India Market Watch: Indian Exports Continue to Decline, Small Cities to get BPOs, Construction Industry Set to be Key Driver for Growth

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Indian Exports Continue to Decline for 13th Month in a Row

Indian exports contracted for the 13th month in a row in December 2015. Outbound shipments for the month fell 14.75 percent to reach US $22.2 billion. Imports plunged as well, shrinking 3.9 percent as compared to December 2014 to reach US $33.9 billion. Further, the trade deficit widened to US $11.6 billion in December 2015; it was US $9.17 billion in December 2014. The slowdown has been attributed to shrinking global demand and volatility in the international currency market.  In order to manage the sustained decline in exports, the government has increased the duty drawback rate for exporters and implemented the interest stabilization scheme in November 2015.

In December 2015, there was a small pick-up among non-oil imports – pearls, precious and semi-precious stones, gold, silver and electronic items – and a contraction in the import of machinery equipment, transport equipment and project goods. The latter points to the ongoing manufacturing decline and absence of investment demand. Oil imports also declined. Exports that increased included drugs and pharmaceuticals, chemicals and ready-made garments, while gems and jewelry, engineering goods and petroleum products contracted.

The commerce ministry now projects that India’s overall exports could decline by 13 percent this fiscal year to reach US $270 billion, leading to a deficit of about US $120-125 billion. This means that the government’s earlier target – US $900 billion in exports of goods and services by 2020 to raise India’s share in world exports to 3.5 percent from two percent – might not be feasible.

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Central Government Directive – BPOs in Small Towns and Cities

The Union Minister for Communications and Information Technology, Ravi Shankar Prasad, has confirmed government plans to establish Business Process Outsourcing (BPO) centers in small towns and cities in Bihar, Odisha and West Bengal states to boost economic development. Facilitating this will be liberalization in the process of setting up BPOs and tax exemptions under new industry guidelines. According to the minister, the directive from the central government is in line with the BJP’s election manifesto to develop Eastern and Northeastern India.

The announcement was made as the minister laid down the foundation stone for an incubation facility at the Software Technology Park (STP) in Patna. The STP will be completed in 18 months at a cost of US $1.48 million (Rs 10 crore). More such STPs will be established if there is greater state cooperation in providing land, power and connectivity. Also attending the ceremony was Chief Minister Jitan Ram Manjhi, who stated that the government was ready to provide land that would also make possible the establishment of two proposed engineering colleges in Bihar – two branches of the National Institute of Electronics and Information Technology (NIELIT) at Muzaffarpur and Buxar.

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India’s Construction Industry a Force Multiplier for its Economy

The construction sector (consisting of roads, ports, airports, bridges and real estate) is a key driver for the Indian economy. It is also the second largest employment generator in India after agriculture, according to a joint study by the Associated Chambers of Commerce and Industry of India (ASSOCHAM) and Thought Arbitrage Research Institute (TARI).

Growth in this sector is therefore sure to boost Make in India targets – it is highly job-oriented and has strong backward and forward linkages to manufacturing industries. According to the ASSOCHAM-TARI study, the construction sector absorbs 40-45 percent of the steel industry’s output, 85 percent of the paint industry, 65-70 percent of the glass industry, as well as a significant share in the automotive, mining and excavation equipment industries. The government has noted this on its part; among other infra targets, the Union Transport Ministry foresees the completion of road projects worth US $103.3 billion (Rs 7 lakh crore) by the fiscal year 2019.

Finally, the ASSOCHAM-TARI report that increase in demand in the construction sector could also increase the overall output of the Indian economy by 2.4 times. This is why regulatory obstacles that have so far crippled growth in the sector – delays in environmental clearances, project approvals, acquisition, lack of finance and badly executed public-private-partnership (PPP) models – need to be removed or legally and institutionally addressed.  Progress on this front will not only improve employment figures, but will ensure that investments from the liberalization of FDI in realty and construction get converted to projects on the ground, reinstating trust in India’s business climate.

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