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Are Exports on the Cusp of Recovery?
Mon, 27 Jun Pre-Open

Exports contracted at its slowest pace in eighteen months in May. The contraction was marginal at 0.8% during the month as compared to a year ago. Further, the positive is that the growth in the non-petroleum exports turned positive. However, has the fall in exports bottomed out and is a sustainable recovery foreseeable?

To see a sustainable growth in exports, there must be a pick-up in the global economy. However, a pick-up in the global economy seems to be a far cry. Recently, the World Bank lowered its growth projections for global trade to 3.1% from the earlier projected 3.8%. Further, recent jobs data emanating from US is hardly encouraging. It suggests the weak economic situation prevailing there.

To add to this, low crude price of oil have depleted the foreign exchange reserves of the oil producing nations. This has led to lower export orders from their side. However, lately there has been a recovery in the oil prices.

But have Indian exports fallen just because of tepid global growth? As Vivek Kaul points out that there are structural factors too which has dragged the exports down. Here is his take on the same:

  • For instance, while world real GDP growth improved from 3.2% in 2009-2011 to 3.4% in 2012-2014, India's real growth of exports came down from 11.1% to 4.1%. Falling competitiveness is one of the structural factors restricting export growth. For key export items such as gems & jewellery and textiles, revealed comparative 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. It's not just about slowing global economic growth.

The slower contraction of exports is a good sign for the Indian economy. However, the global economy continues to remain in a weak spot. Hence, a sustainable pick-up in the exports would only be visible once the structural economic issues are addressed and currency volatility is taken care of.

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