From UPSC perspective, the following things are important :
Prelims level : Nothing Much
Mains level : Industrial slowdown and it's effects
Labour intensive exports remain sluggish, non-oil non-gold imports contract, suggesting weak domestic demand.
- India’s trade deficit surged to a five-month high of $15.3 billion in April with merchandise export growth slumping to 0.64 per cent — the slowest pace since December 2018.
- These numbers suggest that the high export growth observed in March may indeed have been an aberration.
- This subdued performance in April comes after recent data showed that industrial production had contracted by 0.1 per cent in March.
- With both consumer durables as well as capital goods segments contracting sharply — the latter is a proxy for investment demand — it suggests that the underlying drivers of growth are sputtering.
- According to the latest trade data, at the aggregate level, exports grew by a mere 0.64 per cent in April.
- But, strip away the spurt in petroleum exports, and the remaining exports actually contracted by 3 per cent in April.
- The lacklustre performance can be traced largely to the contraction in exports of engineering goods as well as subdued growth of major labour intensive segments.
- For instance, gems and jewellery contracted by 13.4 per cent, leather products by 15.25 per cent as did man-made and cotton yarn. Growth of the ready-made garments segment also slumped to 4.4 per cent in April, down from 15 per cent in March.
- This does not bode well for job creation. On the other hand, imports rose by 4.5 per cent in April, on the back of higher crude and gold shipments.
- But what is worrisome is that imports, excluding oil and gold, which give a better sense of domestic demand, contracted by 2.2 per cent in April, after contracting by 2.67 per cent in the previous month.
Impact of slow down
- The near-term prospects for exports appear to be muted. For one, the escalation of trade tensions between the US and China is likely to impact global growth and trade.
- In fact, last month, the World Trade Organisation (WTO) lowered its projection for global trade growth.
- It now expects merchandise trade volume growth to fall to 2.6 per cent in 2019, from 3 per cent in 2018.
- Clearly, the next government has its task cut out. It will have to carefully navigate the intensifying trade war between the US and China while putting in place measures to boost competitiveness and revive exports.
- Perhaps, easing the compliance burden of the goods and service tax (GST) would be a good starting point.