Tuesday, April 19, 2011

India’s exports surge 37%....touch $250 billion

This is the kind of story I like to read in the mornings! Enough of all the negativity and all the depressing self-criticism that’s been going on for so many days. In the middle of all this negativity, let’s pause and savor the spectacular growth of the economy.

Exports are an extremely important component of a fast growing country’s growth story. Exports add to the GDP directly. Higher exports means higher production, more jobs, more incomes and more distribution of wealth. Higher exports also mean higher share for the country in world trade; giving it higher punch in the world economic order. With exports touching nearly $250 billion and imports $350 billion, India’s total trade is now $600 billion odd. At this level, India is amongst the top 15 countries worldwide in world trade. Now, given the fact that India is in the top 5 in GDP (measured in Purchasing Power Parity (PPP) terms), this may seem like a poor ranking. However, it must remembered that there are a few traditional “trading hubs” ahead of us in the list – Hong Kong,  Singapore and Taiwan. Take them out and we are pretty much in the top 10-12 countries!

In addition to the size of the exports, what also matters is the quality of exports. So if Raw Materials and agricultural products were the main items of export, then it would have been one thing. But if the biggest export item is Engineering goods, then that speak volumes for the progress the country has made. Engineering is one of the areas in which India has been hailed worldwide. So it’s heartening to note that India’s exports are made up of  technology and production led items rather than nature-gifted items. The other item of interest is pharma exports....mostly generics....again it is expected that pharma will continue to be a growth sector for India. In addition, there are the traditional strengths of India – Gems and Jewellery and Textiles. Overall, a good portfolio.....on which the foundation for much stronger exports in the future can be built.

What must be appreciated is that exports have risen even while the rupee has appreciated against the US dollar. In the last 12 months or so, the rupee has appreciated by about 6% which means that exports in $ terms have become 6% more expensive (while their rupee prices have remained the same). This export growth even when the currency is appreciating is unusual and very encouraging for a developing country. Usually, developing countries try and depreciate their currencies.....or hold them down artificially.....in order to give a boost to their exports. For eg., the biggest trade issue between the US and China is that China does not allow its currency to appreciate. If it did, China’s exports would suffer very badly....since most of China’s exports are done at very small margins. In India’s case on the other hand, the growth of 37.5% in exports has come in spite of currency appreciation. This shows that the demand of Indian exports is less price sensitive.....this is again a reflection on the quality of our exports.

Twenty years of liberalization has given a huge fillip to our exports performance. Many things have changed in this period. But there are two major changes that have happened which has led to this export orientation. First and foremost, the attitude of Indian businessmen to exports has changed.....today, they have the confidence to look at the entire world as their oyster. Secondly, the availability of high technology has eased a lot with India opening up its economy. Hence quality of Indian exports has improved allowing India to compete worldwide. Overall, India is now known for its high quality engineering (and IT) exports rather than Iron Ore or Cotton fibres....

What next? In the next 3 years, the target is to increase exports to $450 billion. If imports simultaneously climb to $550 billion, the total trade will cross $1 trillion. By that time, the Indian GDP is expected to be about $2.5 trillion or so. When expressed as a % of GDP, Indian trade will be about 40%, a healthy number. This number would indicate that the economy is sufficiently integrated globally, but not overly dependent. In the case of China, trade is nearly 50% of their economy and of course in trading hubs like Hong Kong and Singapore, trade is more than 75% of their GDP. Most developed European countries (Germany, France, UK, Italy) also have trade at about 40-50% of their GDP. Since these countries are small in population and high in technology terms, they have traditionally been very strong in global trade. Now, the tide may be reversing as developing countries.....largely Asian.....take the trade route to development. It would be good that if pan the government for everything that's wrong, we also stand up and applaud their performance when they do well!

The real truth is that India’s trade performance is giving it a lot of punch in global politics. The Russians realized that real global strength comes not from military power but from economic power. Most Europeans nations have a very high Per Capita Income  (PCI) and are thus called rich countries, but they don’t have that much political clout in the world. Which is why they have banded together to form the European Union. India, on the other hand has low PCI, but is now acquiring more and more political clout worldwide because of its trade sector. If the world is noticing India today, it is as much for its trade performance as for its large domestic market. If India gets a permanent seat in the UN, it will be as much for its economic clout as for its population size. This is a time to cheer. Without any cynicism please!

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