The year 2018 was marked by trade hostilities between the United States and China. With exports hanging by a thread, Subir Ghosh looks ahead at 2019.
In mid-November came the heartening news that textiles and apparel exports had jumped-by as much as an impressive 38 per cent in October because of higher overseas demand. According to the ministry of commerce and industry, textiles and apparel exports had reached ₹203.53 billion for October 2018 as against ₹147.79 billion in the corresponding month of the previous year. Textiles exports increased by 28 per cent, and that of apparel rose by 54 per cent that month. Sounded like good news.
The reasons being given for the turnaround were: a recovery in the global economy, a depreciating rupee that helped boost realisation of exporters, and a spurt in demand from the United States (US).
Just two weeks later, The Cotton Textiles Export Promotion Council (TEXPROCIL) added to the euphoria with the announcement that cotton textiles exports had reached $938.91 million in October 2018, marking a growth of 20.3 per cent against the corresponding month of 2017, when exports were valued at $780.37 million. In rupee terms, exports during October 2018 reached ₹6780.39 crore as against ₹5078.74 crore in October 2017, recording a growth of 33.5 per cent.
Even as observers were deliberating whether things were indeed getting better, the commerce ministry tried to make the best of the turnaround, even though that turnaround could well be only a temporary reprieve-by raising duty drawback rates for all segments so as to enable exporters tap global markets with full potential and enhance textile and apparel shipments from the country.
On December 7, the ministry raised duty drawback rates across all varieties i.e. cotton, man-made fibres (MMF), nylon, yarn, fabric and other categories. The commerce ministry periodically reviews duty drawback rates through the duty drawback committee and modifies rates if necessary so that central taxes are refunded in order to avoid the "export" of taxes and retain a level-playing field in the global market. With the tax structure undergoing a phenomenal change with the introduction of the goods and services tax (GST), exporters had been demanding a change in duties.
It remains to be seen how much these would translate into more exports, and in turn to increased industrial productivity. The figures at hand are for October-the month in which the rupee fell to its all-time low of 74.60 (on October 10). Since then, the rupee has been strengthening.
Way Too Fluid
Much of the rise in exports to the US was being pinned to an improvement in the retail market there. In August, the National Retail Federation (NRF) of the US raised its retail sales forecast for the year. The NRF expected 2018 retail sales to increase at a minimum of 4.5 per cent over 2017 compared to the 3.8-4.4 per cent range forecast earlier. "Higher wages, gains in disposable income, a strong job market and record-high household net worth have all set the stage for very robust growth in the nation's consumer-driven economy," the federation remarked in a statement.
A newspaper article at that time mentioned how Indian exporters were reporting a healthy volume growth but also that their "earnings remained weak as reduction in export incentives, high cotton costs and low realisations impacted performance."
Pinning export hopes to the ongoing USChina trade war could have been misplaced. On October 30, US President Donald Trump announced that Indian exports of certain musical instruments, leather, textiles, dairy, chemicals and processed fruits and vegetables to the US would no longer enjoy duty-free access, with his administration withdrawing the concessions from November 1.