Global headwinds

General Studies Paper 3

Recent Context

• Recently Trade data released by the Ministry of Commerce and Industry points towards a continuing weakness in India’s exports

Highlights of Trade related data

• Merchandise exports fell to a nine-month low of $32.25 billion in July, a decline of almost 16 per cent. Alongside, goods imports also fell by 17 per cent to $52.9 billion.
• In the first four months of the financial year (April-July), exports and imports have now contracted by 14.5 per cent and 13.8 per cent respectively.
• While part of the decline can be traced towards lower commodity prices, both non-oil exports and imports have fallen indicating weak global and domestic demand. These are worrying signs.

Sector and regional specific decline in trade:

• The disaggregated data shows that 19 of the 30 major export items have declined during April-July.
• These also include labour intensive sectors such as gems and jewellery, leather products, textiles and others.
• However, electronic exports continue to grow at a robust pace, rising by 37.6 per cent in the financial year so far.
• As per an analysis by Crisil, the decline in India’s exports has been more pronounced in the Asia Pacific region.
• In the first two months of the financial year, exports to APAC declined by 21.8 per cent, followed by the US (12.9 per cent), Africa (8.6 per cent) and Europe (6 per cent).
• As per this analysis, the share of APAC in India’s goods exports has been on a decline since the beginning of the pandemic.
• While in 2019, the region accounted for 33 per cent of India’s merchandise exports, by 2022-23, its share in the country’s export basket had declined to 26.5 per cent, while the combined share of the US and the EU rose to 34 per cent.

Global economic situation which going to impact India’s export

• In the near term, slowing global demand and trade will continue to weigh down exports.
• As per the International Monetary Fund’s, World Economic Outlook report, the world economy is likely to grow at 3 per cent this year, down from 3.5 per cent the year before.
• Alongside, world trade volume growth (goods and services) is expected to slow down from 5.2 per cent last year to 2 per cent this year.
• In fact, growth this year is now projected to be 0.4 percentage points lower than the IMF’s earlier forecast.

The Government has taken the following measures to boost exports

• Foreign Trade Policy (2015-20) extended upto 31-03-2023.
• Interest Equalization Scheme on pre and post shipment rupee export credit has also been extended upto 31-03-2024.
• Assistance provided through several schemes to promote exports, namely, Trade Infrastructure for Export Scheme (TIES) and Market Access Initiatives (MAI) Scheme.
• Rebate of State and Central Levies and Taxes (RoSCTL) Scheme to promote labour-oriented textile export has been implemented since 07.03.2019.
• Remission of Duties and Taxes on Exported Products (RoDTEP) scheme has been implemented since 01.01.2021.
• Common Digital Platform for Certificate of Origin has been launched to facilitate trade and increase Free Trade Agreement (FTA) utilization by exporters.
• 12 Champion Services Sectors have been identified for promoting and diversifying services exports by pursuing specific action plans.
• Districts as Export Hubs has been launched by identifying products with export potential in each district, addressing bottlenecks for exporting these products and supporting local exporters/manufacturers to generate employment in the district.
• Active role of Indian missions abroad towards promoting India’s trade, tourism, technology and investment goals has been enhanced.

Way Forward

• Investment in Infrastructure sector: Improved infrastructure and logistics are critical for enhancing export competitiveness.
• India should prioritise investments in transportation networks, ports, customs clearance processes, and export-oriented infrastructure such as export promotion zones and specialised manufacturing zones.
• This can reduce transportation costs, improve supply chain efficiency, and boost export capabilities.
• Skill Development and Technology Adoption: Skill development programs should be implemented to enhance the availability of skilled labour in export-oriented industries.
• Additionally, incentivizing and promoting technology adoption, such as automation, digitization, and Industry 4.0 technologies, can boost productivity, competitiveness, and innovation in the export sector.
• Exploring Joint Development Programmes: Amidst a wave of deglobalisation and slowing growth, exports cannot be the sole engine of growth.
• India can also explore joint development programmes with other countries in sectors like space, semiconductor, solar energy to improve India’s medium-term growth prospects.

Conclusion

• Considering its broader economic implications such as on job creation and the current account, policy must focus on boosting merchandise exports.