The Uneven Nature of World Trade in India
Introduction
With the support of the government and with high margins in the export sector, multiple businesses from various industries have shown their interest in the export sector. However, the main question that arises is that will this interest which has arisen in the recent past continue for long? The answer to this might depend on a number of factors.
In the previous month, i.e., December 2021, India recorded the highest monthly gross exports valued at US$37.29 Billion. Having such a high number in this scenario, where international travel has restrictions, is an indicator of high scopes in the international markets.
From April 2021 to December 2021, India has witnessed a number of ups and downs in terms of domestic trade. However, international trade has been constantly blooming. India has been able to successfully achieve 3/4th of the target of export sales of US$400 Billion, which is due as at 31st March, on 31st December by fulfilling trade orders worth US$300 billion, up by 48.85% year on year. Infact, at this track record, it is expected that international trade has touched the levels of $22 trillion, representing an increase of 23% from the previous year.
So, what really does the numbers say? How can we break down this huge figure into sub-parts? Let’s find out!
The highlight of this gigantic growth is the fact that buoyant global demand boded well for merchandise exports in India. In layman’s and economists’ terms, merchandise exports refers to the export of goods, which form the credit part of Balance of Trade (BoT). As we can see in the table above, 65% of the total exports are coming from the sale of goods. According to the estimates of the Exim Bank’s Export leading Index, this pace is to be continued for Q4FY22, indicating a likely growth of 39.6% in the merchandise export sector. But, these numbers have a lot of various patterns hidden within them. Let’s get an insight into these patterns along with their reasons.
Diverse patterns that have been seen in this sector are of utmost importance. Several traditional areas of competence like petroleum products, engineering goods, electronic goods, gems and jewellery, and textile and garments have shown truly tremendous uprisings. This escalation is acclaimed by a few reasons i.e., the increasing global demand and the rising commodity prices. The mighty upheaval can be exhibited through the table shown below:
India was hailed as a reliable food supplier, thus helping raise the export of food products to different heights. On an average, food exports have shown a prodigious growth of 25%, on the back of rising food security concerns in the regions such as the Middle East and North Africa. Also, technology-intensive exports such as two- and three-wheelers, auto components and telecom instruments also recorded remarkable double-digit growth during the year.
The manifold designs can be proved by another segment of cars and their electronic components, whose trade was disrupted due to the semiconductor shortage that the world has been seeing lately, falling much below the pre-Covid levels.
Having talked about the export sector, we’ll get to see the whole picture if we have a 2nd look at the figure 1 given above. The trade deficit, which is the actual addition (or, in this case subtraction) in our Gross Domestic Product (GDP), has increased by approximately 87% from the same month previous year.
Turning our focus towards the import side and its dynamics, we have been aware of the fact that 50% of our imports are usually dominated by oil. The temporary dip in the Brent crude helped us to experience a brief foray into surplus during the September end quarter. However, another round of increase in its price has brought us back to the deficit side of this gameplay, contributing to about 65.2% increase in imports, when compared to the same period last year.
But wait, it’s just not oil this time; it’s coal, coke and briquette too which has brought about a chunk of this trade deficit by a massive increase of 72.1%, when compared to the same period previous year. Our Indian power producers sought to secure coal imports after supply disruptions and rising demand left the country grappling with shortages last year, although being limited because of high seaborne prices. Indonesia, the world’s biggest thermal coal exporter also played its role well in wildly swinging prices, by putting strict restrictions on its exports.
It should not come as a surprise that there is more to the chapter of imports which can be explained by the figure given below:
Apart from growing numbers, there are other dimensions to India’s poor position in International trade. Unresolved trade tensions have posed a potential threat of backlash against globalisation. Several negotiations on the fisheries subsidies, persistent disagreements over reform of the multilateral trading system have created a separate base of challenges for a smooth trading regime.
To add on to this, the logistics cost and the container shortage has marked a severe dent on the ability to cater the global demand. Several short term measures have been taken to alleviate this problem, but a long term priority to manufacture containers and a fully documented logistics policy could act as a game changer here. This can help out the Indian exporters by betterment of our export infrastructure and improvement of our import competitiveness. On the other hand, disruption of the monopoly built by the Chinese and the Korean container builders could be achieved.
Having talked about all the facets of the current Indian trade scenario, what does the future look like? What lies way ahead and how can we visualise our economy to perform in the upcoming quarters?
To conclude, the outlook for growth is tentatively positive: the expectations of production outpacing consumption, leading to gradual ease of commodity prices and a moderation in the exports volume of petroleum products and metals. Right now, the most important sector to be looked upon seems to be the technology-intensive ones, where exports can be boosted by the implementation of various PLI schemes and State-level participation. Encouraging signs of growth in India’s Balance of Services (BoS: basically, export and import of services) should not be neglected.
Curated By: Jasvir Kishor Jain, Sakshi Mathran and Kashish Agarwal
(Jasvir kishor Jain is a 1st year student pursuing B.Com(H) at St. Xavier’s College (Autonomous), Kolkata and a Research Analyst of the Xavier’s Finance Community.)
(Sakshi Mathran is a 1st year student pursuing B.Com(H) at St. Xavier’s College (Autonomous), Kolkata and a Research Analyst of the Xavier’s Finance Community.)
(Kashish Agarwal is a 2nd year student pursuing B.Sc Economics(Hons.) at St. Xavier’s College (Autonomous), Kolkata and a Senior Associate of the Xavier’s Finance Community.)