Manufactured goods’ exports expected to take off under Modi’s regime!
Zee Research Group/Delhi
During the first quarter of fiscal 2014-15, exports posted positive growth for the third consecutive month. The first budget presented by Narendra Modi-led BJP government reflected the strong intent of boosting the manufacturing sector. This augurs well for the revival of manufacturing exports.
During the period under review (Q1FY2015), engineering goods, petroleum products, and readymade garments were the key drivers of exports growth. While India’s exports grew by 10.2 per cent in June from a year ago, on a cumulative basis exports rose 9.3 per cent to 80 billion dollars in Q1FY2015.
In value terms, exports came at 26.5 billion dollars in June as against 28 billion dollars in May. The key drivers of exports growth during the month on YoY basis were: Engineering goods (up 21.6 per cent), marine products (27.5 per cent), ceramic products and glass ware (25 per cent) and petroleum products (38.4 percent).
Likewise, in May ’14, exports registered significant growth with export of engineering goods , petroleum products, and readymade garments expanded by 22.1 per cent, 28.7 per cent, and 24.9 per cent to 6.1 billion dollars, 5.9 billion dollars and 1.5 billion dollars, respectively.
The engineering sector is among the top contributors to the total Indian export basket. The sector accounts for about 20 per cent of India’s total exports and is the largest foreign exchange earner for the country in terms of merchandised goods.
Engineering exports from the country include transport equipment, capital goods, other machinery/equipment and light engineering products such as castings, forgings and fasteners.
However, India’s exports are characterised by low technology intensity as the country’s share in high and medium technology engineering exports at 62 per cent is lower than competitors’ 71 percent.
According to Edelweiss (domestic brokerage firm), India accounts for 0.8 per cent of global engineering exports and lags behind China, Brazil, South Africa, Mexico, Poland, Czech Republic, Hungary, Slovakia and South Korea. Edelweiss in its report further stated, “The country continues to be one of the fastest growing exporters of engineering goods—14 per cent CAGR—trailing only China among major engineering exporters.”
Export demand is a function of various factors like demand for exports and competitiveness. However, China is losing its competitive sheen in global manufacturing space owing to currency appreciation and local cost inflation. While the Chinese Yuan has appreciated nearly 23 per cent in the past nine years, wages have posted compounded annual growth rate of 15-18 per cent.
Interestingly, Barclays research has termed India as a perfect substitute due to several factors: large and growing domestic market, the availability of a skilled work force, numerous workers with strong engineering skills, currency depreciation (28 per cent in three years).
Similarly, Edelweiss in its report mentioned that superior skills would drive the growth of engineering exports sector in India. The report revealed, “We expect Indian engineering exports to excel in sub-segments that require high engineering skill & precision, low scale (akin to batch processing) and customised products. With its extreme cost focus and availability of engineering skill, India has already carved a niche in ‘frugal engineering’.”