Exports/GDP at multi-year lows; IT exports fall off a cliff

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It’s been a year of sob stories for exporters. Merchandise exports picked up towards the end of 2016-17, but that didn’t stop India’s goods exports/GDP percentage for the year being the lowest since 2005-06.

Chart 1 has the gory details.

As you can see, there’s been a slippery slide in the goods exports/GDP percentage from 17.16% in 2013-14 to 12.38% in 2016-17.

The fall isn’t limited to goods—services exports haven’t fared any better. India’s services exports/GDP percentage has also been falling since 2013-14, mainly due to a tapering off in its software exports. Services exports as a percentage of gross domestic product (GDP) in 2016-17 was the lowest since 2009-10.

Chart 2 shows growth in exports of computer services has not only plunged but also contracted in 2016-17. It’s a far cry from the sector’s scorching pace of growth during the first decade of this century

While the annual growth numbers for software exports are telling, they don’t do justice to the true extent of the slowdown in the sector.

Chart 3 shows that picture and it is not a pretty one. Net inflows from computer services, in absolute numbers, were lower in the March quarter of 2016-17 than in the March quarter of every year, starting from January-March 2012.

The silver lining is that global trade is expected to pick up this year on the hope that the advanced economies will pick up speed. That should be positive for Indian exports. The big worry, of course, is Donald Trump’s protectionist instincts might throw a monkey-wrench into the works, especially in the information technology (IT) sector. And the big question is: given these trends, should the central bank start to fret about the strength of the rupee?

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