Trade in doldrums: High time for Govt to help exporters tide over crisis

The outlook for the rest of the year, however, will depend largely on geo-political developments in the Ukraine as the conflict continues to rage and send ripples throughout the world. As of now, the economic scenario in western countries is worsening owing to the curtailment of gas supplies via the Nordstrom1 pipeline. Energy prices have shot up in Europe and the UK creating inflationary pressures. High inflation has, in turn, prompted central banks to aggressively hike interest rates following the example of the US Federal Reserve

The boom in exports over the past year has finally abated with September data showing a dip of 3.5 per cent. The reason, as is the case with most economic indicators currently, is due to external geopolitical factors. Global demand is slowing down and exports have felt the brunt of this development with orders gradually on a downward spiral. The net result has been a widening of the current account deficit as imports are concurrently rising. As against exports of 32.6 billion dollars during the month, imports have risen by 5.4 per cent to touch 56.4 billion dollars. The current account deficit has consequently expanded to a decade level high of 23.9 billion dollars or 2.8 per cent of GDP.

Some investment agencies like Barclays are therefore predicting a huge leap in the current account deficit during fiscal 2023 from 1.2 per cent of GDP last year to as much as 3.3 per cent of the GDP. The pessimistic outlook may be a bit premature but right now there looks little likelihood of demand returning to its previous levels any time soon.

At the same time, there is a sliver of bright news on the export front. Latest reports indicate that exports of iPhones have touched one billion dollars over the first five months of current fiscal. In case this pace continues, iPhones exports would double compared to last year. This clearly indicates that efforts to boost output of Apple products in this country are finally succeeding. But this is just a start. To put things in perspective, India's production of iPhones is pegged at 3 million annually compared to 230 million in China. It will take several years for this country to catch up with production capacities in its neighbouring country.

Yet this does indicate that there are areas where exports can increase substantially despite the world wide slowing of demand. Apart from iPhones, official data for exports in September shows that exports are rising in certain select sectors. These include electronic goods, petroleum and petroleum products, gems and jewellery and marine products. Such segments of the export basket remain positive and thus need to be given a greater focus in the coming months.

The outlook for the rest of the year, however, will depend largely on geopolitical developments in the Ukraine as the conflict continues to rage and send ripples throughout the world. As of now, the economic scenario in western countries is worsening owing to the curtailment of gas supplies via the Nordstrom1 pipeline. Energy prices have shot up in Europe and the UK creating inflationary pressures. High inflation has, in turn, prompted central banks to aggressively hike interest rates following the example of the US Federal Reserve.

The natural corollary of high inflation is the tendency to reduce consumption and the resulting lower demand has had a cascading impact on exports from this country. There is thus need to make more efforts to boost exports both by providing incentives as well as improving ties with major trading partners. The Commerce Ministry's drive to enter into free trade pacts with several key countries since last year has turned out to be a timely initiative. The much-awaited free trade agreement with the UK, for instance, has set a target of Diwali to be concluded, while others are in the pipeline. These include FTAs with the Gulf Cooperation Council and Australia while it looks as if the one with the European Union may finally come out of cold storage. Reports say that efforts are being made to tie up pacts with Canada and Israel as well. The proposed FTA with the GCC is one of the most significant as countries in that region like UAE are among India's biggest trading partners.

These bilateral pacts assume even greater relevance in the backdrop of the fact that India has chosen to opt out of the giant Regional Comprehensive Economic Partnership (RECP), one of the biggest multilateral trade groups in the region. The decision to stay out of RECP was based on concerns that cheap Chinese goods might flood the Indian market by entering through third countries. This, it has to be conceded, has been a genuine worry though it is essential for India to become a member of regional trade agreements, as otherwise it may lose out on preferential tariffs. One can only hope that the push to enter into bilateral pacts will help exporters here to overcome the handicap of being left out of regional trade agreements.

The need to become more proactive in entering into such agreements has become greater with the global slowdown in demand. It must be recalled that Indian exports had risen by about 40 per cent in 2021-22 after a 7 per cent decline in the previous pandemic year. This spurt is not likely to be sustained in the short run. The assessment of the World Trade Organization (WTO) is that global trade growth is expected to stagnate in the current year. In 2023, it expects a rise of only one per cent in the light of factors such as higher energy prices due to Russia's war on Ukraine and increasing inflationary pressures.

The challenge for India is now to ensure that exports do not decline in this scenario and are able to be sustained at least at the present level. Merchandise exports had reached a record level 418 billion dollars in fiscal 2022. Though the rupee has depreciated this year, it may be of limited help for exporters given the fall in demand. In this backdrop, it is clear the government must provide all-out support for the exporting community to ensure that it is able to tide over the short term crisis.