Ashita Allamraju Associate Professor Centre for Economics & Finance ADMINISTRATIVE STAFF COLLEGE OF INDIA BELLA VISTA :: HYDERABAD

 Global Economy: On a road to recovery?  Indian Economy: Status  Export Opportunities

 The global economy has been deteriorating since Sep 2011  Indicators of activity and unemployment show increasing and broad-based economic sluggishness in the first half of 2012 and no significant improvement in the third quarter  Global manufacturing has slowed sharply.  Euro area crisis has deepened  Slowdown in US and UK as well

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 Growth is estimated to have weakened appreciably in developing Asia, to less than 7 percent  Activity in China slowed sharply, owing to a tightening in credit conditions in response to threats of a real estate bubble  India’s activity suffered from waning business confidence amid slow approvals for new projects, sluggish structural reforms, policy rate hikes designed to rein in inflation, and flagging external demand.

 Real GDP growth also decelerated in Latin America to about 3 percent in the first half of 2012, largely due to Brazil.

 In U.S labor market and consumption have failed to garner much strength.

 The principal risk remains the euro area crisis.

 No significant improvement appears in the offing.  The WEO forecast includes only a modest reacceleration of activity

Long Term Trend in Growth PercentPercent  Trend growth rate has clearly declined in the post-crisis period.  India clocked 8.7% growth in the five year period  Average growth during the three year period 2005/06 to 2007/08 was 9.5%

 Growth moderated in the crisis year of but revived sharply in 2009/10 and 2010/11.  Growth in 2011/12 of 6.5% not only poor - compared to pre-crisis growth - but also compared to immediate post crisis yrs - lowest annual growth in the last 9 years

 Growth has moderated sequentially over the last four quarters from

(QE) (AE) Agriculture Industry Mining and Quarrying Manufacturing Electricity, gas &water Services Construction Trade, hotels etc Financing, Insurance, Real estate Community & Personal GDP at fc Sectoral Trends (Growth Rates)

16 India: Changing Composition of GDP YearAgrIndustryService

 In , agriculture, with 30 % of GDP, was providing employment and livelihood to 65 % of the workforce.  By , the same sector accounted for less than 17 % of GDP, but continued to support 55 % of the workforce.  Increasing Inequalities Productivity in Agriculture

 Industrial growth slowed down sharply during , ◦ weak demand for consumer durables, ◦ deceleration in external demand and ◦ subdued investment  Contraction in mining and poor performance of the manufacturing sub- sector Industry

 The growth in July 2012 index of industrial production (IIP) was 0.1% higher as compared to the level in the month of July  The manufacturing sector, which constitutes over 75% of the index, witnessed a contraction in output by 0.2% in July, as against growth of 3.1% in the same month last year.  The capital goods production also down by 5% in July  Consumer durables production showed a decline in growth rate

 Fastest growing sector  the share of services in the US$63 trillion world GDP was nearly 68% Service Sector Share of Services % of GDP US China Brazil India505657

 With a 17 % trade, hotels, and restaurants as a group is the largest contributor to GDP among the various services’ subsectors  Financing, insurance, real estate, and business services % share.  Community, social, and personal services with a share of 14 % is in third place.  Services sector is the dominant sector in most states of India Services GDP

 this sector employs an estimated 59.7 million persons spread over 26.1 million enterprises.  MSME sector accounts for about 45% of the manufacturing output and around 40% of the total export of the country.

