By Devanshee Dave
The share of exports in the Indian GDP (Gross Domestic Product) has been slashed down to a fourteen year low, at 19.4 percent for the first quarter of the current financial year. As per an article in the Business Standard, exports were higher only by 1.2 percent of the GDP for the first quarter of 2018, against 5.7 percent for the same period for year-on-year (YoY) growth basis.
At 19.4 percent, the exports were very sluggish for the period of April to June 2017. This was 20 percent during the financial year of 2017. It was 20.2 percent for the same period in the last year, which shows a cut down of a good 0.8 points. The last time it was the highest was in 2013-14, when the share of exports in GDP was 25 percent.
Reduction of exports
The reduction in this share has definitely affected the growth of GDP. After the economic reforms of 1991, exports have always been the leading contributor to GDP but in the past few years, it has failed to achieve the sufficient rates. Merchandise exports have also plummeted. At present, it stands at $23 billion per month, which was $27 billion per month three years ago. The founder and managing director of Equinomics Research & Advisory, G Chokkalingam, has stated, It has created an equivalent hole in the economy.
After the economic reforms of 1991, exports grew at a very high pace. On an average, it has been growing at around 13 percent from 1991 to 2014. As per the World Trade Organization (WTO), the estimation of global trade is quite high with the merchandise trade growth forecast of 3.6 percent, which was earlier calculated at 2.4 percent. However, India is yet to get the benefits of that.
Reasons for reduction
There have mainly been four reasons for the reduction of the share of exports for this financial year, which are namely demonetisation, appreciation of the Indian rupee, implementation of GST, and a change in the US policy. As per the head of research at Emkay Global Financial Services, Dhananjay Sinha, There is a sense that the recent appreciation in the rupee is hurting Indias exports, especially in the price-sensitive segments. Besides economic activities in farm products, textiles and gems and jewelry have been impacted by the note ban and the roll-out of Goods and Service tax, hurting exports further.
In addition to these, there has been a decrease in the Indian exports of Information and Technology services, along with generic drugs because of new reforms in the United States as per Donald Trumps America First initiative.
What lies ahead?
As per another statement by Mr. Dhananjay Sinha, no one is losing sleep over the slowdown in exports. We expect an uptick in the GDP growth by FY18. The chances of improvement in the share of exports are very less in the near future as the Indian Governments focus is on increasing growth, instead of exports, by using fiscal stimulus and consumption demand. There is a forecast of a hike in the GDP at 8 percent for the financial year 2018 by World Bank. So only time can tell what lies in the future of Indian exports and the only option now is to wait for betterment.
Featured Image Source: Pixabay