India’s Exports Slide
By Dhurjati Mukherjee
India’s exports have witnessed a slide in most sectors, as per latest reports, in view of the current geopolitical situation and the pressure of US tariffs, The fault lines have widened with the rupee falling to its lowest value while exporters, especially small and medium-sized firms continue to face sustained pressure. Though the trade pact with the US is close to finalisation and it is expected that the tariffs would be brought down to a maximum of 25 to 30 percent, if not less, the position now is far from encouraging. As is well known, presently two-thirds of its merchandise face 50 percent tariff, comprising reciprocal duties and additional penalties tied to its purchase of Russian oil.
India’s export-oriented policy efforts have not only faced weak global demands but intense competition from Asian peers that have historically exported their way to prosperity, enabling labour shifts out of agriculture. Many of the economies have become preferred destinations for entrepreneurs and firms relocating from China. Mention may be made of relative newcomers like Vietnam which recorded strong export growth during the post-pandemic period, when the global economy has been slow, both the country and China increased their world export shares while India slipped.
India’s goods export growth averaged only one percentage point above world GDP during 2014-2024. Though comparisons cannot be made with countries such as Indonesia, Brazil etc, it is significant to note that even Vietnam tripled its share of world exports from 0.6 percent to 1.7 percent during this period, almost equalling India’s 2024 share of 1.8 percent.
While the much-awaited deal with the US is expected any time, there is good news for the country as the European Union is eyeing to forge a broad agenda with India to firm up a free trade pact, a defence framework agreement and a strategic agenda at their annual summit on January 27. According to diplomatic sources, the free trade agreement to be sealed at the summit in New Delhi will be a ‘living document’ on which work would be continued to iron out any unresolved issues.
Added to this, after the meeting of the Indian Prime Minister with his Canadian counterpart on the sidelines of the G-20 summit, it was decided to begin negotiations on an ambitious ‘Comprehensive Economic Partnership Agreement’, as per a statement of the external affairs ministry. It is understood that the agreement will cover goods, services, investment, sanitary and phytosanitary measures, technical barriers to trade and dispute settlement. It has also been reported that India and Israel will soon begin negotiations for a free trade agreement (FTA), according to Union Commerce and Industry Minister Piyush Goyal with data showing that exports have grown in November.
While the government is quite seriously aware of the matter and has rightly taken a prompt decision by clearing the Rs 25,000 crore Export Promotion Mission after a long time and also the Rs 20,000 additional free collateral credit to support exporters grappling with global trade uncertainty. Priority support has been identified to sectors such as textiles, leather, gems and jewellery, engineering goods and marine products hit by US tariffs.
Along with this, the Reserve Bank of India decided to cushion exporters in stressed sectors by announcing relaxation under the Foreign Exchange Management Act (FEMA) by extending the time available to exporters to realize and repatriate export proceeds from the existing 9 to 15 months. The shipment time has also been increased from one to three years, giving exporters greater flexibility to manage orders and supply chain uncertainties. Credit debt relief measures have also been announced for twenty sectors that have been hardest hit by the slowdown.
The need of the hour is obviously on improving quality through technological upgradation, specially in labour-intensive sectors through innovative designs and better marketing in foreign and unexplored markets with the government helping through its trade missions abroad. Moreover, cost-effectiveness is also a key factor in Indian goods making entry into foreign markets in a big way.
In this connection, start-ups have to be encouraged as most of them have high quality skills and are aware of the needs of global markets. Their operational problems and marketing expenditure are, of course, big problems which have to be supported by the government. A section of economists feels, and quite rightly, that India lacks marketing skill in various areas and promotional activities.
In the current situation, the four labour codes announced recently may augur well for the growth of the Indian economy as also the export front. Prime Minister Narendra Modi stated that “the codes will serve as a strong foundation for universal social security, minimum and timely payment of wages, safe workplaces and remunerative opportunities for our people, specially Nari Shakti and Yuva Shakti”. He further stated that the reforms will boost job creation, drive productivity and accelerate the journey to Viksit Bharat.
One cannot but appreciate the new labour codes that have been approved recently. It is a fact that rigid labour laws prevalent in the country had been hurting entrepreneurship growth. A large provision in the Industrial Disputes Act, 1947 forbid enterprises with 100 or more workers from laying off workers under any circumstances. This draconian provision, complemented by other rigidities encouraged firms, especially the labour-intensive ones, to remain small.
At the same time, Indian trade unions have condemned the government’s rollout of the new labour codes, as a “deceptive fraud” against workers.The government claims it is seeking to simplify work rules and liberalise conditions for investment. It says the changes improve worker protections, offer new rules of social security and minimum-wage benefits. But it also allows companies to hire and fire workers more easily.It remains to be seen whether with these labour codes, India will be able to attract more foreign investment to the country. — INFA