The Great Disappointment by Salman Anees Soz

Author:Salman Anees Soz [Soz, Salman Anees]
Language: eng
Format: epub
ISBN: 9789353054885
Publisher: Penguin Random House India Private Limited
Published: 2019-03-07T00:00:00+00:00

International trade and current account

Over time, exports have become a big part of India’s economic growth story. In 1990, exports were only 7 per cent of the GDP, whereas in China the ratio was 14 per cent. In 2013, India’s exports reached a high of 25.4 per cent of the GDP (higher than China’s 24.5 per cent). This ratio has come down to just under 19 per cent in 2017. China’s ratio has dropped below 20 per cent.52 It is in this context that India’s export performance has drawn serious attention in recent years.

Exports have shown weakness for much of PM Modi’s tenure, but this is a continuation of a trend that started in the last few years of the previous government’s tenure. This is partly a reflection of weakness in global demand for product categories in India’s export basket (such as engineering goods, gems and jewellery, chemicals and ready-made garments).53 Even so, exports have grown by about 2.6 per cent over the last five years while they were growing at about 18 per cent in the five-year period from 2003–04 to 2007–08, when economic growth averaged about 8.5 per cent per annum. Clearly, global weaknesses have a role to play in this weak export performance.

External factors alone do not account for India’s weak export performance. Domestic bottlenecks are also to blame. Initiatives such as demonetization and the rollout of the GST have contributed to the slowdown in exports. Agricultural exports have come down as well. Meanwhile, agricultural imports have gone up.54, 55, 56 Sajjid Chinoy, Chief India Economist for J.P. Morgan, has pointed out that without sustained and higher export growth rates or a significant rise in domestic consumption, India’s economic growth is likely to remain well below potential.57

Exports have revived recently, with growth at 9.8 per cent in 2017–18. However, this figure hides a deeper worry. An analysis by Business Standard shows that Indian exports grew by an average 22 per cent during 2004–05 to 2008–09. This growth dropped to 12.3 per cent during 2009–10 to 2013–14. However, under the Modi government, exports shrank by an average -0.4 per cent in the first four years of its tenure. Given the prime minister’s desire to make India into an export powerhouse and his support for Make in India, this weakness in exports was unexpected.

More importantly, it is India’s openness to trade that is causing discomfort to both supporters and opponents of PM Modi. IMF data indicates that in 2016, ‘India’s trade openness—the sum of exports and imports to GDP—was 27 per cent’. This compares very unfavourably to the 43 per cent achieved in 2012.58 With the government adopting a policy framework that appears to be protectionist, India could be on a path eschewed a long time ago.

As mentioned elsewhere, Modi championed globalization in Davos at the WEF in early 2018 and warned against forces of protectionism. Shortly thereafter, India raised tariffs on a variety of products, including smartphones. This has led to much hand-wringing, including by Panagariya who has

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