Stagnating Export

What is the issue?

The trade numbers for 2016-17 is showing a declining trend when compared to 2015-16.

What does statistics say?

Trade volume in 2011-12 was $305 billion.
It stayed above the 300-mark for the next three years before dropping off sharply in 2015-16.
In 2016-17 it is $270 billion
The world exports showed similar trends due to slow growth all over the world.
Global merchandise exports in 2016 were $16.5 trillion which was down by about 10 per cent from $18.2 trillion in 2011.
India’s share of global exports has remained more or less unchanged since 2011, at about 1.7%.
Prior to this there has been a steady increase in merchandise exports, from 0.8% in 2004.

How far do the global factors affect?

Part of the fall is due to the drop in oil prices since 2014, because of which the export of petroleum products has shrunk in value.
Other reason is the growing energy self-sufficiency of the US, which has sharply reduced its energy imports.
The other is the enormous success that China has had in import substitution.
It supplanted imports from East Asian countries with domestic inputs into the manufacturing supply chain.

What are the domestic factors?

India-China trade is one of the most unbalanced anywhere, with an export-import ratio of about 1:5.
India also runs a trade deficit with about 2/3^rd of its important trading partners.
They signify that the problem lies at home and not abroad.
India’s exports are concentrated in very few products and very few markets.
This makes the country vulnerable to negative swings in world trade.

What is the real reason?

In spite of this India’s improved on the Economic Complexity Index, to 45^th in 2014 lace from 61^st in 1995, in a list of 124 countries.
This reiterates the fact that the real problem is not in world trade stagnation, or Chinese mercantilism, or a narrow export base though all of them are contributory factors.
The real problem is the failure to develop an efficient manufacturing base.
India has a surplus in services trade, agricultural goods trade (being the sixth largest exporter).
It also has a surplus in transfer payments/remittances.
But lags heavily in manufacturing sector whose share of the total trade in goods and services combined has been declining steadily.
This has to be substantially improved to increase India’s exports.

Source: Business Standard.