Column : Alarmist commerce ministry

Mar 10 2011, 00:07 IST
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SummaryThe commerce ministry has produced a strategy paper for doubling exports in the next three years. This involves a doubling of exports from $225 billion in 2010-11 to $450 billion in 2013-14, implying a compound annual average rate of growth of 26%.

The commerce ministry has produced a strategy paper for doubling exports in the next three years (2011-12 to 2013-14). This involves a doubling of exports from $225 billion in 2010-11 to $450 billion in 2013-14, implying a compound annual average rate of growth of 26%. Stating a target is somewhat different from enunciating and implementing a strategy. While points about diversification and value addition are obvious and accepted, the commerce ministry’s arsenal to push these is limited. The revival of global demand is exogenous. WTO negotiations are stuck. In any event, most protectionist measures are WTO-compliant. Exports of goods are still price sensitive, certainly in low-value segments. While the commerce ministry can seek to resist rupee appreciation, exchange rates are also influenced by capital inflows and RBI intervention to prevent appreciation is not costless. The expression ‘transaction cost’ includes both infrastructure costs and procedural costs. There is little the commerce ministry can do to improve infrastructure. The procedures have already been simplified. To the extent hurdles remain, those are not for exports per se, but for claiming export incentives. While 2011-12 has introduced self-certification as a welcome step, revamping export incentives (and distinguishing them from export subsidies) requires a full-fledged GST. Beyond asking for fiscal incentives, legitimate questions can therefore be asked about utility of such a strategic exercise.

Having said this, there are interesting points made in the strategy paper about the numbers. For instance, projecting on basis of trends between 2002-03 and 2009-10, export/GDP ratio in 2013-14 is projected at 17.5%, extrapolating on the basis of IMF’s GDP forecasts. Similarly, import/GDP ratio in 2013-14 is projected at 30.3%, thus leading to an alarming balance of trade deficit of 12.8% of GDP in 2013-14. The strategy paper then asks legitimate questions about the financing of this trade deficit. In 2009-10, the trade deficit was 7.6% of GDP. While the question is legitimate, the numbers should be treated with some scepticism. First, both export and import numbers were distorted from 2008-09. Consequently, should trends have been based on 2002-03 to 2009-10? However, this is partly a pedantic point, since both imports and exports dipped from 2008-09 and the matching point remains. Second, and more importantly, something is clearly wrong with the commerce ministry’s GDP numbers. They involve nominal GDP growth rates of between 10% and 11%. IMF’s World Economic Outlook, on which GDP numbers are purportedly based, provides projections of real

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