The global economy is currently in the midst of a synchronised slowdown, with almost all major economies losing momentum. An important cause of this slowdown, according to IMF, is trade friction between the world’s largest economies. Two outcomes of this friction are a reduction in the volume of merchandise and the constant threat of tariff increases as countries turn insular. Given this context, India’s lacklustre two-way global trade in September may not seem disappointing. Exports declined 6.57% to $26 billion and imports fell by 13.9% to $36.9 billion. However, this view mischaracterises India’s challenge.
Prior to the current slowdown, there were a couple of years when the global economy recorded a synchronised pick-up. India missed the bus on that occasion; it coincided with demonetisation and the poorly managed transition to GST. India over the last three years has witnessed a slowdown in economic growth. For a longer period, we have seen a reduction in export intensity of growth. The signs point to an economy which has lost competitiveness in relation to its peer group over the last few years. This needs to be reversed as export-led growth is a tried and tested pathway to prosperity.
IMF has forecast that India will record an improvement in its growth rate next financial year. Of course, this is contingent on reforms. NDA did well recently to lower corporate tax rates as it influences investment decisions. But this needs to be accompanied by other changes which can actualise the potential of tax rate cut. For instance, the import tariff rates should be reduced to encourage a tighter integration of Indian firms in global value chains. This will lead soon to an increase in exports in both absolute and relative terms. If we want acche din, there’s no real substitute for export-led growth.
This piece appeared as an editorial opinion in the print edition of The Times of India.