The Indian economy may be the only one of the BRICs growing satisfactorily, but the mood on the ground is grim as trade and exports continue to underperform.
Exports contracted for a 13th successive month in December (14.75%), while imports plunged by 3.9% with the trade deficit widening to US$11.6bn.
Much of the conversation at the GTR India Trade and Export Finance conference in Mumbai was devoted to the numerous woes of the economy and ways in which to improve it. But there was some consolation in the potential opportunities created in the booming solar and renewable sector, as well as the extensive infrastructure plans.
Generally, there is a sense that the 18 months of governance under Prime Minister Narendra Modi have failed to yield the results the initial optimism suggested. One banker put it succinctly, saying: “I feel very positive, because there’s no way things can get much worse than this.”
Ajay Sahai, director general, Federation of Indian Export Organisations, pinpointed a number of areas in which India must improve if it is to turn its export sector around.
The cost of transactions in India is between 5% and 8%, since there is very little automation in the customs system. This should be addressed, Sahai said, by introducing a single trade portal for filing documents online.
India’s Special Economic Zones (SEZs) have come in for much criticism recently for their lack of productivity. Most firms are using them simply as tax havens, with Sahai drawing an unfavourable comparison with China, where they account for 40% of exports. India’s SEZs, he said, are often no bigger than a school playing field.
The cost of logistics is a major impediment: it is three times more expensive to transport goods from Lucknow to Mumbai than it is to ship the same goods to Europe. Furthermore, 14% of GDP is being spent on logistics, much higher than the average in the west, of around 8%.
Meanwhile, outside investors were well represented, as they sized up the opportunities in India for overseas firms. Fred Hochberg, the chairman of US Exim, said that the export credit agency is very keen to get involved in the upcoming energy project base, which will see 60GW added to the grid in India, with 40% of this coming in the renewables sector.
Hochberg is also keen to involve US exporters in the Smart Cities programme, while the Make in India campaign could provide a huge market for US exports of machinery, tools and equipment.
Sam Hoexter, the regional head for UK Export Finance, said his organisation has earmarked US$1.5bn to be spent on infrastructure projects in India. He is particularly keen to support UK construction firms such as Arup, Atkins and Mott MacDonald, which have a long track record in India.