It is hard to say whether the rise in exports in 2018-19 is sustainable.
It’s a statistical conundrum. Exports in March 2019, at $32.6 billion, were not just up 11 per cent year-on-year, but also capped a 9 per cent growth in 2018-19. Interestingly, March exports are at least $5 billion higher than the general trend of $26-27 billion monthly exports in the other months, with the traditional sectors of pharma, electronics, petroleum and chemicals driving the increase. It comes as a surprise in view of sluggish industrial growth during most of 2018-19, as well as the dip in GDP growth from 8.2 per cent in 2016-17 to 7.2 per cent in 2017-18 and finally to an estimated 7 per cent in the just concluded fiscal. Notwithstanding the base effect, industry seems to have hit a low since October 2018, when the factory index scaled 8 per cent. In February 2019, for instance, the IIP was up just 0.1 per cent, a 20-month low, with pharmaceuticals, chemicals, electrical equipment, machinery and computer products showing either flat or negative growth. In contrast, some of these very sectors have shown a 13-16 per cent spike in exports in March 2019. In the case of apparel, however, both exports and output have shown a similar rise. Unless exports were contracted many months in advance (say, during the December 2017–August 2018 period when the rupee was in free fall), or executed out of inventories, the divergence between exports and industrial output is not easily explained. Monthly exports have been steady at $26-27 billion between October and February, while manufacturing accounts for over three-fifths of India’s exports. A shift from domestic to external markets looks unlikely in such a short period, more so with the ongoing turbulence on the world trade front — unless China has enhanced purchases from India in the wake of its trade spat with the US. There has been no supportive jobs data to lend support to the export turnaround narrative. In fact, the micro-level reports have pointed to industry being hit by delays in GST refunds and other liquidity concerns.
It does not help that global growth, projected by the IMF, is expected to shrink to 3.3 per cent in 2019, against 4 per cent in 2017 and 3.6 per cent in 2018. Faced with headwinds from Brexit, macroeconomic stress in Argentina, Turkey and Italy, and the US-China wrangle, monetary authorities in the EU, China, US and Japan have adopted an accommodative stance. While this could revive the global economy, the challenge for India is to secure its GDP growth amidst such readjustments.
Reforms to ease logistical constraints to exports should continue, rather than merely pursuing a sort of ‘race to the bottom’. India must move up from low-productivity sectors by improving the quality of its human capital. The Economic Survey 2017-18 expresses the sanguine hope: “... the hyperglobalisation backlash in advanced countries, over which India has little control, must recede to create a favourable external climate to sustain rapid growth.”
Published On : 18-04-2019
Source : The Hindu Businessline
