The current Foreign Trade Policy, which sets long-term targets for exports growth, trade gap and so on, was announced in 2015 and aimed to take India’s exports from about $450 bln at the time to $900 bln by 2020. The policy announced a slew of incentives and promotions for exporters.
Out of $450 bln of exports in 2015, about $150 bln was in the form of services — largely IT and BPO — while the remaining was in the form of merchandise goods such as refined petroleum products, gems and jewelry, garments and iron ore.
To achieve the goal, India’s goods and services exports would have had to grow by about 14-15% every year.
However, since the policy was unveiled, India’s exports growth has been lackluster, both on the services side — due to uncertainties in global IT markets — as well on the merchandise side — due to low crude oil prices.
India is a major refining hub and imports huge quantities of crude oil, and re-exports it in the form of petrol, diesel and other products.
Instead of having achieved the targeted $600 bln by 2017, the actual number is still hovering around $500-550 bln marks.
Ironically, the steep correction in oil prices that thwarted exports could help the country meet its trade deficit (the shortfall between imports vs exports).
India pays for its excess of imports by diverting foreign exchange brought in by long-term investors into Indian companies. But this is not sustainable as the investors will, one day, take their money back.
Sustained deficit in the country’s receipts over its earnings results in the devaluation of the Indian currency, which will increase the price of imported goods such as oil and electronics, leading to inflation.
Due to the lackluster exports growth, the government is likely to bring down the target to a more realistic number.
Federation of Indian Exports Organisations (FIEO) has already urged the government to bring down the target to a more manageable level.
FIEO Director General Ajay Sahai said exports would need to grow at a compound rate of 27% to meet the targets, but a more realistic target would be a growth of around 15%, Business Standard reported. This will take total exports to $700-750 billion by 2020, he added.