THE CONTEXT: The global trade environment has been highly volatile in recent years, primarily due to the impacts of the Covid-19 pandemic and subsequent geopolitical conflicts. This volatility led to a continuous decline in the value of global merchandise trade since mid-2022, with a notable 4.6% drop in global merchandise exports in 2023. Despite these challenges, India’s merchandise exports showed resilience, performing better than the broader developing Asian market, though still experiencing a decline.
THE ISSUES:
- Impact of Global Economic Uncertainty and Commodity Prices: Global trade has been volatile due to the COVID-19 pandemic and geopolitical conflicts, leading to a continuous shrinkage in global merchandise trade since mid-2022. In 2023, global merchandise exports fell by 4.6%. India’s merchandise exports fell by 3.1% in 2023-24 to $437.1 billion from the previous year, influenced by lower international commodity prices, particularly crude oil, which saw a significant price drop of $13 per barrel.
- Sector-Specific Export Performance: Despite the overall decline, certain sectors showed robust growth. Electronics goods exports grew by 24%, driven by the Production Linked Incentive scheme, enhancing the export of telecom instruments or mobile handsets. Core exports excluding petroleum and gems & jewellery were up by 1.4%, indicating a higher volume of goods shipped despite the price decline in commodities.
- The decline in Labor-Intensive Export Sectors: There was a notable decline in exports from labour-intensive sectors such as gems and jewellery, textiles, leather, and marine products. For instance, the share of gems and jewellery in India’s merchandise exports decreased from 13.2% in 2014-15 to 7.5% in 2023-24. This decline is concerning as these sectors are significant employment generators and contribute substantially to India’s export earnings.
- Geographical Diversification of Exports: Exports to the United States, India’s largest market, contracted due to growth being led by the services sector rather than goods. However, there has been an uptick in recent months. Exports to the Euro region and the Gulf Cooperation Council (GCC) countries, particularly the UAE, showed growth. Notably, India’s gems and jewellery exports to the UAE increased by 42.3% from April-February 2023-24.
- Influence of Global and Domestic Policies: Global economic slowdowns, geopolitical uncertainties, and domestic policies like the ban on non-basmati rice and wheat exports influence India’s trade dynamics. Policy-driven initiatives like the Production Linked Incentive scheme have successfully bolstered sectors like electronics, showcasing the potential impact of supportive government policies on export growth.
- Future Outlook and Strategic Moves: The outlook for India’s exports appears promising with upward revisions to global growth and trade projections by entities like S&P Global and the World Trade Organization (WTO). The ongoing negotiations and potential free-trade agreements with major economies, coupled with a push towards manufacturing, are expected to further enhance India’s export capabilities in the near to medium term.
THE WAY FORWARD:
- Expand Geographical Reach: India should continue to explore new markets beyond traditional partners. This includes strengthening trade relations with countries in Africa, Latin America, and Southeast Asia. Maximizing the benefits of existing FTAs and exploring new bilateral and multilateral trade agreements can help mitigate risks associated with geopolitical tensions and market fluctuations.
- Enhancing Product Diversification: India should capitalize on sectors showing robust growth such as electronics, pharmaceuticals, and engineering goods. Investing in these sectors can help offset declines in more traditional exports like textiles and gems. Moving up the value chain by focusing on the production of finished goods rather than intermediate goods can fetch higher margins and reduce vulnerability to raw material price fluctuations.
- Strengthening Domestic Manufacturing: Continuing and expanding initiatives like the Production Linked Incentive (PLI) scheme can enhance manufacturing capabilities, particularly in high-potential sectors like electronics and pharmaceuticals.
- Enhance Compliance and Standards: Strengthening the compliance of Indian products with international standards can reduce barriers to entry in strict markets, particularly in sectors like food and pharmaceuticals.
- Enhancing Trade Facilitation: Simplifying and digitizing export processes can reduce the time and cost associated with exporting goods, making Indian products more competitive. Ensuring easier access to trade finance, especially for small and medium enterprises (SMEs), can help these businesses expand their export capabilities.
- Strategic Use of Economic Diplomacy: Leveraging diplomatic channels to promote trade interests can help in securing favourable terms in trade negotiations and in resolving trade disputes.
THE CONCLUSION:
India’s export sector has shown signs of recovery and resilience amidst global trade uncertainties and declining international commodity prices. The growth in electronics exports, spurred by government incentives, alongside healthy growth in other core sectors, indicates a positive trajectory. With global growth and trade projections looking up and India engaging in bilateral free-trade agreements, the future for India’s exports appears promising, though global instability and geopolitical tensions remain potential risks.
UPSC PAST YEAR QUESTIONS:
Q.1 Account for the failure of the manufacturing sector to achieve the goal of labour-intensive exports rather than capital-intensive exports. Suggest measures for more labour-intensive rather than capital-intensive exports. 2017
Q.2 What are the key areas of reform if the WTO must survive in the present context of ‘Trade War’, especially keeping in mind the interest of India? 2018
MAINS PRACTICE QUESTION:
Q.1 Analyze the impact of global economic fluctuations and geopolitical tensions on India’s merchandise exports in the fiscal year 2023-24. Discuss the role of sector-specific policies, such as the Production Linked Incentive scheme, in mitigating these impacts and suggest measures to enhance the resilience of India’s export sectors.
SOURCE:
https://indianexpress.com/article/opinion/columns/in-an-uncertain-world-indias-trade-push-9302171/
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