Iron ore exports up, will factories follow?.

In absolute numbers it is not much, but the turnaround of the iron ore exports is possibly the most significant piece of news from the robust export numbers that is coming through.

On a small base of September last year, iron ore exports have risen by 683 per cent. It is on a small base but most remarkable as the downturn had also coincided with India's growth meltdown last year. Like iron ore, the numbers for the other traditional sectors too are looking impressive. In the past three months merchandise exports have grown in double digits as a result. Textiles, engineering and petroleum besides iron ore are showing smart performances. Textiles sector, for instance, posted a growth of over 24 per cent during the April-September period.

The Federation of Indian Exports Organisation is confident the government's export target of $325 billion will be easily crossed and the total will reach $345 billion. This works out to a needed average growth rate of 15-16 per cent in every month from now. It was 5.14 per cent for the first half. The optimism stems from a rebound in the US and to some extent the EU too.

The worrying aspect is that imports have dropped sharply by over 18 per cent. The trade deficit has narrowed to a 30-month low of $6.76 billion during September. But achieving it through an import compression is not encouraging news. Of course as a result the current account deficit would narrow further. What is required for the economy at this stage is a push for manufacturing to provide a diversification to exports. Despite several attempts, manufacturing has not taken off. The government had announced a 15 per cent investment allowance for capital expenditure above Rs 100 crore to provide fillip to the sector but that too does not seem to be working so far.

Source : indianexpress.com