External demand and weaker rupee to support exports: HSBC Global Trade Forecast

India’s Trade Confidence Index (TCI) dipped from 142 in H1 2013 to 126 in H2.

March 19, 2014 11:23 IST | India Infoline News Service

The HSBC Trade Forecast highlights India’s growing population and nascent middle-class will generate substantial demand for consumer goods from abroad, while the requirements of Indian firms to engage in technological upgrading will generate demand for both industrial and Information Communication Technology (ICT) capital goods imports.
A high rate of emigration among the educated population, coupled with generally low educational standards, means that high-tech exports will remain a small part of total exports
Key market and India findings from the HSBC Trade Forecast Report

India’s large economy is less dependent on trade than many other countries. However, in the medium to long-run, trade expansion will be a crucial part of India’s development towards middle-income status. This is likely to be driven primarily by trade links with the UAE, the US, China and emerging Asia.

India’s Trade Confidence Index (TCI) dipped from 142 in H1 2013 to 126 in H2. There has been a visible slowdown in growth, and increased financial market volatility among emerging economies in particular is making trade with India riskier for foreign companies.

Almost 70% of respondents identified Asia as a region they are currently trading with, and 30% confirmed China as their main trading partner.

Latin American markets as well as the Middle East and North Africa are also expected to offer growth opportunities. More than 15% of respondents now report trading with these regions

The US dollar is the main trade settlement currency for Indian exporters. This means the exports outlook is tied closely to currency volatility, an issue which has come to fore recently given the rupee’s depreciation since the middle of 2013.

Sandeep Uppal, Managing Director and Head, Commercial Banking, HSBC India said: “Despite its recent slowdown, the economic promise of India remains substantial, with the growing population and nascent domestic middle class generating a growing market for consumption goods. Capital investment is also expected to rebound in coming years as India continues its long process of urbanisation generating demand for capital goods imports. Moreover, India will remain a key source of low-cost manufacturing exports to the West and Asia due to its labour abundance.”
Focus on Technology
With emerging markets targeting Research & Development (R&D) investment to scale the value
chain in the high-tech sector, this illustrates the need for developed economies to invest in innovation to remain competitive.
Technology is essential for maintaining and enhancing standards of living, promoting business investment and supporting economic development. Even for a developing country, India’s high-tech goods sector is under-developed, which is negative for the wider economy. But India’s software services industry has flourished and compares favourably to global leaders in this segment.
Key findings :-
• India’s high-tech sector lags well behind other developing economies such as China. Although India is a leader in exports of software services, high-tech goods exports account for just 4% of total exports, compared with almost 40% for China.
• India ranks below the other BRIC economies for expenditure on R&D, which is preventing
the country from moving up the value chain in manufacturing. The level of innovation, based on patents per 1000 inhabitants, is also very low.
• As a result, high-tech goods exports are likely to remain a very small share of overall exports in the long term.

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