Bright Spots of Work-In-Progress
Steven Philip Warner | February 2016 Issue | The Dollar Business
Falling, worrying, dipping, etc. – there is suddenly so much noise about India’s exports contracting and how that could mean a dangerous ditch for the country. But to single out India and declare its run in recent months a shameful one would put you on the wrong side of common sense. It’s like saying, “Obama did a poorer job at saving America that was handed over to him seven years back. Why? Because unemployment rate reduction from 7-8% to 5% by adding 14 million jobs wasn’t heroic enough. And more importantly because, perhaps, George Washington would have done better.”
None of the other 25 nations that get counted as the largest exporting powers (India is one in the group) managed an extra dollar in exports growth in the past one year (y-o-y comparison for Q3, 2015). That is enough to understand how world over, exporters (and importers) are feeling the absence of windfall gains. And to expect India to continue growing its exports with global commodity prices falling, the dollar continuing to rise, and global demand shrinking with political and financial crises being written about in many parts of the world is just as we said before – calling Obama an ineffective White House occupant.
Behind the drama of falling export numbers, the Indian foreign trade landscape has been subject to encouraging developments. What’s so interesting is that these occurrences seem so obvious to ordinary minds, they appear worth overlooking. I agree. India's jaunting through the foreign trade land isn't 'the' experience – but that’s how entirely honest anyone can get in a world trade order that calls for a Scrooge-like risk appetite. But not to be essentially defensive, India is on a smarter course of action in the world of exports-imports, benefits of which will be seen in years to come. Thankfully these are developments that in all respects can be termed “organic”.
All that noise we’ve heard about oil prices has taught us one thing: Don’t be a one-trick pony. Saudi Arabia’s recently announced plans to sell shares in state-owned entities and companies (including everything from ports to hospitals) and Qatar’s decision to stop funding some of its overseas investments (including the likes of Al Jazeera America) and axe some of its very elaborate public schemes, are lessons clear enough. When oil hovered at $100 a barrel, the single export product bet appeared well thought-of. Under $30 per barrel, logic is less visible than vapour (Brent Crude futures closed at $28.94 per barrel on January 18, 2016). India has done well to diversify its export basket in recent years. Between 2010 and 2015, share of the top dozen export products (at the two-digit chapter level) in overall exports has fallen by about 5% (comparison for the first ten months during each year). The number of products that have contributed to more than 3% to our exports by value has fallen over the past decade. The number stood at 10 in 2008, which fell to 8 in 2010 and 7 in 2015. Less concentration of export weightages of a few products means greater spread of export revenues and therefore a broader, safer export offering. This is also one prime reason why India, unlike Brazil, Russia, Australia, Canada, and other OPEC nations, has a more secure 2020 in-the-making as far as exports are concerned. And the fact that at present, manufactured goods account for just 64% and high technology products for just 8% of our merchandise exports is proof of the adequate legroom for segment-wise growth of the already broad basket that India has to offer.
Like in products, in case of geographies too, India’s actions have only been for a reasonable future. Not to say that the number of partners to trade with will grow in time, but India has increasingly been engaging itself with foreign trade partners in recent months. And I don’t just mean our PM’s rapid and frequent handshakes with other world leaders on foreign soil. We are actually getting more branched out as a world exporter. In 2001, the top 12 markets that we exported to accounted for 61% of our total exports by value. By 2014, the number was just 53%. The share of the top 20 markets fell from 75% to 63% during the same time period. TDB Intelligence Unit used the Herfindahl-Hirschman Index (HHI; lower the Index, lower is the dominance of a few import markets and greater is the competition) to measure the level of concentration of India’s partner countries (using export data revealed by 228 countries). In an extensive study that ranged 15 years, the preliminary findings arrived at were interesting. One of them was the fact that over the past decade and a half, the indicator of market concentration (HHI) has been steadily falling – from 582 points in 2001, to 506 in 2006, and further to 401 in 2015. This means that India’s export community has over the years been giving more export destinations (nations), more respect. Interestingly, India’s exports is more geographically diversified than US’ (HHI of 752) or China’s (HHI of 669). That’s very reassuring.
