India’s exports won’t grow, and the Modi govt’s idea of tariff hikes is unlikely to help

TN NINAN, The Print

The export- excluding mineral oils- during 2011-12 to 2016-17 have barely changed (from $ 249 billions to $ 243 billions). It is half a decade loss. World trade in recent years have been 3.5%. There was a small hiccup in 2014, but it has since returned to normal. India in current dollar term in these 5 years has grown by 24%.

What can be the reason for this low growth.

TN NINAN argues that poor infrastructure such as electricity and poor roads can not be the reason for the same. Indian exports has growth by 140% in 1990′ and a staggring 397% in the decade to follow.

Nor can blame be placed on high price of INR . In 2011 exchange rate was 45 INR /$ and has depreciated to 65 INR/$.  Only in early 2014 did it stay below 60 for a brief period.

NINAN attempt for answer as follows:

If the explanation for the loss of export momentum lies elsewhere, then no one has figured out what exactly it is. There could be sectoral issues that provide some of the answers, but these are unlikely to be the full story. Perhaps it is simply the case that Indian exporters do not have strong negotiating positions with buyers, and therefore tend to get squeezed out disproportionately when trade hits a rough patch. Whatever the explanation, one can say with confidence that the government’s recent focus on protecting the home market through tariff hikes is unlikely to help exporters. Whether it will serve the cause of import substitution remains to be seen. Even if it does, it will nudge the economy towards higher-cost production, and that is not going to help exports.

Strong argument but needs elaboration why exactly is negotiation power weak.

 

 

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