Notwithstanding the V-shaped recovery in the stock market and sustained economic growth, 2009 was truly annus horribilis for India insofar as external trade (and trade-dependent economic sectors) is concerned. Exports registered negative growth throughout the year, with indications of recovery for some products emerging only in recent weeks.
However, the decline in exports at -6.6 per cent in October 2009 from -35.5 per cent in April is an encouraging trend. Exports are now expected to record positive growth towards the end of the third quarter or the beginning of the fourth quarter this financial year.
The trade deficit for the first seven months of FY 2009-10 was significantly lower than the deficit registered during the same period last year, but this was largely due to the much larger decline in imports (a negative 29.6 per cent in dollar terms).
Cumulative value of exports (including re-exports) during April-October 2009 registered a negative growth of 26 per cent in dollar terms and 17.5 per cent in rupee terms over the same period last year.
Asia-Pacific shining
Though the worst appears to be behind us, 2010 is unlikely to be hugely different from 2009. Although some emerging trends in the global economy have led analysts to predict a phenomenal bounce back in the year to come, the real economy worldwide seems to be, at best, limping back to normalcy.
First, the good news. Not only is the global economy now firmly out of the recession, growth has been particularly robust in the Asia-Pacific countries.
Other than Japan, almost all the other economies in the region have posted healthy economic growth in the last quarter, and indicated encouraging prospects for future growth, investment and trade. Leading economic indicators during the final quarter of 2009 and for 2010 (from retail to real estate, finance to factories, and employment prospects) all appear to be turning positive, almost as if with a vengeance. Consumer confidence and product demand also seem to be on the path of recovery, which in turn has improved the performance of the transport and trade-related product and services sectors.
The India growth story is aligned with the general Asia-Pacific scenario, though, according to some, prospects for India in 2010 may even be better than the rest in the region. Notwithstanding the continued lag when compared to China, India will remain one of the five largest Asia-Pacific economies with forecasted GDP growth of about 7 per cent in the coming fiscal. Furthermore, in India domestic consumption seems to be recovering from the lows registered in the fiscal year-to-date backed by lower prices, pent-up demand, growing consumer confidence; and all these trends are expected to strengthen and sustain in FY 2009-10.
Trailing exports
However, I suspect that the external trade prospects will continue to trail economic growth in the coming year. According to a recent DOC press release, in October 2009 export performance improved in iron ores, drugs, tobacco, spices, cashew, oil meals, fruits and vegetables, and marine products compared to the corresponding month the previous year. But, notably, performance and prospects for the labour-intensive export sectors — namely gems and jewellery and textile products — remain muted. This has implications for the employment and poverty concerns of a large section of the Indian population.
Add to that the failure of the recent Copenhagen Summit to find a mutually acceptable, all-encompassing binding agreement on climate change. As an alternative, some countries are now suggesting carbon-based trade restrictions on countries that don't undertake acceptable bindings or reductions of future carbon emissions. Such restrictions would lead to retaliatory trade distortive policies and punitive trade measures by trade partners, thereby adding to the growing conflict between free trade and climate change.
Climbing food prices
The other bad news is that prospects for India's industrial production and international competitiveness will likely be marred by the higher food/commodity prices which, in turn, could result in WPI breaching 6 per cent levels by March 2010. Food prices in India are already at their 11-year highs. An index of food articles compiled by the Commerce Ministry increased 19.05 per cent in the week ended November 28 from a year earlier, following a 17.47 per cent gain in the previous week.
With the return of economic growth in India, policymakers are rightly concerned about inflationary pressures as well as the growing asset price bubbles. The Commerce Ministry needs to be equally agile and proactive. The year 2010 will pose its own challenges, in particular vis-à-vis trade, which calls for carefully formulated medium-term policies for mitigation. The year's foreign trade policy will, therefore, willy-nilly play a significant role in charting Indian exporters' prospects in the coming decade.
Source : Business Line