To
those outside the government, the evidence on India's
export performance is confusing indeed. On the one
hand, the dollar value of India's aggregate exports
seems to have weathered the crisis and then staged
a smart recovery.
It rose from $166 billion in 2007-08, to $189 billion
in crisis year 2008-09 and fell marginally to $182
billion during 2009-10. It has since risen sharply
to $251 billion in 2010-11 and a target-exceeding
$304 billion in 2011-12.
This performance has been attributed by some to a
newfound strength in manufactured exports that could
see India escaping from its dependence on services
for growth.
Chart
1 >> (Click
to Enlarge)
However, the Ministry of Commerce, responsible for
pushing India's exports, seems pessimistic. On multiple
occasions the Secretary Commerce has cautioned against
expecting exports to continue to perform well, given
waning global demand resulting from the prolonged
crisis in Europe. While this does stand to reason,
it leaves unexplained the resilience of Indian exports
during the principal crisis years and its robust recovery
subsequently. Especially surprising would be the 21
per cent increase in exports in 2011-12.
It could be argued that the Commerce Secretary's views
have been influenced by the deceleration in export
growth during the second half of the last financial
year, when average export growth relative to the corresponding
period of the previous year was in single digits.
But even this fails to clarify. If export growth was
sluggish during the second half of the year, then
simple arithmetic would suggest that performance during
the first half must have been so remarkable that the
average for the year as a whole exceeded 20 per cent.
Thus, if we take the April-November 2011 period for
example, export growth was paced at 33 per cent. What
explains that buoyancy, given the fact that the world
in general and Europe in particular were in crisis
during the period in question? Thus the reasons why
export were initially buoyant in 2011-12 and then
sluggish and are expected to remain so in the coming
months are clearly the Commerce Ministry's best-kept
secrets.
There are, however, speculative explanations that
have been doing the rounds. One is that the official
export figures are substantially inflated. Limited
sample surveys (of the top-500 listed companies by
Kotak Mahindra, for example) pointed in that direction.
This conjecture tuned out to have some substance when
in November the government reportedly admitted that
export figures for the April to November period had
been inflated to the tune of $9 billion due to problems
with the computer software that had been recently
upgraded.
However, what needs noting is that even after correcting
for this ''error'' the export growth rate for the April
to November 2011 period was at the creditable 33 per
cent mentioned earlier. And, in November, the Commerce
Secretary had projected that exports over the full
financial year would be around $280 billion as opposed
to the $300-plus billion at which it is now estimated.
This does raise the possibility that the export figures
had been and are being inflated, because of software
errors or other reasons, even after the correction.
But this is not the only speculation regarding the
strange tale of India's export boom. The other is
that exports are being over-invoiced substantially
in order to bring back to India, in the form of spurious
export receipts, money that had been illegally transferred
abroad earlier. There are a number of reasons why
those having stashed away wealth abroad would now
like to bring to it back to the country, even in forms
that are liable to be taxed. The first is the growing
international agreement, prompted by security and
not economic reasons, on the need to share more information
on the financial holdings abroad of citizens of different
countries. Taxes may be a small price to pay to avoid
possible incarceration. The second is that the returns
on investing capital of this kind in international
market may be shrinking, making it a good time to
invest in India.
And, finally, what better time to bring dollars back
to India than one in which the rupee is depreciating?
However, till such time that there is more concrete
evidence of over-invoicing of exports and circumstantial
evidence of reversal of capital flight, this explanation
for India's ostensible export success must remain
in the realm of speculation.
But to cut the discussion short, there does seem to
be reason to conclude that the buoyancy in India's
exports is possibly an exaggeration. But, since official
figures point to a significant rise in exports, the
government needs an explanation, which has been found
in the fact that the composition of India's exports
are such that it is partly insulated from the effects
of the crisis. However, this is not immediately clear
from the available figures, since commodity groups
such as engineering goods, drugs and pharmaceuticals,
leather and textiles, besides petroleum and oil products
were the high growth areas. These are not areas in
which exports would not have been affected by the
crisis.
Moreover, infrastructural constraints and market saturation
are provided as reasons why this growth cannot be
sustained in the future. But why these constraints
have become operative now or cannot be relaxed is
left unspecified.
The truth must lie somewhere else. But that again
seems to be in a file marked secret.
*
This article was originally published in The Hindu,
‘Economy Watch' (April 30, 2012)
