Glory On The Harbour Line

When Robert Blackwill, the US ambassador to India, recently cribbed over American exports to India remaining "as flat as a chappati", he may have been prompted by reasons more serious than stagnant US investment into India. For, India has become the 19th-largest exporter to the US, up from 22nd a year ago, logging in a trade surplus of $10.6 billion in her favour in 2002!

And that's not only because of software exports. Although India's software services exports to the US went up by nearly 20 per cent to $5.7 billion last year, the rise was higher in merchandise exports, which moved from $9.7 billion to $12 billion. Even as total US exports to India stagnated at around $7 billion.

In fact, the sun has been shining on Indian exports since this fiscal began. In the first six months, exports showed an impressive growth of 19 per cent, which came down slightly to 16 per cent till November. Obviously, upbeat exporters are hoping that the target of 12 per cent for the entire year can be met comfortably. Exports account for 10 per cent of the economy and helped it grow by 5.8 per cent in the first half.

Critics, however, find a grey lining and it's not the looming threat of a war over Iraq. They say that since export growth last fiscal was negative, this year's figures look better because of the low base they're projected on. But both exporters and economic analysts think exports have shown real buoyancy across sectors, over and above what is justified by the low base. Says NCAER chief economist Shashanka Bhide: "The growth has been uniformly good and there's a strong underlying trend that's likely to persist."

It's difficult to dismiss the export growth as a flash in the pan because, as L. Mansingh, director-general for foreign trade, explains, "the reasons are all to do with the fundamentals of the economy. Industry is restructuring, cutting costs, getting competitive and it's getting reflected in their performance and in exports". Mansingh cites the examples of the pharma and auto sectors. With the ipr regime looming ahead, all Indian drug manufacturers started investing in R&D and focused on exports, which today contribute a substantial chunk of their turnover. In automobiles, companies that have indigenised faster like Ford or Hyundai, are now reaping the benefits in the form of higher exports. The Chennai port has made special arrangements for shipping Ikon and Santro cars. "Our merchandise exports are very small compared to China, but we score in value addition and cost of products," says Mansingh.

This year's growth, experts say, is also commendable for three reasons. One, India is among only six countries that have actually improved their export performance in the prevailing global slowdown and dampened business outlook post-9/11, specially because the recession in the US market still seems entrenched. This is also what makes the significant rise in exports to the US so interesting. Out of the 25 countries exporting to the US, nine countries could increase their exports, with India leading the pack. The period January-October 2002 witnessed a worldwide fall in merchandise exports to the US by 0.7 per cent. But Indian exports to the US soared 20.3 per cent, doing even better than China at 17 per cent.

The good news has continued. The 15 per cent growth in exports in November was boosted by last-minute orders for Christmas goods from western countries. Top of the list were orders from the US and Europe for clothes, gems and jewellery. While imports too jumped by almost 29 per cent in the same month amid speculation that India was stockpiling oil because of the possible conflict in Iraq, the average growth in this sector during April-November has been similar to exports, or 15 per cent.

That's the second interesting fact about the export growth—that it's unconnected with import growth, which is what our trade history suggests.Most of the rise in imports is accounted for by the 21 per cent hike in oil and products imports, and the rest by the value-added sectors. Says Mansingh: "Traditionally, our attitude to exports has been that we'll export enough to fund our imports. That's changed—our exporters are now selling to earn forex." Which brings us to the third reason—and the best news for the economy: this strong export growth is linked with the recovery of the domestic manufacturing sector.

Instead of traditional sectors, our value-added sectors are doing better now, same is true for the manufacturing sector. The best performers have been engineering goods (21 per cent growth), including iron and steel (44 per cent) and aluminium and non-ferrous metals; basic chemicals and pharmaceuticals (20 per cent); and gems and jewellery (33 per cent). Even textiles did better than expected at 10.5 per cent. Pharma and iron and steel were also the highest earners from the US.

According to the just-released cii-Ascon survey, car exports have gone up by 43 per cent compared to 32 per cent, while motorcycle and moped exports have gone up by 83 per cent (77 per cent). Even polyester filament yarn exports did much better at 57 per cent (10 per cent). Over 31,000 autos were exported, most of them by Bajaj Auto, while Ford India, the 85 per cent subsidiary of Ford Motors USA, sold 28,000 out of the 45,000 cars exported in calendar 2002. Most of India's auto exports are headed towards South America and South Africa.

As for software, Nasscom has retained the IT-enabled services export target of 30 per cent. Nasscom president Kiran Karnik said that foreign companies, faced with a squeeze on margins, were looking to cut costs by outsourcing as much as possible. Since India is the prime outsourcing base, the slowdown has been a blessing. Nasscom expects software exports will grow more than sevenfold to $57 billion by 2008. Research group Gartner Inc estimates that at least 40 per cent of US companies will have farmed out work to or started small projects with offshore vendors by 2004.

A strong manufacturing sector also helped lift industrial output, which saw a better-than-expected rise of 6.2 per cent in October. Says B.B. Bhattacharya, director, Institute of Economic Growth: "Despite the low base, it's clear that the trend is turning normal in exports. So far, the target seems reachable. But the real strength would be perceived only next year. I'm expecting at least a 10 per cent growth over this year in exports and 8 per cent in industry next fiscal." Bhattacharya feels the fundamental trend in the economy is strong as reflected in the discounting of the drought factor and the clear recovery in manufacturing, which has been downbeat since 1999. Many old economy sectors are poised to make a strong comeback next year. Tata Steel has become the second-lowest cost producer of steel in the world and Tata Engineering too has cut costs drastically. Bajaj Auto too will probably double exports next year.

But to achieve 8 per cent economic growth, India needs to power-lift its exports from $46 billion now to about $100 billion. Even then, we'd do less than what China does now. But Mansingh is optimistic, even as he acknowledges that the new sez scheme may not have a significant impact on trade or economy or offset the high transaction cost problem that plagues our exports. Ajanta Clocks, for instance, saw a drastic cut in production cycle from one month in India to two days when it went to China. Mansingh feels that the industrial cluster towns with export potential like Tiruppur (hosiery), Panipat (woollen blankets) and Ludhiana (woollen knitwear), which have efficient assembly-line production facilities, only need to be promoted and their infrastructure upgraded to transform them into export zones.It's a hard uphill road ahead if India wants to increase its share in world trade from the present 0.65 per cent.