To analyse the main reason behind this, FISMI recently organized a panel discussion on the topic of ‘Weak currency yet no exports growth: Reasons and policy options for India’.
Expert panellists discussed several issues which affected the downturn of Indian exports, and the major reason behind this was found to be the phasing out of the Duty Entitlement Passbook Scheme (DEPB).
Although there are many reasons for the sluggish condition of Indian exports, such as weak external demands in traditional western markets, internal infrastructure constraints - largely in transportation or logistics, offsetting of the rupee depreciation advantage because of higher dependence of India’s exports on imports, crude oil prices and the resultant inflation, the most important reason responsible for the fall in exports has been deduced as the phasing out of the DEPB scheme.
Abhijit Das, Head of the Centre for World Trade Organisation studies, Indian Institute of Foreign Trade, said, “Though Indian MSMEs are recognized as major contributors to the country’s exports, constituting over 40% of national exports, the number of registered exporting MSMEs is only around 3% (< 0.5% of the total, as per the latest MSME census). This number is extremely small as compared to the total number of MSMEs operating in India.”
Vijay Kumar, Director, Ministry of Commerce and Industry, said, “ There have been several issues which have influenced the downturn of Indian exports. I will surely take up these issues with the Ministry.”
India’s Current Account Deficit (CAD), as a percentage of gross domestic product (GDP), rose to an all-time high of 5.4% in the second quarter of 2012-13 on account of the widening of the trade deficit and slower growth in invisibles, the Reserve Bank of India (RBI) said in its monthly bulletin for March, released on March 12, 2013.
“This sector, in other countries, contributes more than our country; the European Union contributes 13% and Taiwan 25%. South Korea, Singapore and Malaysia derived their export boom through their MSME sectors. We have to take some strong steps in order to motivate entrepreneurs to come forward and bounce back onto the growth path,” said Anil Bhardwaj, Secretary, FISME.
Moreover, the rise in CAD to GDP ratio was partly due to slower growth in GDP and rupee depreciation, the RBI report said, adding that a steeper decline in export growth (12.2% year-on-year) compared with import growth (4.8% year-on-year) led to the widening of the trade deficit.
The apex bank, in another report in this bulletin, said that demand conditions in the manufacturing sector in the quarter from October 2011 to September 2012 also weakened, as reflected in the weak new order growth, lower level of capacity utilisation, and higher ratio of finished goods (FG) inventory to sales on a year-on-year basis.