Business

Stiff in parts but possible

The export target of $ 900 billion by 2020, set by the new Foreign Trade Policy (FTP) 2015-2020, seems plausible, despite slow recovery in some traditional markets and a declining trend in global commodity prices.

The government has projected that merchandise exports will reach $ 500 bn and of services at $ 400 bn by 2020. Not so ambitious, say experts, as these rose 75 per cent between 2009-10 and 2013-14, the five-year period of the previous FTP. This time, the requirement is to raise it by 59.2 per cent, assuming goods export in 2014-15 doesn’t go below the $ 314 bn in 2013-14. However, exports in FY15 are likely to fall short of the FY14 numbers, given the trend till a month before the financial year ended.

However, services are required to grow faster than in the previous FTP period. It rose 58.1 per cent that time; now, the required rate is 153 per cent, to meet the target of $ 400 bn. This is assuming services exports will remain at $ 14.25 bn in February and March each, as was the case in January. In that case, exports would reach $ 158.2 bn in FY15, up from $ 151.5 bn in FY14.

It should be noted that India is a net importer of goods but a net exporter of services. In other words, a trade deficit but a surplus in services export. This helps keep the current account deficit (CAD) down. If services export rises faster than merchandise export in the next five years, as projected, this would again help keep the CAD under check, assuming imports don’t rise to alarming levels.

The services export projections seem ambitious but experts say these have been rising as a share of global total trade in the segment. This was 0.6 per cent in 1991, one per cent in 2000 and 3.3 per cent in 2013.

Total export of goods and services was $ 466 bn in 2013-14 from $ 446.1 bn in 2012-2013 and $ 274.6 bn in 2009-2010. In the five-year period, merchandise exports contracted once, in 2012-13; those of services saw a steady increase.

“India’s market share in global service exports has shown the inherent stability to move up the value chain. And, global supply chain managers are beginning to see benefits in operating within India as a regional manufacturing hub with similar demographics as China (maybe not so much in scale) and are willing to consider investing in India for export-led returns on investment,” said Amit Kumar Sarkar, partner, Grant Thornton India LLP.

According to the FTP, the government aims to increase India’s global share in export of merchandise and services from two per cent to 3.5 per cent. To further boost services export, the commerce department intends to push a reform agenda, through an inter-ministerial mechanism. Beside, the government also plans to “gain effective market access” in international markets through various bilateral and multilateral trade pacts.

Indian merchandise exports grew at a compounded annual rate (CAGR) of 15.9 per cent between 2004-05 and 2013-14. The combined target fixed by the government for merchandise and services exports in 2019-20 requires a CAGR of 11.5 per cent, stated the Federation of Indian Export Organisations (FIEO).

“This target is achievable, despite a slowing in global trade. The moderate target might have been prompted by the fact that merchandise exports stagnated between 2011-12 and 2014-15,” said Ajay Sahai, and director-general, FIEO. On merchandise export, recovery in some of the traditional markets like the US and European Union (EU), albeit slow, might give the necessary push. However, the global commodity price cycle might be a substantial problem. According to International Monetary Fund projections, the World Commodity Price Index is likely to fall from 178.71 points in 2014 to 169.88 points in 2016 and further to 164.61 prices in 2019. This might have a negative impact on Indian exports.

Ajay Shriram, president, Confederation of India Industry, said the annual growth rate needs to be 15-20 per cent to achieve the $ 900 bn target.

“The new government’s emphasis on revival of the manufacturing sector, ease of doing business and diversification of the services export basket will together help in meeting this target. The global economy is also on the path of recovery. The demand situation in the traditional markets of the EU and US is definitely going to improve,” he told Business Standard.

The government this year introduced two plans to strengthen India’s exports, Merchandise Exports from India Scheme and Services Exports from India Scheme. It has clearly stated that the focus will be on promoting export of high-value products, with a strong domestic manufacturing base, including of engineering goods, electronics, drugs and pharmaceuticals. On services, the focus will not only be on information technology but on hotels, tourism and the ‘wellness’ sector.