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Sustaining exports

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March 19, 2017

Why in news?

The trend of contraction in exports has been arrested, following six straight months of growth.

What are the reasons behind the growth?

  • There has been 17.5% year-on-year rise in February 2017, the highest expansion since October 2011.
  • This will also be the first time since 2013-14 that India’s exports growth is likely to end the fiscal year on a positive note.
  • The recent growth has been led by a sharp jump in a few items such as iron ore and engineering goods.
  • The impact of recovery in oil prices also helped India’s exports earning from petroleum products as well as demand for Indian goods from oil-rich nations in West Asia.
  • But its influence on full year exports may be neutral.
  • This will also lead to a jump in India’s import bill, because crude oil is the nation’s largest import.

What is in the future?

  • Oil prices have once again softened recently due to doubts over effectiveness of production cuts mandated by the Organisation of Petroleum Exporting Countries.
  • Such volatility in oil prices may once again lead to a widening of trade deficit, as imports continue to rise much faster than exports.
  • There is also increasingly protectionist approach worldwide as opposed to more integrated on trade.

What should be done?

  • The only way to help exports grow is by becoming more competitive through lower costs.
  • The US is the largest destination for Indian exports accounting for about 15 per cent of outbound merchandise.
  • The good news is that India’s exports to Asian nations, including immediate neighbours such as Nepal, and to Vietnam and Malaysia have been rising.
  • Additional efforts to increase demand in these countries will stand India in good stead.
  • It also needs to further diversify its geographical spread given the risk posed by a possible US protectionist policy.

 

Source: Business Line

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