Trade winds – Analyzing the decline in India’s export | 21st January 2023 | UPSC Daily Editorial Analysis

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What's the article about?

  • It talks about the factors behind India's export drop in December.


  • GS3: Indian Economy; Effects of Liberalization on the Economy.


  • It is now clear how a developing recession in the west is affecting India’s overseas commerce.
  • India's merchandise exports decreased 12.2% from a year earlier to $34.5 billion in December 2022, the second decline in three months.
  • In October, exports of goods had decreased by 16.65% on a yearly basis; however, November saw a flat growth.
  • The trade deficit increased from $22.6 billion to over $23.8 billion in December as a result of higher imports, while it was still well below the record $30 billion imbalance reached in July.
  • On a Balance of Payments (BoP) basis, there was a significant decrease in foreign exchange reserves of $30.4 billion in this quarter.
  • Imports, too, dropped in December, albeit at a slower pace of 3.5 per cent, to $58.2 billion, reflecting the impact of subdued domestic goods consumption in recent months.

What are the reasons behind this decline?

  • Developing recession in the west (Europe and the U.S):
    • Due to this central banks across the west are taking protectionary measures. These measures are hurting Indian exports.
    • At the same time the private sector is also becoming conscious and it is restricting its economic activities.
    • This can be seen from mass layoff of the employees by some famous private MNCs.
  • Reversion towards protectionism in some markets:
    • This is an extension of the above mentioned point.
  • The COVID-19 situation in China:
    • China is still not completely re-opened. This is having a negative effect on supply chains.
  • A high base effect:
    • December 2021 had clocked the second highest exports (worth $39.3 billion) in 2021-22, when India’s goods shipments crossed a record $422 billion.
    • But in 2022, things changed, overall world trade started declining, which obviously affected India’s trade.

Way Forward:

  • With China reopening, competition is expected to intensify even as demand shrinks.
  • Some recent government moves such as fixing glitches in a duty remission scheme for exports and lifting curbs on iron ore shipments have helped, but more macro- and swifter micro-policy actions are warranted to keep the export engine chugging.

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