 "StatsGuru: What ails exports?")
Much like in other countries, exports in India, too, were adversely affected by the global slowdown in the aftermath of the 2008 financial crisis. The sharp deceleration in exports growth and even contraction over the past two years were blamed on the continuing, and more than expected, deceleration in global trade. But a recent report by HSBC Global Research shows the dip in India's exports has been worse than the global and emerging market performance.
As chart 1 shows, the decline in growth is both in terms of the value and the volume of exports, implying it's not just due to falling global commodity prices. Chart 2 shows that India's export weakness is not limited to just goods. As a result, India's share in world exports has started falling, as shown in Chart 3. This has happened since India has mostly trailed even the emerging markets average, as shown in Chart 4.
Another myth the HSBC study busts is about the best solution to re-energise exports. Far too often it has been held that exchange rate depreciation would resolve India's woes. But as Chart 5 shows, that is not true. Across goods and services, exchange rate explains a much smaller fraction of the growth slowdown. The overwhelmingly dominant factor holding back Indian exports is classified as "domestic bottlenecks", which is proxied by stalled investment projects as a percentage of outstanding investment projects. Of course, for services exports, global demand remains key. In this regard, Chart 6 shows why goods exports are not as badly affected by an overvalued rupee - as their import content has gone up over the decades and a stronger rupee makes such imports cheaper.
The key policy takeaway from the analysis was that "small things matter". That is to say that sector-specific drivers of exports need to be fixed if the Indian government wants to succeed in its national and international exports ambition. As Chart 7 shows, the explanatory power of export regressions increases when sector specific factors, such as investment in irrigation capacity within agriculture, are included.
As chart 1 shows, the decline in growth is both in terms of the value and the volume of exports, implying it's not just due to falling global commodity prices. Chart 2 shows that India's export weakness is not limited to just goods. As a result, India's share in world exports has started falling, as shown in Chart 3. This has happened since India has mostly trailed even the emerging markets average, as shown in Chart 4.
Another myth the HSBC study busts is about the best solution to re-energise exports. Far too often it has been held that exchange rate depreciation would resolve India's woes. But as Chart 5 shows, that is not true. Across goods and services, exchange rate explains a much smaller fraction of the growth slowdown. The overwhelmingly dominant factor holding back Indian exports is classified as "domestic bottlenecks", which is proxied by stalled investment projects as a percentage of outstanding investment projects. Of course, for services exports, global demand remains key. In this regard, Chart 6 shows why goods exports are not as badly affected by an overvalued rupee - as their import content has gone up over the decades and a stronger rupee makes such imports cheaper.
The key policy takeaway from the analysis was that "small things matter". That is to say that sector-specific drivers of exports need to be fixed if the Indian government wants to succeed in its national and international exports ambition. As Chart 7 shows, the explanatory power of export regressions increases when sector specific factors, such as investment in irrigation capacity within agriculture, are included.