India's export performance in the past has been quite positive. However, economic downturn in the global markets and various internal issues led to a revision in the target of US$ 500 bn to US$ 325 bn for the current financial year. And one should note that this is despite the rupee depreciating.
As per an article in the Economic Times, the Indian government is expected to double the export target to US$ 1 trillion in its next five year (2014-19) trade policy. The current policy will end in March 2014, and thus the policymakers are all set to plan the new targets. More focus is being laid on high value exports and finding out ways and means to curtail imports. The proposed 2014-19 policy intends to include various measures to make the country's outbound shipments more competitive. This can be done by boosting productivity and manufacturing exportable surplus.
Undoubtedly, Increase in exports has numerous benefits. First, it will reduce the current account deficit. Second, it will create jobs back home. Third, it will result in higher economic growth. And finally, it will help stem the rupee's slide.
However, focusing on subjects like exporting fully finished goods rather than raw materials, market diversification, focusing more on capital goods etc are not the only concerns.
In our view, there are bigger challenges. One is rupee volatility. The others being, global slowdown; the Euro crisis is a classic example of the impact on Indian exports due to global downturn. But global issues are something that is out of India's control.
What are in fact in its control and presents the biggest challenge are internal issues. These include problems such as inflation, lack of reforms, corruption and the like. Increasing inflation makes goods expensive and thus less competitive in the global markets. Further, higher manufacturing costs leave little room for companies to invest more on innovation. Scams result in delay of various projects. Thus, the Indian government needs to take more initiative towards resolving these issues. The focus should be on making exports more competitive, which in turn will ease the pressure on India's current account balance from a longer term perspective. This is as opposed to a short term view of depending on a weaker rupee to bolster exports.