To those outside the government, the evidence on India’s export performance is confusing indeed. On the one hand, the dollar value of India’s aggregate exports seems to have weathered the crisis and then staged a smart recovery.
It rose from $166 billion in 2007-08, to $189 billion in crisis year 2008-09 and fell marginally to $182 billion during 2009-10. It has since risen sharply to $251 billion in 2010-11 and a target-exceeding $304 billion in 2011-12.
This performance has been attributed by some to a newfound strength in manufactured exports that could see India escaping from its dependence on services for growth.
However, the Ministry of Commerce, responsible for pushing India’s exports, seems pessimistic. On multiple occasions the Secretary Commerce has cautioned against expecting exports to continue to perform well, given waning global demand resulting from the prolonged crisis in Europe. While this does stand to reason, it leaves unexplained the resilience of Indian exports during the principal crisis years and its robust recovery subsequently. Especially surprising would be the 21 per cent increase in exports in 2011-12.
It could be argued that the Commerce Secretary’s views have been influenced by the deceleration in export growth during the second half of the last financial year, when average export growth relative to the corresponding period of the previous year was in single digits. But even this fails to clarify. If export growth was sluggish during the second half of the year, then simple arithmetic would suggest that performance during the first half must have been so remarkable that the average for the year as a whole exceeded 20 per cent. Thus, if we take the April-November 2011 period for example, export growth was paced at 33 per cent. What explains that buoyancy, given the fact that the world in general and Europe in particular were in crisis during the period in question? Thus the reasons why export were initially buoyant in 2011-12 and then sluggish and are expected to remain so in the coming months are clearly the Commerce Ministry’s best-kept secrets.
There are, however, speculative explanations that have been doing the rounds. One is that the official export figures are substantially inflated. Limited sample surveys (of the top-500 listed companies by Kotak Mahindra, for example) pointed in that direction. This conjecture tuned out to have some substance when in November the government reportedly admitted that export figures for the April to November period had been inflated to the tune of $9 billion due to problems with the computer software that had been recently upgraded.
However, what needs noting is that even after correcting for this “error” the export growth rate for the April to November 2011 period was at the creditable 33 per cent mentioned earlier. And, in November, the Commerce Secretary had projected that exports over the full financial year would be around $280 billion as opposed to the $300-plus billion at which it is now estimated. This does raise the possibility that the export figures had been and are being inflated, because of software errors or other reasons, even after the correction.
But this is not the only speculation regarding the strange tale of India’s export boom. The other is that exports are being over-invoiced substantially in order to bring back to India, in the form of spurious export receipts, money that had been illegally transferred abroad earlier. There are a number of reasons why those having stashed away wealth abroad would now like to bring to it back to the country, even in forms that are liable to be taxed. The first is the growing international agreement, prompted by security and not economic reasons, on the need to share more information on the financial holdings abroad of citizens of different countries. Taxes may be a small price to pay to avoid possible incarceration. The second is that the returns on investing capital of this kind in international market may be shrinking, making it a good time to invest in India.
And, finally, what better time to bring dollars back to India than one in which the rupee is depreciating? However, till such time that there is more concrete evidence of over-invoicing of exports and circumstantial evidence of reversal of capital flight, this explanation for India’s ostensible export success must remain in the realm of speculation.
But to cut the discussion short, there does seem to be reason to conclude that the buoyancy in India’s exports is possibly an exaggeration. But, since official figures point to a significant rise in exports, the government needs an explanation, which has been found in the fact that the composition of India’s exports are such that it is partly insulated from the effects of the crisis. However, this is not immediately clear from the available figures, since commodity groups such as engineering goods, drugs and pharmaceuticals, leather and textiles, besides petroleum and oil products were the high growth areas. These are not areas in which exports would not have been affected by the crisis.
Moreover, infrastructural constraints and market saturation are provided as reasons why this growth cannot be sustained in the future. But why these constraints have become operative now or cannot be relaxed is left unspecified.
The truth must lie somewhere else. But that again seems to be in a file marked secret.