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<\/a><\/div>\nThe key reason for the country’s stagnating exports is its failure to build a strong manufacturing base, says T N Ninan.<\/strong><\/p>\n Illustration: Dominic Xavier\/Rediff.com<\/a>.<\/strong><\/p>\n The trade numbers for 2016-17 will be released this week or so. They will show total merchandise exports at about $270 billion. This is against a backdrop of exports topping $305 billion in 2011-12, and staying above the 300-mark for the next three years before dropping off sharply in 2015-16.<\/p>\n The fall is explained in part by the drop in oil prices since 2014.<\/p>\n Consequently, the export of petroleum products has shrunk in value. Even allowing for this, though, the picture is one of stagnant exports over the last five years.<\/p>\n You could argue in defence of this performance that world exports show a similar trend.<\/p>\n Global merchandise exports in 2016 may not have been very different from the 2015 figure of $16.5 trillion \u2014 which was down by about 10 per cent from $18.2 trillion in 2011.<\/p>\n In percentage terms, this broadly matches the shrinkage in India\u2019s exports relative to 2011-12. As a consequence, the country\u2019s share of global exports has remained more or less unchanged since 2011, at about 1.7 per cent.<\/p>\n It bears pointing out, though, that prior to this period India had been steadily improving its share of world merchandise exports, from 0.8 per cent in 2004.<\/p>\n Perhaps more importantly, the two major reasons for the lack of momentum in world exports do not affect India.<\/p>\n One is the growing energy self-sufficiency of the US, which has sharply reduced its energy imports.<\/p>\n The other is the enormous success that China has had in import substitution \u2014 supplanting imports from East Asian countries with domestic inputs into the manufacturing supply chain.<\/p>\n By one count, domestic value addition has gone up from 35 per cent to 60 per cent.<\/p>\n Neither of these two factors has affected India\u2019s trade prospects, except perhaps through limited second-round effects.<\/p>\n If we are to look for the reasons behind the country\u2019s stagnant exports, we have to look elsewhere.<\/p>\n Some would argue that we don\u2019t need to look beyond China, which single-handedly accounts for about half the trade deficit.<\/p>\n India-China trade is one of the most unbalanced anywhere, with an export-import ratio of about 1:5.<\/p>\n But would imports come down if China were removed from the map, or would other countries replace China as a supplier \u2014 of everything from mobile phones to domestic electrical gadgets, and from solar panels to plain steel?<\/p>\n Given that India runs a trade deficit with about two-thirds of its most important trading partners, the problem is at home, not abroad.<\/p>\n A few commentators have argued in recent months that India\u2019s exports are concentrated in too few products and too few markets, making the country vulnerable to negative swings in world trade.<\/p>\n This argument is contra-indicated by the country\u2019s score on the Economic Complexity Index, which gives India a 2014 rank of 45 in a list of 124 countries; this is substantial improvement from the rank of 61 for 1995.<\/p>\n The index measures two broad metrics: The diversity of the export basket (greater diversity reflects more broad-based capacities in the system) and the knowledge content of the basket (exports with greater knowledge content are more sustainable and also have greater potential for growth).<\/p>\n India scores relatively well on both metrics; its 2014 rank is better than for all Brics countries except China (ranked 20th), and better also than for all its South Asian neighbours, including Sri Lanka.<\/p>\n The heart of the problem is not world trade stagnation, or Chinese mercantilism, or a narrow export base — though all of them are contributory factors.<\/p>\n The nub of the issue is the all-too familiar failure to develop an efficient manufacturing base.<\/p>\n India has a surplus in services trade, it even has a surplus in the agricultural goods trade (being the sixth largest exporter), and it has a surplus in transfer payments (remittances come in from non-residents, and go out as dividend or royalty payments, among other things).<\/p>\n The only sector where it does not have a surplus is in manufacturing — whose share of the total trade in goods and services combined has been declining steadily.<\/p>\n Since space has run out, exploration of this manufacturing failure — and for pessimism about the prospect of change — must wait for another column.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":" The story behind India’s stagnant exports – rediff April 18, 2017 09:54 IST… more <\/strong><\/p>\n<\/a><\/div>\n