Role of manufacturing sector in improving India’s Trade Balance

Facts & Figures about India’s Trade Balance:

Cumulative value of exports for the period April-March 2012 -13 was US $ 300.57 billion (Rs. 16.35 lakh crore) as against US $ 305.96 billion (Rs 14.66 lakh crore) registering a negative growth  of  approximately 1.7 per cent in Dollar terms and growth of 11.5 per cent in Rupee terms over the same period last year.

Cumulative value of imports for the period April-March, 2012-13 was US $ 491.48 billion (Rs. 26.73 lakh crore) as against US $ 489.32 billion (Rs. 23.45 lakh crore) registering a growth of 0.44 per cent in Dollar terms and growth of approximately 13.9 per cent in Rupee terms over the same period last year.

The trade deficit for April - March, 2012-13 was estimated at US $ 190.92 billion which was higher than the deficit of US $ 183.36 million during April -March, 2011-12.

Now let us have a look on India’s Foreign Trade Balance to get better idea.

         India’s Foreign Trade Balance               (US $ Million)  

	March	April -March
	Exports (including Re-exports)
2011-12	28839.36	305963.92
2012-13	30849.65	300570.58
% Growth 2012-13/ 2011-2012	6.97	-1.76
	Imports
2011-12	42380.68	489319.50
2012-13	41164.71	491487.22
% Growth 2012-13/ 2011-2012	-2.87	0.44
Trade Balances
2011-12	-13541.32	-183355.58
2012-13	-10315.06	-190916.64

                  Source: Ministry of Commerce, Government of India

Above-mentioned data clearly states that there is very minimal increase in trade balances as compared to previous year in terms of US $.

Oil imports during March, 2013 were valued at US $ 13.33 billion which was 16.56 per cent lower than oil imports valued at US $ 15.97 billion in the corresponding period last year.Import bill of petroleum crude & product have declined in international currency in March 2013 as compared to March 2012. Though, in terms of domestic currency, the import has been increased.

Photo: www.thehindubusinessline.com

 Similar is the case evident even for Non-oil imports also. Non-oil      imports during April - March, 2012-13  were valued at US $ 322.23 billion which was 3.62 per cent lower than the level of such imports valued at US $ 334.35 billion in April - March, 2011-12. However in terms of Rupees there is significant increment in Non-oil imports.A depreciating rupee makes import of various things more expensive, which leads to an increase in the operating expense of the companies which depends on many such commodities, Thereby hitting the profit margin of all such companies.                                             

India’s export values 309.1 Billion US $ (Estimated. 2012).  Export goods involve mainly petroleum products, iron and steel, chemicals, vehicles, stone machineries and apparel. As one can observe 23% India’s export involves IT & IT services and remaining major portion of exports are various minerals, iron ore etc. Re-exports also contribute as major export goods. Manufacturing contributes approximately 6-10% to overall export value. Today, this sector generates about 45 million jobs, out of which 80 per cent are in the unorganized sector such as apparel industry and other low-end manufacturing segments.

To mitigate most of the problems related to economy of India due to trade balances compounded with rupee depreciation in the recent time, India is largely moving towards high-end manufacturing with the Government announcing multiple reforms and policies in this sector. 

The manufacturing industry in India is mostly driven by low-cost, skilled labour, reasonable cost of capital and adequate land laws. McKinsey and Company believes that the manufacturing sector of India has the potential to create up to 90 million jobs by the year 2025.  As India is a country with most of the natural resources in abundance and availability of numerous highly educated human resources, needless to say it truly has potential to be high-end manufacturing engineering exports.

India is increasingly adopting global approach to become a strategic player on international platform. Entry of many foreign companies in manufacturing industry has anchored technology-based orientation in the country which is subsequently helping India in creating a core and contemporary manufacturing sector which is fed by ancillary manufacturers that rely on simple technical expertise and skills.

Deloitte’s global index, 2013, for 38 nations, has ranked India as the fourth most competitive manufacturing country in the world and as per this report it is behind only to China, the United States of America and Germany. Competitiveness Index, 2013, based on a survey of CEOs, executives and many other officials of 550 global manufacturing companies in the world, has positioned India as second, next to China, five years down the line.

Clearly growth in manufacturing sector in India shall lead to setting up infrastructure for supply chain management of export goods.  Also production of not only high end engineering export goods but also production of high end luxury fashion accessories in India will help in a dual manner. First it will minimize the deficit in the trade balance account. Secondly, major imports of India after energy requirement are luxurious good from European nations and USA, which will reduce import outgoings also. 

Improvement in manufacturing sector is a need of an hour, as it will make India self dependent on the requirement of high end quality goods (engineering, luxury segment) as well as it will conserve most of its natural resources from depleting. None the less India’s trade balance deficit shall reduce and with high optimism who knows India will have once again trade surplus as it was in 1991.

REFERENCES:

1.www.assocham.org_arb_aer_2013_ASSOCHAM

2. www.assocham.org

3. www.ibef.org

4. www.indiainbusiness.nic.in/newdesign

This article is written by Vishal D. He is a PGDM student of 2013-15 batch of IIM Raipur. He is B.Tech in Metallurgical Engineering & Material Science from Indian Institute of Technology Bombay and has a stint of 62 months with Saipem India Projects Ltd & Petrofac International Ltd. His area of interest includes operations management. He can be reached at pgp13013.vishal@iimraipur.ac.in.