarterly high of $95 billion in the three months ended June, providing welcome cheer on the economic front. That the record was notched up during a quarter when the second wave of the pandemic hit its peak, and amid varying degrees of lockdowns, is all the more noteworthy. Exports last month surged 47% from June 2020 to $32.5 billion. Even discounting the fact that the year-earlier period provided an anomalous base as the economy had just begun reopening from a protracted nationwide lockdown, growth in shipments was still a robust 30% when compared with the pre-pandemic June of 2019. Propelling the surge from the 2019 levels were non-rice cereals, which quadrupled; iron ore, which more than doubled; and organic and inorganic chemicals that rose 62%. Engineering goods exports had the biggest jump in dollar terms, adding $2.73 billion in value, or 42% over June 2019, as the rising vaccination coverage and economic recovery in key developed markets including the EU and the U.S. bolstered demand. Commerce and Industry Minister Piyush Goyal was enthused enough by the export performance to posit that shipments of goods to overseas markets could touch the $400 billion mark this fiscal, a figure which, if achieved, would represent an annual record.
Trade data, however, reveals that a significant driver of the export growth has been the runaway rally in commodity prices that have benefited from the accelerated reopening of major economies, as well as an increased appetite for raw materials and grains in China. On the other hand, the crucial job-generating export sectors including readymade garments, leather and leather products and tea all posted double-digit declines from June 2019 levels, reflecting the deeper structural problems that dog each one of them. If the tea industry has been facing a long-term downtrend exacerbated by inadequate product variety, lack of marketing-savvy and sharp competition from rivals including Sri Lanka and Kenya, the leather goods segment has been put on the ropes by a combination of short-sighted policy measures, WTO-mandated withdrawal of export incentives and a pandemic-induced slowdown in orders. For a segment that provides large-scale employment, the recent imposition of an import duty on a key raw material has thrown the sector’s very viability into question. With the Government dragging its feet on notifying the rates applicable under the Remission of Duties and Taxes on Export Products (RoDTEP) scheme, exporters are still unsure of how to price their products while bidding for orders. A container shortage and heightened congestion have also sent freight rates out of Indian ports soaring. Policymakers need to look beyond headline numbers and expedite action to restore the health of every constituent sector if economically enduring long-term growth in exports is to be ensured.