In a recent Indian Economic Update, the World Bank had blundered India for its mammoth and escalating Fiscal Deficit (FD) and Current Account Deficit (CAD). The spiky fall in foreign direct investments, portfolio investments coupled with the spiralling inflation prevailing in the country also was a tip of denigration. But it had cues of praise for India’s surging foreign trade. It revealed nimbleness to change with the times and to adapt its product mix to suit the ever-changing global demands and trends. And most importantly, it had the ability to shift focus from the tepidly growing rich and developed country markets of the West to other bouncy and dynamic economies including that of West Asia and North Africa, SAARC and ASEAN countries.
A third of India’s exports were targeted to European Union nations and the US. The lacklustre economic situations in those countries heavily impacted the Indian exports to those countries. Something akin is happening to India’s foreign trade with most of the developed countries. The recent American move to impose a countervailing duty on the seafood industry is not an isolated case in point in this sector. Hence as a matter of necessity and as part of an indispensable paradigm shift, several versatile thespians in India’s foreign trade have begun to fine-tune their business strategies and are taking their wares to new and sometimes not so far experimented souks. Good many of them have transformed successfully. The flat-footed got stuck and have paid a heavy price. Innovation and agility to move with the times, and occasionally ahead of the times, is no longer the nomenclature of the themes in business alone. It has become truer in foreign trade.
In the midst of the European economic crisis taking its toll, India’s export business has been suffering on account of anti-dumping duties imposed on some of the items of its exports by countries such as the US. It necessitated the single destination exporters to bear the brunt. For similar reasons merchant exporters are disappearing and small exporters with a couple of products targeting a single country have been becoming a rarity. It is clear from the fact that the number of seafood exporters in the country has fallen sharply from over 1,700 in 2005 to around 650 in 2012. As their tiny export business activity crashed the smaller players were often forced to sell their plant and machinery to the main players. The rich variety of seafood products they handle, the wide and diverse reach of the bigger stakeholders have and the resource reserves to cushion the volatility helped the bigger players to survive.
A slow and methodical shift has been taking place in India’s foreign trade encompassing a swing from the West to the East and from the North to the South. It was an anecdotal necessity. Several of the developed countries began erecting trade and non-trade barriers to curb India’s exports to their countries especially in the context of the economic recession. It was a natural consequence of the tepid pace of economic growth in the rich countries and the weakening of their demand for goods and services more than ever through imports. In the case of certain goods and services the demand even bowed negatively. Nonetheless, the transformation of the trade from the West to the East and from the North to the South has not been smooth. It has been abrupt and unprecedented. A similar shift has been taking place in India’s imports as well. Its imports from the 20 member Organisation for Economic Co-operation and Development (OECD) group almost halved between 1960-61 and 2000-01.
It appears that India has a lot of unexplored potentials to expand its trade volume and proceeds. One of the specific instances is the trade potential lies with its all-time international partner in almost all global affairs viz., Russia. It is remarkable how two countries with a broad convergence of views on matters of strategic importance have not been able to translate the resultant trust into deeper
economic cooperation and progress of bilateral trade. Russia has accounted for over three-fourths of India’s defence hardware imports during the last ten years. What is more, its partnership with India extends beyond mere arms supply to advanced technical cooperation and joint production. But outside of these strategic areas, there is hardly any economic engagement at enhancing bilateral trade. It stood at $6.5 billion in 2011-12, which was just a low 0.8 per cent of India’s total merchandise exports and imports.
The Asian and ASEAN regions have moved into the vacuum in the arena of international trade of our country created by the developed world countries. Growth in India’s foreign trade with these regions has been surprisingly surging. For close to three decades, trade with Asia and ASEAN regions languished around 12-15 per cent. The transformation started during the last decade. From slightly over 14 per cent of India’s total trade in 2001, trade with Asia and ASEAN region jumped to over 56 per cent in 2005-06. There has been no receding since then. By 2011, India’s trade with the region was over 68 per cent. And growth in trade with the region has been clocking an annual rate of over 35 per cent in recent times. It was no doubt the overall development of the region – the accelerated economic growth stimulated fresh industrialisation which in turn led to increased value addition. Raw materials, as well as finished goods, were much in demand. It contributed to the flourishing of trade in the region. India had a key role to play in the regional trade.
There are regions that develop far faster than others. West Asia and North Africa, has been gaining currency in India’s preferred list of countries of foreign trade. This region has no special relevance in the international trade pitch over a decade ago. But presently, it accounts for over a fourth of India’s foreign trade. It is a promising region with countries such as Israel, Egypt, Qatar, Iran, Iraq, Kuwait, UAE, Bahrain, Saudi Arabia, Jordan, Oman, Morocco, Tunisia, Sudan, Lebanon, Yemen, Syria, Algeria and Libya.
The ASEAN region comprising Indonesia, Malaysia, Singapore, Thailand, Myanmar, Vietnam, Cambodia and others would have been an equally important trading partnership potential. It accounts for about a 10th of India’s foreign trade. North-East Asia comprising China, Japan, Hong Kong, Korea and others which account for around 20 per cent of India’s trade also deserve attention. Trade with the region has also been growing at an accelerated pace of over 43 per cent in the last fiscal. The less explored region in the foreign trade sector appears to be countries of South-East Asia including the SAARC countries. Though they have close proximity as well as political and economic ties, the region accounts for less than three per cent of the country’s total trade. But it has a promising growth rate of over 42 per cent in the last year.
Another prospective area for enhancing the internal trade of India lies in its designing of better bilateral trade relations with Pakistan. In the last fiscal it was for about $2.7 billion. It may be compared to the estimated India – Bangladesh bilateral trades potential of $20 billion a year. Comprehension of the potential of bilateral trade by both India and Pakistan has its fallout. Both the countries have been working on a plan to enhance the trade turnover realization to $6 billion in three years. The high bilateral trade possibility with Pakistan is evident from the realization of $5 billion in 2011 through third countries.
One of the similar areas is in the latent for enhanced bilateral trade relation with Bangladesh. According to World Bank lead economist Sanjay Kathuria, better trade relations between the two nations would increase Bangladesh’s exports to India by 182 per cent and that of India’s to Bangladesh by 126 per cent. During 2011-12, the two-way trade stood at $4.3 billion. For Bangladesh trade with India has been unequal. While India selling goods worth over $3.5 billion to Bangladesh against the latter’s export to India was about $0.6 billion.
Though India has been successful in contesting its foreign trade issues it has miles to go in the global marketplace. Its contribution was a measly 0.7 per cent of global trade in 2000. It increased to 1.3 per cent in 2009 and further to 1.5 per cent in 2010. Nonetheless, India’s tardy share in the global trade has to be compared to the whooping distribution of countries such as China with 10.5 per cent, South Korea with 3.1 per cent, Hong Kong 2.6 per cent, Singapore with 2.3 per cent and Mexico with 2 per cent of global trade.
– Dr Jose Jacob
The author is the Vice-Chairman of
Institute of Social Research
Thiruvananthapuram
