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What's the article about?
- It talks about recent trends in India’s foreign trade and offers some related policy recommendations.
Relevance:
- GS3: Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment; Effects of Liberalization on the Economy;
- Prelims
Context:
- As per data from the Commerce Ministry, India's exports in January dipped by 6.58 percent to $32.91 billion compared to $35.23 billion in the same month last year.
- Merchandise exports in December 2022 stood at $34.48 billion.
- Imports in January saw a decline of 3.63 per cent to $50.66 billion, as against $52.57 billion in January 2022. Merchandise imports in December 2022 stood at $58.24 billion.
- Trade deficit in January stood at $17.75 billion from $23.76 billion in December.
Analysis:
- On exports fronts:
- India’s goods exports are a key driver of its growth impulses and a major job creator. Its decline thus needs special attention.
- While this is the second month of contracting exports, the dip is more than double the 3% drop in December 2022 and marks a sharp 13.6% sequential decline.
- Reasons for this decline include an anticipated post-Christmas cooling off in demand and actual slowing of economic activity due to uncertain global scenarios.
- Engineering exports fell 10%; pharma products lost momentum as did 14 other products out of India’s top 30 export items, including jewellery and textiles.
- The good news: narrowing trade deficit:
- But the positive side is that imports also declined in proportion to the decline in exports.
- This helped to control the overall goods trade deficit, bringing it to a 12-month low.
- If this trend holds, India’s current account deficit for 2022-23 may end up lower than projected by most agencies.
- These trends and Indian market:
- The drop in imports during January suggests domestic demand growth is fading.
- The Commerce Ministry has argued that India’s weaker trade balance this financial year has been driven by the “two-way effect” of a slowing world economy hurting exports and resilient domestic demand shoring up imports.
Way Forward:
- The Finance Minister earlier suggested that exporters should keep closer tabs on developments in different markets to avoid being “demotivated”.
- Amid the overall headwinds, trends are diverging in key markets. For examples, U.S. retail sales rebounded to grow faster than expected in January while Japan’s trade deficit hit a record; more U.K.-based trading businesses now expect an uptick in turnover this March compared to those that expect a fall.
- Industry bodies and the government must work in tandem to tap shrinking opportunities better and help exporters move across this river of uncertainty by feeling the pebbles along the way.
