Government To Revive Exports; Steps Are Few And Far Between

The government has indicated that the country’s GDP will grow at 5.7-5.9%. This would be the slowest pace of growth in the last decade. India is currently facing a difficult twin-deficit situation (fiscal and current account deficit). In an attempt to reduce the fiscal deficit, the government’s attempts have been quite visible. Expediting PSU divestments and 2G telecom auction have been good steps in that direction. In line with its commitment to improve its finances, on Wednesday, December 26, 2012, the government announced moves to curb its soaring current account deficit as well.

From April to November 2012, India’s trade deficit stands at USD 129.5 billion an increase by 5.60% as compared to the corresponding period in the previous year. While its imports declined by 1.58% to USD 318.722 billion, its exports declined by a larger extent (5.95%) to USD 189.2 billion.

The situation looks even worse, and rather grave, for November 2012. In November 2012, the trade deficit widened by 21.82% as compared to November 2011. The cumulative effect of a 4.17% decline in exports and 6.35% growth in imports has resulted in this humongous gap.

In an attempt to boost exports, the government announced that it would extend the 2 percentage point interest subsidy on rupee-dominated export loans for labour-intensive and small-scale industries by one year to March 2014. This was also extended for the engineering sector, which has been the largest contributor to Indian exports and which had been witnessing some moderation in terms of business resulting in capacities lying idle. This step will help engineering companies to increase their competitiveness in the global market and hence better exports.

The global slowdown has affected demand drastically. This has been evident from trade data across the globe, especially from China, the export hub of world. According to one report, for the first 11 months of CY12, China's exports and imports grew by 5.8 % from a year earlier, against the target of 10 percent fixed by the government.

India’s trade deficit has also taken a beating due to a rise in oil imports. From April – November 2012, while non-oil imports have decreased by 7.07%, oil imports have increased by 10.84%, on a yearly basis. While not much can be done on the oil import front on an immediate basis, the government is taking steps towards reviving exports, which too at the moment, depend more on global macroeconomic factors.

We are already eight months (data available) into FY13 and cumulative exports stand at USD 189.22 billion, which has barely crossed 50 per cent of the export target (USD 360 billion) set for the year FY13. This is bad news for country which is already grappling with a twin deficit. According to some estimates, India’s current account deficit will touch as high as 4.2 per cent and fiscal deficit around six per cent for FY13.

The current steps taken by government are definitely in the right direction. However, it will not help the country to bridge its huge deficit and more steps need to be taken if the government wants to limit its fiscal deficit to 5.3 per cent for FY13.