May the twain meet: Look East as much as West for Indian exports

Source– The post is based on the article “May the twain meet: Look East as much as West for Indian exports” published in the “mint” on 13th September 2023.

Syllabus: GS3- Indian economy

Relevance- Issues related to trade

News– India’s goods exports printed 14.5% lower for the April-July period, having contracted for the sixth month on a trot in July.

Why is trade with the Asia-Pacific region(APAC) a matter of concern?

Between April and July, India’s total goods exports contracted by 14.5%. Exports to the APAC region experienced a more substantial decline, down by 22.0%.

Comparatively, the decline in exports to the United States and the European Union (EU) was lower at 11.5% and 4.8%, respectively.

The slowdown in exports to the APAC region commenced earlier. In the fiscal year 2022-23, when India’s overall goods exports saw increases of 6.9%. But, exports to APAC markets decreased by 11.2%.

Most of these regions increased their imports from across the globe. Hence, India’s export slump cannot be attributed to reduced regional demand.

Furthermore, India’s non-oil exports to the APAC region were down by 12.3% year-on-year in the past fiscal year. But, they increased to both the EU and the US.

This suggests that the decline in India’s goods exports to APAC was not solely due to lower exports of oil but was a broader issue.

The region’s share in India’s goods exports had been diminishing  for a long time. In fiscal year 2018-19, APAC accounted for 33% of India’s goods exports.

However, in fiscal year 2022-23, APAC’s share had decreased to 26.6%, while the combined share of the US and EU had risen to 34%.

The trade deficit with the region is also an issue. The APAC share in India’s goods trade deficit was 49.6% in fiscal year 2018-19. It increased to 64.7% during April-July of this fiscal year.

How regional FTAs within the Asia-Pacific region are a cause of worry for India?

India is not a party to the Regional Comprehensive Economic Partnership. It is considered as the world’s largest free trade pact.

India is also not a party to other significant trade agreements in the broader Asian region, namely the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the trade component of the IPEF.

As tariffs among member countries within these agreements continue to decrease, India’s potential for exports to the APAC region could encounter additional challenges.

Way forward-

India should maintain its focus on the APAC region.

The APAC region has a nominal GDP of approximately $32 trillion in 2022. The APAC market surpasses both the US  and the Eurozone.

S&P Global anticipates that APAC will grow at approximately 4%. This growth rate trend is likely to persist in the foreseeable future.

Therefore, India should explore ways to fully leverage the export potential of this region, particularly considering its geographical proximity.