Editorial: Keeping exports on track

Jun 12 2014, 00:16 IST
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SummaryCritical to not go and ban agriculture exports

Given the performance of the last few months, a 12.4% hike in May exports—the highest in 8 months—is good news and suggests that demand in developed markets is rising; indeed, at 7%, China’s exports also rose above estimates. If the government follows up with easing of gold import curbs, this will boost jewellery exports—they fell from $44.9 billion in FY12 to $43.3 billion in FY13 and $41.1 billion in FY14. Equally important, as commerce secretary

Rajeev Kher indicated in his briefing on the export numbers, are the removal of MAT and DDT in special economic zones. If exports continue to grow as expected, this means FY15’s current account deficit—despite the slight uptick in gold imports—could end up under 2% of GDP, which is easily financeable through the likely inflows.

Even so, there are important caveats. For one, an inflation-wary and monsoon-scarred government must not resort to a knee-jerk ban of agriculture exports which are over a tenth of total exports. While export bans come naturally to politicians—the on-off policy is what has prevented agriculture exports from taking off—it is important to keep in mind there is no shortage of the big-ticket farm exports ($7.7 billion rice and $1.6 billion wheat); indeed, exports could help the current surplus stocks with FCI.

Equally worrying is the fact that India’s competitors like Bangladesh are picking up market share in areas like readymade garments (RMG)—that exports of these rose from $13.7 billion in FY12 to just $14.9 billion in FY14 suggests India’s labour costs are making exports uncompetitive. If, during this time, exports of cotton yarn and fabrics rose from $6.8 billion to $8.9 billion, this is because production in these areas is in larger factories versus the fragmented production in RMG—again, this is directly related to poor labour laws. The fact that electronic exports have fallen from $9.4 billion to $7.7 billion in this period—at $31 billion, electronic imports are India’s third-largest imports after petroleum and gold—is also due to an inverted duty structure that makes imports of finished products cheaper than imports of components. The good news is that exports of engineering goods are picking up—9% in FY14—and, if the mining problem gets sorted out soon, exports could once again start doing well.

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