India’s merchandise exports continued their subdued performance, contracting by 6.57 per cent in September this year. Over the first half of this financial year, exports have contracted by 2.39 per cent, indicating that GDP growth is unlikely to have received a fillip from the external sector in the second quarter as well. Equally worrying, non-oil non-gold imports, an indicator of domestic demand, contracted for the 11th straight month, indicating continued weakness in domestic demand. Coupled with sluggish investment activity, as leading economic indicators suggest, these numbers point towards a subdued economic outlook in the near term. Unsurprisingly, the International Monetary Fund (IMF) has lowered its forecast for economic growth to 6.1 per cent this year, down from its earlier estimate of 7 per cent — bringing it in line with the Reserve Bank of India’s (RBI) assessment of the Indian economy.
Part of the decline in exports can be traced to a fall in petroleum exports. But, it is cause for concern that exports of major labour intensive segments such as gems and jewellery, garment and leather products, continue to decline. In fact, non-oil exports have contracted by 1.7 per cent in the first half of this financial year, with 22 of the 30 major export segments contracting in September. In part, the sluggish export performance can be attributed to a synchronised global slowdown. Exports of other nations have also been weak during this period. In fact, the IMF has also lowered its forecast for global GDP growth to 3 per cent. Then there are issues of competitiveness that afflict exports. An overvalued exchange rate and a complicated GST process exacerbates matters. But, the collapse in imports is equally worrying. Imports have contracted by 13.85 per cent in September, and by 7 per cent over the first half of this year. Excluding oil and gold, imports of other items have contracted by 5.6 per cent in the April-September period, signalling weak consumer and industrial demand. The situation is likely to have been exacerbated by inventory de-stocking — which along with risk aversion by banks could explain the collapse in credit flow to the commercial sector during this period.
The government has announced several steps to boost exports. But these are not enough. At this juncture, mere tinkering will not suffice. The government must draw on its political capital to push through contentious reforms that address the deeper structural issues plaguing the economy. Even in the midst of a slowdown in global trade, India, which accounts for around 2 per cent of global trade, should look aggressively to expand its share. After all, in the current economic environment of subdued domestic demand and investment, exports could provide the much needed boost to growth.