Is India’s $900 billion exports target just too ambitious?

In April 2015, the Narendra Modi government set a mammoth target of doubling India’s exports to $900 billion by 2020.

Eight months in, the number already looks a bit too ambitious: In the April to November period, India’s exports fell 18.5% compared to the same period in 2014, according to the ministry of commerce and industry. This fall is primarily led by exports of goods, which comprise about two-thirds of the country’s total exports. The services exports component hasn’t been affected much.

The outlook for the coming months is also grim, making the target seem even more untenable. Global demand continues to look weak in the short term, and some structural issues ‒ including a lacklustre manufacturing sector ‒ need to be resolved before exports can be revived.

“India’s target of doubling exports of goods and services to $900 billion by fiscal 2020 from $470 billion in fiscal 2015 might prove a tad too ambitious if the current cyclical slowdown lasts and structural issues are not addressed,” a report by Crisil, a credit ratings agency, said on Dec. 3.

“The government’s flagship ‘Make in India’ programme, which aims to generate large-scale manufacturing employment and make India a world-class exports hub, could also be left hobbled,” it added.

Global indicators

In October, the International Monetary Fund said in its World Economic Outlook that “global growth for 2015 is projected at 3.1%, 0.3 percentage points lower than in 2014.” Alongside, the World Trade Organisation has cut its global trade growth estimate for 2015 to 2.8% from 3%. For 2016, the forecast has been lowered to 3.9% from 4%.

Meanwhile, most of India’s top export markets have seen an economic slowdown, leading to lower demand for imports in those countries, the Crisil report said. These include the UAE, China and Hong Kong, among others.

“Until the global economy picks up, I don’t think that any stimulus or structural changes will help India’s exports,” Himanshu Tewari, partner at BMR Advisors, told Quartz. “The goods exports of India have been hovering around $300 billion, so right now the target is certainly ambitious.”

To reach $900 billion by 2020, India will need an annual growth of between 15% and 20% in exports, explained Pravakar Sahoo, associate professor, Institute of Economic Growth at Delhi University. “Forget 20%, export growth has not been positive so far and may not be positive in immediate quarters. In the coming five years, only if things improve, we might get 50% of the incremental target.” This translates to exports worth between $700 billion and $750 billion, he told Quartz.

Since India does not export very high-technology intensive or value-added products, Sahoo added, an increase in volumes won’t necessarily mean a rise in value.

The Modi government itself is trying to allay fears that India’s exports are in trouble. On December 22, the ministry of commerce and industry released a statement saying there is “no cause of panic.” The statement further added:

A closer look at the trade figures gives a satisfactory explanation for divergence in these figures. Petroleum product exports have fallen by 52%. In the case of petroleum products, there has been steep decline in raw material prices, namely, crude oil. If exports of petroleum products are excluded, then the decline in exports is only 9.6% in dollars. In rupee terms non-oil exports have declined by only 3.7%.

But, despite the government’s attempts to put all the blame on petroleum products ‒which account for 18.8% of the total exports, according to Crisil ‒ other top export segments are also in decline. Engineering goods, which constitute 21.9% of the total exports, saw a drop of 11% in the April-October period. And gems and jewellery, the third largest export component (13% of total exports), reported a decline of almost 7% in the same period.

This article was first published on qz.com.