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Markets will remain closed on 1st May, 2017 on account of Maharashtra Day.

The Fall & Fall of Exports
Wed, 6 Apr Pre-Open

The contribution of exports to the overall gross domestic product (GDP) stands at around 23%. This figure in-itself shows the significance of exports in the economic growth of India. It is one of the very important factors to maintain India at the top spot in terms of the fastest growing economy.

However, for a while now the exports are on a declining trend. Month after month we see headlines in the leading financial newspapers about the fall in exports. One such headline I recently saw was 'India's Exports Fall for Fifteenth Consecutive Month'. Let's analyze some of the reasons for this fall.

Considering India imports 80% of its oil requirements, it is surprising to note that petroleum products constituted the largest part of exports in the month of October 2014. Several Indian companies run oil refineries which refine crude oil and then export petroleum products.

Since the great fall of crude prices owing to excess supply, the demand for petroleum products has dried up. This has impacted the petroleum exports. Petroleum products which once constituted 20.5% of the overall exports have now fallen to 11.3%. Now, this is a significant decline.

Further, global economy is facing a slowdown. Zero interest rates have certainly not helped the developed economies such as US and Europe. To add to the woes, China too is facing a slowdown. Global growth recovery has been slow and uneven. This has led to The International Monetary Fund (IMF) revising its global growth forecasts downwards. Its projected global growth stands at 3.4% for 2016 and 3.6% for 2017.

Not to forget the currency depreciation wars in emerging markets. The People Bank of China (PBOC), recently depreciated their currency. Depreciation of yuan leads to cheaper Chinese products. This makes Indian products less competitive as compared to the Chinese ones, which in-turn hurts our exports.

However, global factors are not the only culprit in the falling exports. There are structural factors too. As Vivek Kaul points out that falling competitiveness is one of the structural factors restricting export growth. For key export items such as gems & jewellery, and textiles, India's competitive advantage has come down over the years. So Indian exports have come down also because their competitiveness vis a vis goods from other nations has gone down over the years.

Thus, we believe these structural factors too need to be addressed to get the exports moving. Unless there is improvement in the above factors, India's exports will remain subdued.

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