India’s exports have done exceptionally well in 2010-11, up 37.8 per cent in US dollar terms over the previous year (2009-10). Even if we discount the base effect, given low growth last year, and compare the latest figures with those of 2008-09, which was a more normal one, growth works out to a very respectable 33 per cent. What is more, the trade deficit was down in 2010-11 to 6 per cent of GDP, which is the lowest in the last five years. Additionally, the average nominal value of the rupee has marginally appreciated in the first nine months of the current year. All these facts together may be pointing to a structural shift that is taking place in the global competitiveness of the Indian economy along with a rebalancing of economic forces between the developed and emerging economies.
Indian exports rebounded last year after declining by 3.5 per cent in the previous year in keeping with changes in global trade patterns. Global exports grew by 12.4 per cent (by volume) in 2010 after falling by 10.9 per cent in the previous year (2009). Exports of emerging economies grew even faster by 14.5 per cent after falling at a slower rate of 7.5 per cent in the previous year. The ability of emerging economies to sustain their growth and, more importantly, increase south-south trade, has helped India maintain high exports growth. This is despite the fact that, unlike China, India has not pursued a mercantilist exchange rate policy. What gives? The answer may lie in the changing pattern of Indian exports with lower domestic value-addition. Two key classifications of India’s foreign trade – crude and petroleum products and gems and jewellery – figure prominently on both sides of the trade account, that is, both make for a high proportion of India’s imports and exports. If, for example, one imports and re-exports a lot as Singapore does and ensures two things – keep the currency strong enabling cheap imports (gems and jewellery) and have efficient conversion rates (Reliance, India’s major refiner, has about the best conversion rates in the world) – then not only will exports do well but import growth will remain a step behind, holding the trade deficit in check.
Figures for the direction and composition of exports for the whole year are not yet available but in the first six months (April-September) exports to Latin America show a phenomenal 107 per cent growth, to Africa 40.6 per cent and to the Association of Southeast Asian Nations 29.2 per cent. Exports to North America are marginally behind followed by Europe. Thus, not only are emerging economies doing well, they are holding hands and helping each other. Other than crude and petroleum products, exports of transport equipment, iron, steel and cotton, yarn, fabrics and made-ups have all forged ahead at over 60 per cent. Exports of manufactured goods as a whole have gone up by 26 per cent. Clearly, something interesting is happening in India’s foreign trade. Not only is there greater diversification of products and markets, with south-south trade providing the ballast, but growth is coming without mercantilist policies or an artificially under-valued exchange rate.
