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India facing structural challenges to attain export targets: Crisil

04 Dec 2015 Evaluate

Crisil, the homegrown global analytical agency has said that India is unlikely to attain the ambitious target of doubling exports of goods and services to $900 billion by fiscal 2020 from $470 billion in FY15, mainly due to declining competitiveness of India Inc, infrastructure bottlenecks and labour market rigidity. It said that while, the current global cyclical slowdown and the new Trans Pacific Partnership are casting a long shadow, the bigger challenge is structural.

The agency further elaborated that Merchandise exports, which are almost two-thirds of India’s total exports, have been declining in the last eleven months. Cumulatively, they have fallen 17.6 per cent in dollar terms in the first seven months of this fiscal, after seeing a 1.5 per cent decline in FY15. Even real exports of goods and services (adjusted for price changes) shrank by 6.5 per cent in the first quarter of fiscal 2016. Trade openness or the proportion of trade to GDP, has shrunk drastically from a high of 55.6 per cent in FY13 to 47.1 per cent in FY15 and further to 42.6 per cent in the first quarter of the current fiscal.

Crisil pointed out that the Indian export destinations are not doing well, prices of many export items have fallen, and the rupee, too has appreciated in real terms against a basket of 36 currencies. Adding that the decline in exports is more than that warranted by these factors. For instance, while world real GDP growth improved from 3.2 per cent in 2009-2011 to 3.4 per cent in 2012-2014, India’s real growth of exports came down from 11.1 per cent to 4.1 per cent,' he said. 'This suggests the decline isn’t merely cyclical -- there are structural elements at play as well.

It also said that falling competitiveness is another structural factor restricting export growth. For key export items such as gems & jewellery and textiles, India’s ‘revealed comparative advantage’ has come down over the years. It also pointed that there is the threat from regional trading agreements of which India is not a part, such as the Trans Pacific Partnership (TPP), forged between 12 countries including the US. TPP countries account for 25% of India’s exports. Because of not being a part of TPP, India risks losing out a significant chunk of its export market to rivals.


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