Trade Imbalance: On India’s Merchandise Exports

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    Syllabus: GS3/ Economy

    • India’s merchandise exports witnessed a slight improvement in April 2024, showing a modest increase of 1.07% compared to the same month the previous year.
    • Export Trends:
      • In 2023-24, India’s merchandise exports declined by over 3% due to geopolitical and logistical disruptions.
      • However, in April 2024, there was a marginal uptick of 1.07% (worth $370 million) compared to the previous year.
      • Key contributors to export growth last month were pharma, chemicals, electronics, and petroleum products (recovering from a 35% contraction in March).
    • Trade Deficit and Import Bill:
      • Despite export growth, India’s goods import bill surged by 10.25% to over $54 billion in April.
      • Consequently, the trade deficit reached $19.1 billion, the highest in four months.
      • Rising oil and gold prices played a role in increasing the import bill.
    • Global Trade Outlook:
      • Global trade volumes are expected to rise by 2.6% in 2024 after a 1.2% decline in 2023 (according to the World Trade Organization).
      • India aims to capitalize on this trend by targeting key markets in the western world with lower inflation and improved growth rates.
    • Challenges and Opportunities:
      • India needs to address challenges in labour-intensive sectors like garments and footwear, where it faces competition from countries like Bangladesh and Vietnam.
      • Quality concerns (e.g., spices, drugs) and environmental issues (related to shrimp exports) need attention.
      • Reviving agricultural exports, considering healthy monsoon prospects, is crucial.
    • Currency Depreciation: A trade deficit often leads to a weakening of the Indian rupee against other currencies. This makes imports more expensive and can fuel inflation.
    • Increased External Debt: To finance the deficit, India might need to borrow from foreign sources, leading to an increase in external debt and interest payments.
    • Reduced Domestic Production: A reliance on imports can discourage domestic production, leading to job losses and a slowdown in economic growth.
    • Balance of Payments (BoP) Issues: A persistent trade deficit can strain the BoP, making it difficult to manage foreign exchange reserves and meet international financial obligations.
    • Export Diversification: Expanding the range of exported products and services to reduce dependence on a few key sectors. This can be achieved by promoting sectors like agriculture, pharmaceuticals, engineering goods, and services like IT and tourism.
    • Market Access: Negotiating and securing favorable trade agreements with other countries to reduce barriers to Indian exports. This includes addressing non-tariff barriers like technical standards and regulations.
    • Export Infrastructure: Investing in infrastructure like ports, airports, and logistics to facilitate efficient movement of goods. This will reduce transaction costs and make Indian exports more competitive.
    • Export Promotion: Providing financial and technical assistance to exporters, particularly small and medium enterprises (SMEs). This can include export credit, insurance, and marketing support.
    • Skill Development: Enhancing the skills of the workforce to meet the demands of global markets. This includes training programs in areas like manufacturing, design, and technology.
    • Import Substitution: Encouraging domestic production of goods that are currently imported. This can be achieved through incentives like tax breaks, subsidies, and easier access to credit for domestic manufacturers.
    • Tariff and Non-Tariff Measures: Judicious use of tariffs and non-tariff measures to protect domestic industries from unfair competition. However, this should be done carefully to avoid escalating trade tensions.
    • Lowering Trade Tariffs and Simplifying Procedures: NITI Aayog CEO BVR Subrahmanyam emphasized the need to reduce trade tariffs and simplify procedures.
      • Lower tariffs and streamlined processes encourage trade and attract global value chains.
    • Focus on Domestic Industries: India aims to reduce reliance on imports by developing its domestic industries.
      • Incentives can be provided to local companies to manufacture goods currently imported, creating employment opportunities.
    • Shift in Trade Policy: India shifted focus from the Regional Comprehensive Economic Partnership (RCEP) to Western and West Asian free trade agreements.
      • The goal is to avoid further trade imbalances and attract global value chains.
    • Enhancing Services Sector: India’s advantage lies in the services sector due to its skilled manpower and education system.
      • Removing stringent regulations and promoting services exports can contribute to balanced trade
    Daily Mains Practice Question
    [Q] Critically analyze the underlying causes of trade imbalance and evaluate the effectiveness of current policies in mitigating its adverse impacts on the Indian economy.