The report’s analysis of India’s exports makes for a sobering reading.
The World Bank has raised its forecast for the Indian economy in its latest update, pegging growth at 7 per cent this year, up from its earlier expectation of 6.6 per cent. While the revised estimate comes only days after government data showed that the economy grew at 6.7 per cent in the first quarter, lower than the RBI’s estimate of 7.1 per cent, the Bank’s estimate is in line with assessments by other agencies. In the July update of the World Economic Outlook, the International Monetary Fund had also revised upwards its assessment to 7 per cent. The Asian Development Bank has projected growth at 7 per cent, while the RBI has pegged growth to be marginally higher at 7.2 per cent. Projections by most other analysts are broadly in this range.
The Bank now expects private consumption to pick up as rural incomes bounce back — consumption grew at 7.4 per cent in the first quarter after growing at 4 per cent last year. A good monsoon after last year’s El Nino induced deficient rainfall season and the heatwave should help spur farm output, and as a consequence lift rural incomes and demand. However, it expects a slight deceleration in investment growth, reflecting slower growth of government capital expenditure. But there is reason to be optimistic about the country’s medium-term prospects. The Bank expects growth to average 6.7 per cent over 2025-27, while the IMF expects growth to be around 6.5 per cent over the next few years.
The report’s analysis of India’s exports makes for a sobering reading. It highlights that the country has not been able to take advantage of the export space being vacated by China in low-skill manufacturing, with others like Bangladesh and Vietnam being the “primary beneficiaries of China’s shrinking market share”. Both countries have a larger share in exports of apparel, leather, textiles, and footwear. Others that have benefited from China’s loss in global exports are Poland, Germany and France. Part of the problem can be traced to high tariff and non-tariff barriers — as per the World Trade Organisation, India’s average tariff (most favoured nation) has risen over the past decade, and is higher than most of its competitors. Then there is the issue of employment. As exports of both manufacturing and services become more skill intensive, the report estimates that both direct and indirect employment related to exports has fallen. In the recent Union budget, the finance minister had brought down tariffs on several items. However, more needs to be done. The steps towards protectionism need to be reversed, tariff and non-tariff barriers need to be reduced. Alongside, the government should work towards entering into more free trade agreements, and seek deeper integration with global value chains.
