From UPSC perspective, the following things are important :
Prelims level : Nothing much
Mains level : Trade sector update - fall in exports
India’s merchandise exports continued their subdued performance, contracting by 6.57% in September this year. Over the first half of this financial year, exports have contracted by 2.39%.
Cause for worry
- This indicates that GDP growth is unlikely to have received a fillip from the external sector in the second quarter as well.
- Non-oil non-gold imports, an indicator of domestic demand, contracted for the 11th straight month. This indicates continued weakness in domestic demand.
- Exports of major labor-intensive segments such as gems and jewelry, garment and leather products, continue to decline
- All these are coupled with sluggish investment activity. These numbers point towards a subdued economic outlook in the near term.
- The IMF has lowered its forecast for economic growth to 6.1% this year, down from its earlier estimate of 7%.
Reasons behind the decline
- The decline in exports can be traced to a fall in petroleum exports.
- It can also be attributed to a synchronised global slowdown. The exports of other nations have also been weak during this period.
- The IMF has also lowered its forecast for global GDP growth to 3%.
- There are also issues of competitiveness that afflict exports. An overvalued exchange rate and a complicated GST process exacerbate matters.
- The collapse in imports is equally worrying. Imports have contracted by 13.85% in September, and by 7% over the first half of this year. This signals weak consumer and industrial demand.
- It is exacerbated by inventory destocking, along with risk aversion by banks, could explain the collapse in credit flow to the commercial sector during this period.
- The government has announced several steps to boost exports. But these are not enough.
- The government must push through reforms that address the deeper structural issues plaguing the economy.
- In the current economic environment of subdued domestic demand and investment, exports could provide the much-needed boost to growth.
A fact to note:
- India accounts for around 2% of global trade.