One area that has remained India’s strength in the past two decades is Services. Call it a case of willful liberalisation or a mystifying lapse in manufacturing since the 1990s, India (with exports of $156 billion in 2014) as the seventh-largest exporter of Services is matched comparatively well with nations like Japan and Netherlands in this respect. The steady growth in value of Services exports and sustained diversified offerings has been good news for India. It often beats me why India is referred to as “primarily” an IT and ITeS exporter. This segment's contribution to service exports in the past two decades has never exceeded 34% in any given year except once – in 2014 when it reached 34.01%! And even in 2014, contributions of Travel and transport-related services and Consulting services (Professional and Trade-related) to India’s Services exports base were significant (26% and 28% respectively). Unlike what many perceive to be true, India is not just a back-end technology and VoIP support base. In recent months, India has also started showing more seriousness to Services exports at the policy level. That in July 2015, Services was included in the India-ASEAN FTA is one sign. [Every Indian now understands that a visit to India’s leading hospitals isn’t complete without catching glimpses of how the world trusts its “life” in India's hands.] Another is that while in four of our bilateral trade pacts (with Malaysia, Singapore, South Korea and Japan), services is already included, even in the most talked about FTAs in-the-making, like India-EU FTA, India-Canada FTA, India-Australia CECA, etc., both Goods and Services are being negotiated. In fact, in some cases – like in India-EU FTA – the biggest gain for India is expected in the realm of services. Thirdly, efforts by the DGFT to streamline Services exports (which as you can understand is quite scattered and hard to monitor as compared to merchandise exports from the country which have to happen from one of the ports) is an indication that in the years to come, Services may become as important a component as goods in the exports domain. On January 15, 2016, DGFT issued a trade notice to all RAs, CBEC, concerned EPCs and related service industry associations (No.13/2015-20) for the purpose of effectively capturing trade statistics related to export/import of services. “All data on import/export of merchandise are IEC based. Similarly, the Department of Commerce would like to capture Services trade data on the same line. In the absence of IEC for most Service exporters, the Services trade data as of now is not comprehensive. Any policy intervention by the Government of the day requires authentic data and its analysis,” stated the document. Though many claim that this is a move to estimate outflows that will result from the Services Exports from India Scheme (SEIS) announced in April last year, to give DGFT its due, making Service exporters voluntarily apply for an IEC (and making this step a mandatory requirement at a later stage) will lead to enhanced accountability and transparency in the realm of Service exports. It will also enable the government to give greater incentives to service exporters with a clearer focus with fewer doubtful objectives. If all goes well, next time we may have a policy document that is more fairly tilted towards Service exports than one that mentions the word “goods” 323 times and “services” just 123 times (as was in the FTP 2015-2020 document).
Corruption – that has always plagued efficient and effective allocation of resources and timely implementation of policies across various government wings – is another area where DGFT has been constantly at work. On January 13, 2016, it issued a trade notice (No.12/2015) to all RAs, EPCs and the export-import community that it will hereafter show zero tolerance to corruption. “...RAs must ensure the highest standards of integrity and transparency in their offices and zero tolerance should be shown for any blemish that comes to light in this regard...,” states the notice. Spotting and monitoring officers and staff with dubious reputation, work rotation to avoid long tenures in sensitive positions, etc – never in the recent past has DGFT been so loud about ethics. So are we to expect that India’s foreign trade will be purged of wrongdoers with immediate effect? That will take time, but such an act is a clear voicing of intent that Indian authorities in the DGFT will hereafter not take corruption matters lying down. This (alongwith incidences of miscreants being produced before competent authorities – as the recent case in Ludhiana in January 2016) will not only assure the foreign trade community of ethical treatment at the hands of India's foreign trade guardians, but will encourage new investors – Indian and foreign – to test fortunes with exports-imports. So, a positive development without doubt.
Beyond hauling diplomats over the coals for their foreign visits, denouncing the very purpose of a scheme like ‘Make in India’ and constantly howling over falling export figures, there are matters that are so obviously entwined in the normal proceedings of India’s foreign trade that we give them a convenient miss.
As far as worries over India's exports performance are concerned, recall how the world welcomed 2016 with Wall Street’s worst five-day start ever? Now just because you've had one such sour pill to kill your New Year’s hangover doesn't mean you write off all its stocks. Similarly, just because India has been a tad wobbly at the ports doesn't mean you start writing its exports off as falling, worrying, dipping or...whatever! And if you've lost so much hope already, look for those bright spots of ‘work-in-progress’.