Exports unlikely to revive this year.

A recovery in India’s export performance may not happen this year and may have to wait until 2010, a key government document warned on Thursday, as it urged a continuation of stimulus measures aimed at boosting the sector.

Government data released this week showed that exports fell for the eighth straight month in May, although most expectations were for a pick up in the second half of the current fiscal year.

However, the Economic Survey for 2008-09 warned that the country’s exports of goods and services would continue to be impacted by the global economic downturn as it cautioned against early predictions of a turnaround based on an assumption that bailout packages in various countries have started working and would soon lift global trade.

It hinted that short-term relief measures and stimulus packages for the merchandise trade sector, including discount on interest rates, speedier service tax refunds and removal of fringe benefit tax, were on the cards, as it called for fundamental policy changes, notably a further cut in Customs and excise duties, to make domestic industry more competitive.

However, experts saw very limited scope for duty changes. “The government has fiscal constraints. Customs duties on products, where there is domestic demand, cannot be brought down. Moreover, with international prices of metals and foodgrains touching record lows, a reduction in Customs duty for such items would be detrimental for the domestic industry,” said Ajay Sahai, a trade expert and director general of exporters’ body Fieo.

The country’s trade deficit has been contracting since the start of the calendar year with imports declining at a faster rate than exports on the back of lower oil import bill and a slowdown in manufacturing activity.
The survey pointed out that the country could hope to end 2009-10 with a surplus on both the current and the capital accounts, boosted by flows from Indian expatriates and foreign investment flows. The last time both accounts showed a surplus was in 2003-04.

The survey noted the rising trend towards greater protectionism among countries in the wake of the global crisis, but said India would do well to not succumb to protectionist tendencies and proceed on the reforms path. It, however, said that India must guard against protectionist measures originating from its trading partners. With increased flow of cheap goods into India, especially from China, India has imposed anti-dumping and safeguard duties on imports across sectors.

The commerce department claims that these are legitimate steps to protect domestic industry from unfair competition. The economic survey said India would continue to work on comprehensive economic partnership agreements with the Asean bloc, South Korea, Japan, EU and Gulf countries.

Source : The Economic Times