The slowing down of exports in July as compared to June should set the alarm bells ringing for India Inc. to change its export strategy and to think seriously about increasing domestic demand. The growth of exports at 13.2 per cent in July was the slowest as against 30 per cent in the preceding five months of the year. The bulk of India’s exports are to the US and Europe and both these economies are in slowdown mode. There is no way that they will recover even one year down the line though
some optimists say they should recover in six months. The US, the largest consumer market, is witnessing a huge contraction in consumption — people are saving money as against the rabid consumerism exhibited prior to the financial crisis of 2007-08 that began in the US. Jobless claims have risen at an alarming rate in the US and, while the rich have grown richer in America, the middle class is reeling under the effects of pink slips. The Obama government has been unable to create the number of jobs required to stop more people entering the jobless market. Added to this is the need for withdrawing stimulus packages in a calibrated manner both in the US and Europe and adopting austerity measures. All this does not paint a rosy picture for Indian exports to America and Europe picking up in the near or medium term. The silver lining is that exports to Africa, West Asia and Latin America have increased thanks to the push provided by the Export-Import Bank of India and other government initiatives. The move to diversify exports to other markets has started but it will take time.
India Inc. is as usual seeking financial support and sops for sectors affected by the slowdown in demand in the advanced economies. There is no doubt that some sectors suffer from handicaps, like, for instance, in competition with Bangladesh in textiles. Bangladesh enjoys favoured treatment from the US and the European Union and has special duty exemptions that range from 12 to 28 per cent, according to textile manufacturers. The government has so far been silent on sops for the export sector.
However, in the long term, the only way out is to develop the domestic market. This means the government will have to put more purchasing power in the hands of the people. The sectors affected by the slowdown in exports are leather, textiles, man-made fibres, electronic goods and tea. There is no reason why exporters cannot find a market in India for these products, and for more. Much is being made about how the Mahatma Gandhi National Rural Employment Guarantee Scheme has put purchasing power in the hands of the people. The scheme is being implemented in a very haphazard manner and is seeped in corruption, if one goes by the various reports on the monitoring of the scheme. This is one flagship programme that could do wonders for rural India if the state governments could implement it efficiently and honestly and use it to build productive assets. The worldwide horror at stories of corruption in preparations for the Delhi Commonwealth Games should spur the Manmohan Singh government to crack the whip against corruption, which is largely responsible for impoverishing the people and keeping millions of Indians out of the economic mainstream. The “chalta hai” philosophy against corruption imposed on the people for the benefit of the corrupt elite has been allowed to sap the moral fabric of the country. Unless the situation is tackled, the people will remain poor and unable to take part in the growth story.