Opportunities of Export for Manufactured/Handmade Productsin Indian Context AshitaAllamraju Associate Professor Centre for Economics & Finance ADMINISTRATIVE STAFF COLLEGE OF INDIA BELLA VISTA :: HYDERABAD - 500 082
Structure of the Presentation • Global Economy: On a road to recovery? • Indian Economy: Status • Export Opportunities
Global Economy • The global economy has been deteriorating since Sep 2011 • Indicators of activity and unemployment show increasing and broad-based economic sluggishness in the first half of 2012 and no significant improvement in the third quarter • Global manufacturing has slowed sharply. • Euro area crisis has deepened • Slowdown in US and UK as well
Real GDP Growth (%) World Economy 2010 2011 2012 2013
EMEs • Growth is estimated to have weakened appreciably in developing Asia, to less than 7 percent • Activity in China slowed sharply, owing to a tightening in credit conditions in response to threats of a real estate bubble • India’s activity suffered from waning business confidence amid slow approvals for new projects, sluggish structural reforms, policy rate hikes designed to rein in inflation, and flagging external demand.
Real GDP growth also decelerated in Latin America to about 3 percent in the first half of 2012, largely due to Brazil.
In U.S labor market and consumption have failed to garner much strength.
Global Risks • The principal risk remains the euro area crisis.
Looking ahead • No significant improvement appears in the offing. • The WEO forecast includes only a modest reacceleration of activity
India: Macroeconomic Situation • Trend growth rate has clearly declined in the post-crisis period. • India clocked 8.7% growth in the five year period 2003-08. • Average growth during the three year period 2005/06 to 2007/08 was 9.5% Percent Long Term Trend in Growth
Macroeconomic Situation • Growth moderated in the crisis year of 2008-09 but revived sharply in 2009/10 and 2010/11. • Growth in 2011/12 of 6.5% not only poor - compared to pre-crisis growth - but also compared to immediate post crisis yrs - lowest annual growth in the last 9 years
Recent Trend • Growth has moderated sequentially over the last four quarters from 7.8-7.7-6.9-6.1
Productivity in Agriculture In 1993-94, agriculture, with 30 % of GDP, was providing employment and livelihood to 65 % of the workforce. By 2007-08, the same sector accounted for less than 17 % of GDP, but continued to support 55 % of the workforce. Increasing Inequalities
Industry • Industrial growth slowed down sharply during 2011-12, • weak demand for consumer durables, • deceleration in external demand and • subdued investment • Contraction in mining and poor performance of the manufacturing sub-sector
The growth in July 2012 index of industrial production (IIP) was 0.1% higher as compared to the level in the month of July 2011. • The manufacturing sector, which constitutes over 75% of the index, witnessed a contraction in output by 0.2% in July, as against growth of 3.1% in the same month last year. • The capital goods production also down by 5% in July • Consumer durables production showed a decline in growth rate
Service Sector Fastest growing sector the share of services in the US$63 trillion world GDP was nearly 68%
Services GDP With a 17 % trade, hotels, and restaurants as a group is the largest contributor to GDP among the various services’ subsectors Financing, insurance, real estate, and business services - 16.4 % share. Community, social, and personal services with a share of 14 % is in third place. Services sector is the dominant sector in most states of India
MSME Sector • this sector employs an estimated 59.7 million persons spread over 26.1 million enterprises. • MSME sector accounts for about 45% of the manufacturing output and around 40% of the total export of the country.
CAGR of India’s exports and imports (in US dollar terms) were 8.2 % and 8.4 % respectively in the 1990s, they increased to 19.5 % and 25.1 % during 2000-01 to 2008- 09. Exports grew at 25 % during 2005-08 decelerated to 13.6 % in the crisis year (2008-09) and registered a negative growth of 3.5 % in 2009-10.
Current Year • Global recession had adversely affected the Indian exports resulting in widening of current account deficit (CAD). • Merchandise exports increased 21% year-on-year to $303.7 billion in 2011-12 • Imports grew at a sharper pace of 32.1% during the period, reaching $488.6 billion
Export Destinations • India has been rapidly diversifying its exports markets from the traditional export partners towards developing economies
Composition of SSI export basket from India The composition of export basket of SME’s in India has both traditional and non-traditional commodities in nature. There are few commodity groups which are exclusively exported by SME’s such as sports goods, cashew etc. In the commodity group of engineering goods, SME’s constitute around 32% of the total exports of this commodity group.
95 percent of the products exported by the SSI are non traditional products. • Potential export destinations for products of SMEs are the USA, EU and Japan. • There exists a huge potential in the non-traditional sectors. They may not be able to tap the advantages of economies of scale, but then they are ideal for catering to small markets and orders. • These activities are often ecofriendly, which can be an added advantage. • It has been identified that the US could provide a market for textiles, leather items and engineering/electrical and electronic items
Japan is a potential market for exporting chemicals, and agricultural, marine and allied products. • The European Union can be tapped for enhancing SSI exports of engineering/electrical, textiles, and electronic items. • Also, the a number of markets could be accessed for various goods in which given states have the bulk of market share or are suitable for those products.