Trade Sector Updates – Falling Exports, TIES, MEIS, Foreign Trade Policy, etc.

[op-ed snap] Unchecked decline

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing much

Mains level : Trade sector update - fall in exports

Context

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.

Way ahead

    • 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.
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