The foreign trade of India is presently standing at a critical
threshold. A successful crossover will open abundant opportunities, while a
failure will close many more doors.
Before looking at the opportunity, it is pertinent to note the
current state of affairs of our foreign trade.
The broader picture of India's foreign trade could be summarized
as follows:
(a) India's total exports
have mostly ranged between $25bn and $30bn per month since 2011.
(b) India's total imports
have mostly ranged between $35bn and $45bn per month since 2011.
(c) India's trade balance
has consistently worsened since 2004, and is mostly ranging between $10bn and
$15bn since 2011.
(d) India's non oil trade balance has worsened materially since 2004 and stands close to $100bn per annum.
(e) India's foreign trade
growth has consistently lagged the overall GDP Growth since 2012.
It is also important to note that the external trade profile of
India has seen material transformation in past one decade. Imports have been
moving away from traditional oil & gold domination; and exports have
diversified away from traditional consumer goods like textile, gens &
jewelry, leather etc. The share of manufactured engineering goods has been
rising in the total export revenue. Electronics has become a major import item.
With many global leaders like Samsung, MI, Apple, LG, etc. deciding
to produce in India; new biofuel policy raising the ethanol blending to 10% in
transportation fuel; massive investments in renewable beginning to yield
results; electric mobility becoming a viable option in next 10years; and
various productivity enhancement missions in pulses and oilseeds achieving
targets, we may see a further shift in India's import profile going forward.
Moreover, shifting away from colonial (cheap labor and material
source) model, India is also becoming a research and development (R&D) hub
for global manufacturers and service providers.
It is widely accepted view that foreign trade, especially
exports, could be the most potent source of generating incremental employment
opportunities that would catapult Indian economy to a higher growth orbit.
I am therefore viewing the current restructuring of corporate
tax rates (see
here) as a measure to boost the export economy rather than supporting the
domestic consumption demand.
It is important to assimilate that viewing the current
developments only as a measure of shift from China due to geo political or
tariff reasons would be a mistake. The foreign trade growth will primarily be a
outcome of massive investment made in infrastructure development over past
20yrs. We have paid huge cost of this massive infrastructure building drive in
terms of crippling of financial sectors due to NPA problem, episodes of massive
corruption leading to paralysis of policy administration and disruptions in
markets place due to large scale bankruptcies.
But it is also a fact that a high quality capacities terms power
generation, ports, road network, railways, civil aviation, financial services,
telecommunication, manufacturing, and GSTN have been created and/or shall be
put in place in next 2-4yrs. This infrastructure surplus will be the primary
driver of India's foreign trade (and trade balance), job creation and
socio-economic transition.
