Prime Minister Narendra Modi’s initiative to substantially boost India’s manufacturing industry has impacted little on the country’s growing dependence on merchandise imports and large trade deficits. It is no wonder that the government and its commerce minister say little on the country’s growing annual merchandise imports bill and trade deficit while highlighting its export growth. The steady domestic demand amidst the global slump has hardly pushed up local production and investment in manufacturing. Instead, it seems to be helping foreign producers dump their products into India. Strong industrial and foreign trade policies could stem the rot.
The government needs to work with industry to formulate such policies. There is no target before the government for achieving a zero balance of trade, if not a trade surplus, in the near future. India’s foreign trade is highly imbalanced in favour of imports. Theoretically, balanced trade refers to a situation where a country has equal imports and exports. In essence, it points to a zero balance of trade. Unfavourable trade gaps lead to higher foreign borrowings to bridge the transaction gap, fall in the global exchange rate of local currency in case of large balance of payment (BoP) deficits. They weaken the economy.
Merchandise imports for the period April-January 2022-23 were US$602.20 billion in comparison with $494.06 billion during the period April-January 2021-22. The merchandise trade deficit for April-January 2022-23 was estimated at $232.95 billion as against $153.79 Billion in April-January 2021-22. Thanks to the growing inability of domestic manufacturers to meet the local demand, the country’s overall imports in April-January 2022-23 is estimated to exhibit a growth of 22.92 per cent over the same period last year.
On the contrary, merchandise exports registered growth of only 7.55 percent during April-February 2022-23 over the same period last year (April-February 2021-22). The export of services, led by information technology and software, has been a face saver. The services sector exports during April-February 2022-23 grew at 30.48 percent over the same period last year. Thus, the overall exports is projected to grow at 16.18 percent.
Under these circumstances, the Global Trade Research Initiative (GTRI) projection of the country’s foreign trade reaching the $1.6-trillion mark in FY ’23, or 48 percent of India’s nominal GDP of $3.4 trillion, does hardly call for a celebration. GTRI should have given an indication as to how this foreign trade growth impacts the county’s balance of trade. It is a matter of concern that the country’s economy continues to be heavily led by imports. Merchandise exports are growing. But, imports are rising at much faster rates. It will be interesting to know the contribution of the country’s fast growing e-commerce to the import-export trade. India is fast emerging as one of the major players in the global e-commerce industry. With easier availability of the internet, rising e-commerce marketplaces, manufacturing on demand, easier access to capital, and variable models for logistics and shipping, are Indian entrepreneurs able to plug themselves into global supply chains and create strong export businesses?
A better performance of the country’s industrial sector could have helped higher export growth and lower trade deficit. India’s industrial growth over the years has been rather unimpressive. In contrast, China’s manufacturing industry has recorded a miraculous growth since the 1990s. This helped China to emerge as the world’s No. 1 exporter boasting the largest positive trade balance year after year. China’s trade balance in 2021 was $462.25 billion, a 30.16 percent increase from 2020. In fact, China’s trade balance in 2021 was even higher than India’s total merchandise exports of $417.81 billion in FY 2021-22. High industrial production was behind China’s massive export growth. India’s manufacturing sector has grown three times over the last three decades with contributions mostly from traditional sectors like petrochemicals, steel, cement and automobiles, as well as new sunshine areas like electronics, toys, and others. However, the growth rate is simply not good enough to take exports to new heights after meeting the domestic demands.
India’s industrial production averaged 6.05 percent between 1994 and 2022, reaching an all time high of 133.50 percent in April of 2021 and a record low of -57.30 percent in April of 2020. On the contrary, China’s industrial output averaged 11.32 percent from 1990 until 2013, reaching an all time high at 35.10 percent in January of 2021. At the same time, production for foreign markets began a spectacular ascent, with China’s share of world manufacturing exports growing from 2.3 percent in 1991 to 18.8 in 2013. China’s total trade of goods hit an all-time high in 2022, reaching Yuan 42.07 trillion ($6.3 trillion), up 7.7 percent from 2021, according to data released by its General Administration of Customs. Measured in US dollars, exports jumped seven percent in 2022, while imports increased 1.1 percent. Since the 1980s, China’s manufacturing industry began to take off, surpassing the global industrial powers one by one, finally overtaking the U.S. in 2010 to become the world’s No. 1 industrial powerhouse.
It is time that the government and industry in India work together to devise a strategy to globally assess the export markets where Indian products can have an easier access, plan trade tie-ups with companies as well as with countries. While large companies have the resources to make individual market studies and look for tie-ups to push exports, the small and medium enterprises (MSME) sector would need strong government support for assessment of export markets, building tie-ups and selling their wares in those markets.
All over the world, SMEs are increasingly playing an important role in the export trade. In China, SMEs contribute around 68 percent of exports. The US Census Bureau data suggests that the majority of US exporting companies are SMEs although in terms of export value, large companies (500 and more employees) dominate international trade. In India, the micro industry, employing less than 20 workers, and SMEs have been contributing nearly 40 percent of the country’s overall exports. India’s MSMEs need a new direction in terms of skills, technology, product range, quality improvement and market-specific production. More than containing imports, the government and industry would do well to focus on exports growth that will help bridge the trade gap. (IPA Service)
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