The turmoil in world financial markets has hit the Indian stock markets and the Indian rupee has depreciated against the US dollar sufficiently to provoke the commerce minister to be optimistic about achieving the export target of $200 billion during the current year. The finance minister is optimistic that the economy will grow by about 8 per cent during the current year.
The International Monetary Fund (IMF), however, is quite certain that the world economy is decelerating quickly — buffeted by an extraordinary financial shock and by still-high energy and commodity prices — and many advanced economies are close to or moving into recession. Most economists have described the present crisis as the worst since the Great Depression of 1929 that plagued the world economy for almost four years. Few are certain about the extent of the present crisis or how long the pain of adjustment would last but the IMF expects a modest turn around in the second half of next year.
For exporters, the IMF’s World Economic Outlook gives a fair idea of where to look. The report projects global growth at 3 per cent in 2009 but expects near zero or negative growth in the advanced economies that includes North America, Europe and Japan. The Western Hemisphere might grow at 3.2 per cent, with Brazil 3.5 per cent and Mexico at 1.8 per cent, Peru 7 per cent, Uruguay 5.5 per cent and Central America at 4.2 per cent.
The IMF expects countries in South East Europe to post above 3.5 per cent growth, the countries in Commonwealth of Independent States (CIS) to grow at 5.7 per cent and the low-income Central Asian Republics to grow at about 10.5 per cent. It expects Africa to grow at 6 per cent and West Asia at 5.9 per cent.
The commerce ministry has already put in place a Focus Market scheme that gives a subsidy of 2.5 per cent against exports to countries in Africa, Latin America and CIS. But some countries like Brazil, Argentina etc. are left out of the scheme. Perhaps, it is time to include them to enable exporters cope with slowing demand in advanced economies.
The finance minister is optimistic about India’s growth prospects despite the global slowdown. The IMF expects 7.9 per cent growth this year and 6.9 per cent growth the next year. For emerging Asia, the forecast is 7.1 per cent growth with China leading the pack at 9.3 per cent and Asean-5 at 4.9 per cent. That means imports into these regions might surge.
In times of slower growth, the temptation is to bring in barriers to imports to safeguard the domestic producers. This is what happened after the Great Depression. The Smoot-Hawley Tariff Act of the 1930’s raised the US Tariffs on 20,000 items that led to a trade war between nations, impoverishing everyone through ‘beggar thy neighbour’ policies.
Luckily, 153 member countries of the World Trade Organisation have bound themselves to agreements not to raise their tariffs and so protectionism cannot run rampant as it did in the 1930s. However, in many countries the applied tariff rates are much lower than the bound rates. There could always be pressures to raise the applied rates to bound levels.
Secondly, the WTO agreements allow anti-dumping and safeguard actions. In some countries, clever domestic producers have got such duties levied on products of interest to them and got protection for five years. The WTO member counties must resolve not to repeat the mistake of the 1930 s and resist protectionist demands from vested interests.
