What is the issue?
The trade numbers for 2016-17 is showing a declining trend when compared to 2015-16.
What does statistics say?
- Trade volume in 2011-12 was $305 billion.
- It stayed above the 300-mark for the next three years before dropping off sharply in 2015-16.
- In 2016-17 it is $270 billion
- The world exports showed similar trends due to slow growth all over the world.
- Global merchandise exports in 2016 were $16.5 trillion which was down by about 10 per cent from $18.2 trillion in 2011.
- India’s share of global exports has remained more or less unchanged since 2011, at about 1.7%.
- Prior to this there has been a steady increase in merchandise exports, from 0.8% in 2004.
How far do the global factors affect?
- Part of the fall is due to the drop in oil prices since 2014, because of which the export of petroleum products has shrunk in value.
- Other reason is the growing energy self-sufficiency of the US, which has sharply reduced its energy imports.
- The other is the enormous success that China has had in import substitution.
- It supplanted imports from East Asian countries with domestic inputs into the manufacturing supply chain.
What are the domestic factors?
- India-China trade is one of the most unbalanced anywhere, with an export-import ratio of about 1:5.
- India also runs a trade deficit with about 2/3rd of its important trading partners.
- They signify that the problem lies at home and not abroad.
- India’s exports are concentrated in very few products and very few markets.
- This makes the country vulnerable to negative swings in world trade.
What is the real reason?
- In spite of this India’s improved on the Economic Complexity Index, to 45th in 2014 lace from 61st in 1995, in a list of 124 countries.
- This reiterates the fact that the real problem is not in world trade stagnation, or Chinese mercantilism, or a narrow export base though all of them are contributory factors.
- The real problem is the failure to develop an efficient manufacturing base.
- India has a surplus in services trade, agricultural goods trade (being the sixth largest exporter).
- It also has a surplus in transfer payments/remittances.
- But lags heavily in manufacturing sector whose share of the total trade in goods and services combined has been declining steadily.
- This has to be substantially improved to increase India’s exports.
Source: Business Standard.