YearTotal Industrial Production GDP

 CAGR of India’s exports and imports (in US dollar terms) were 8.2 % and 8.4 % respectively in the 1990s,  they increased to 19.5 % and 25.1 % during to  Exports grew at 25 % during decelerated to 13.6 % in the crisis year ( ) and registered a negative growth of 3.5 % in

Global recession had adversely affected the Indian exports resulting in widening of current account deficit (CAD). Merchandise exports increased 21% year-on-year to $303.7 billion in Imports grew at a sharper pace of 32.1% during the period, reaching $488.6 billion Current Year

ExportsIn $ Bn Grow th Engineering POL Gems & Jewellery Drugs & Pharmaceutical Leather ImportsIn $ Bn Gro wth Petroleum Gold&Silver Gems&Jewel lery Machinery Electronics Our Commodity Basket

 India has been rapidly diversifying its exports markets from the traditional export partners towards developing economies RankCountry 1USA 2China 3Singapore 4Hong Kong

 The composition of export basket of SME’s in India has both traditional and non- traditional commodities in nature.  There are few commodity groups which are exclusively exported by SME’s such as sports goods, cashew etc.  In the commodity group of engineering goods, SME’s constitute around 32% of the total exports of this commodity group.

S.No.Product Group Total Exports ’03 (Rs. Crores) Share of SSI Sector for ’03 (Rs. Crores) % share of SSI (A)NON TRADITIONAL 1Engineering Goods 38, , % 2Basic Chem. Pharmaceuti cal & Cosmetic products 21, , % 3Chemical & Allied products 10, , %

4Plastic products 4, , % 5Finished Leather & Leather products 8, , % 6Marine products 6, , % 7Processed Foods 13, , % 8Wool &Woollen Products 1, , %

9Sports Goods % 10Readymade Garments 26, , % 11Synthetic &Rayon Textile 7, , % 12Processed Tobacco, Bidi & Snuff 1, % 13Electronics & computers 52, , % Total of Non Traditional Products (A) 192, , %

(B)TRADITIONAL ITEMS 14Cashew2, % 15Lac % 16Spices1, % Total of Traditional Products (B) 3, , %

A + BTotal of {A} & {B} 196, , % (C)Other export items 56, A + B + CTotal exports from the country 252, , %

 95 percent of the products exported by the SSI are non traditional products.  Potential export destinations for products of SMEs are the USA, EU and Japan.  There exists a huge potential in the non-traditional sectors. They may not be able to tap the advantages of economies of scale, but then they are ideal for catering to small markets and orders.  These activities are often ecofriendly, which can be an added advantage.  It has been identified that the US could provide a market for textiles, leather items and engineering/electrical and electronic items

 Japan is a potential market for exporting chemicals, and agricultural, marine and allied products.  The European Union can be tapped for enhancing SSI exports of engineering/electrical, textiles, and electronic items.  Also, the a number of markets could be accessed for various goods in which given states have the bulk of market share or are suitable for those products.

Product group Main destination (countries) States producing these products Readymade garments USA, Europe, Canada, West Asia and North Africa Punjab, Haryana, Tamil Nadu and Maharashtra Plastic items UAE, China, Italy, Saudi Arabia and OmanVarious Marine products Japan, USA, EU, China and South-East Asia. Kerala, Tamil Nadu, West Bengal, Maharashtra and all the coastal states Sports goods UK, USA, Australia, Germany and South Africa Punjab, Haryana, Tamil Nadu and Maharashtra Spices East Asia, EU, North African Zone and American Zone Various Cashew items USA, Netherlands, UK, Japan and UAE Maharashtra, Andhra Pradesh, Kerala and Orissa Shellac items Indonesia, Germany, UAE, USA and ItalyVarious Synthetic items (Madeups) UAE, UK, Turkey, USA and ItalyVarious

Leather and leather items Germany, UK, Italy, USA and FranceUttar Pradesh Basic chemical and cosmetic products USA, Japan, Saudi Arabia, China, Singapore and Netherlands Various Chemical and allied products Japan, Belgium, Italy, France,Bangladesh, USA and UK Various Wool and woolen garments Europe, Japan, and BangladeshPunjab Processed food items USA, Europe and JapanVarious Electronic items and computer software USA, Hong Kong, UAE, UK,Germany, and Japan Maharashtra, Karnataka, Andhra Pradesh, and Haryana Tobacco items East Europe Andhra Pradesh and Karnataka Source: 11th Plan, Planning Commission