» Business » Exports: All about cushioning the fall

Exports: All about cushioning the fall

By BS Bureau
December 03, 2009 15:48 IST
Get Rediff News in your Inbox:

The October data, showing export shrinkage of 6.6 per cent, is much better than the fall of 25 per cent that has been seen in many months during the past year.

GlobeInternational trade tends to over-react to fluctuations in economic output. During the high-growth phase of 2003-2007, trade grew at a pace twice as fast as global gross domestic product; in the subsequent two years, trade has declined much more rapidly than the global slowdown.

The International Monetary Fund expects global GDP to grow by around 1.5 per cent, but global trade will shrink by perhaps 8 to 10 per cent. India's exports too have suffered the same fate.

After witnessing growth rates of 20 per cent and more, month after month for several years, the past 12 months have all shown negative numbers. In the current financial year, India will be lucky if it manages to stay in the same place, at the $168 billion worth of goods that were exported last year.

But there is a silver lining. Firstly, the country's export performance is improving on a sequential basis, i.e. month over month.

The October data, showing export shrinkage of 6.6 per cent, is much better than the fall of 25 per cent that has been seen in many months during the past year.  Indeed, the tide began to turn on the rate of decline only a few months ago.

Secondly, there is corroboration of improving prospects from the order pipeline. The export orders component of the Purchasing Managers Index (a leading indicator) has shown expansion for four months in a row.

Thirdly, the dollar numbers for exports overstate the decline, because oil and commodity prices (like iron ore) are much cheaper compared to last year. Corrected for price movements in commodities, the export picture would look much better than it does now.

Indeed, the trade balance is already looking much better, since the deficit has shrunk, and it is this picture of an economy in good balance that has encouraged overseas investors to flock to the Indian stock market.

The sharply improved fortunes of the auto sector bode well for exports, since the capacity of the auto components sector is almost four times domestic demand.

Lastly, the likelihood of better holiday-season buying in America means improved prospects for textile and footwear exports. But since western markets still dominate the export basket, the outlook for the future will depend substantially on how well the western economies recover.

The outlook on this front is still unclear. Meanwhile, although China is now India's biggest trade partner, India has not been able to diversify its export basket, so as to reduce the dependence on minerals like iron ore.

While trade policy tends to focus on goods, the outlook on services export is much brighter. If one goes by recent trends in recruitment and the securing of outsourcing deals, the IT and ITeS sector will provide positive numbers.

The National Association of Software Services Companies estimates that the sector, which is substantially export-oriented, will turn in double-digit growth this year.

Get Rediff News in your Inbox:
BS Bureau in New Delhi
Source: source

Moneywiz Live!