India’s services exports seem to be following the same path as merchandise exports—downhill. In April, they contracted almost 5% year-on-year. Average monthly exports of services this year is just 0.8% so far, compared to a 5% monthly average last year (2014). A trend decline is noticeable from 2013, when services’ export growth was far healthier at 9% each month on average; the latter was particularly encouraging as it represented a strong rebound from the 3% monthly average growth in April-December 2012.
That this is a cause for anxiety is supported by the chief economic adviser’s recent remark on the matter. Arvind Subramanian has been reported as saying, “The ratio of exports of services to GDP (gross domestic product), after growing in dollar terms at a rate of almost 30% for about eight to nine years, has now flattened out and may be even declining....For one percentage point growth of demand globally our exports have plummeted sharply.” (Indian Express, 23 June, 2015)
As share of GDP, India’s services exports have fallen steeply from their peak values in the booming years of global trade up to 2006-07, and then again after the crisis until 2009-10. Since 2010-11 however, services export shares in GDP haven’t really recovered that breakneck speed of growth. Given the robust support these have typically provided to India’s total exports (about 35% annually), flagging growth rates that are now turning abysmal and even negative is a serious issue. That these are falling at a time when the US economy is on a steady recovery path is even more of a concern; the US occupies the top slot by destination for Indian services exports, whose fortunes rise and ebb with that of the world’s largest economy.
Subramanian added there was need to understand more fully what was affecting Indian exports in general, including services exports. “There is something fundamentally wrong in terms of our competitiveness...a challenge we need to be alert going forward,” he said.
What then is ailing India’s services exports? Is it an uncompetitive exchange rate? At a time when the major advanced economies are indulging in currency depreciations to recoup growth, is it the case that services’ exports, which are especially susceptible to exchange rate movements, are bearing the brunt? Or is it declining internal efficiencies or falling productivity that is causing services export growth to tail off? Are changes in the nature and structures of global trade responsible?
Indisputably, these are questions for policymakers to confront, probe and respond to quickly. For, apart from growth and employment effects, the newly-issued foreign trade policy also incorporates substantial contribution from services (although not specified numerically) in realizing the $900 billion export target for the next five years. It would be a shame if India dimmed in a space where it has globally shined so far.
Source:livemint.com
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