Is India missing out on global trade recovery?: 

Is India missing out on global trade recovery?: 

Context:

• The Asian Development Bank states that when the rest of Asia has witnessed an impressive rise in merchandise exports, Indian exports have remained weak.

What is Asian Development Bank?

• Founded in 1966, the Asian Development Bank’s primary mission is to foster growth and cooperation among countries in the Asia-Pacific Region.
• Its headquarters are in Manila, Philippines.
• It has been responsible for a number of major projects in the region, raising capital through the international bond markets.
  

What does the report say?

• The Asian Development Bank in its recent update noted that most of the emerging economies in the region, excluding China, are witnessing a rebound in manufacturing exports.
• Among them, even India witnessed a mild rebound in exports in August, 2017.
• 10% year-over-year growth in India’s exports in August was largely on the back of increased earnings from commodity exports such as industrial metals and petroleum products, amid a global rise in prices of these products.

Using a three-month moving average adjustment to smooth out monthly fluctuations, it has been found that India has been lagging behind most major Asian economies in merchandise exports.

Why the Indian merchandise has exports fallen?

1. The recently introduced demonetization and GST may have contributed to the exports slowdown by disrupting supply chains, hurting the small and medium scale enterprises (SMEs).

• India’s trade growth in the first quarter of 2017 financial year is 5.7%, the slowest in the past three years.

2. The decline in domestic manufacturing output has added to India’s crimping exports, and raising imports.

• Data from the commerce ministry shows that imports of machinery, transport equipment and electronics witnessed a 22% increase in the April-to-August period this year compared to the year-ago period.

3. The indirect cause for a slowdown in global trade is a slowing global economy, the breakdown of export numbers shows that it is crude oil which has fired the fatal shot.

Conclusion

The twin shocks of demonetization and GST may have contributed to the exports slowdown by disrupting supply chains, hurting the small and medium scale enterprises (SMEs).The decline in domestic manufacturing output has dealt a double blow to India’s external balances— by crimping exports, and raising imports. India today has a much greater reliance on imports for industrial supplies and capital goods compared to a year ago.

Hence, what is required is for India to immediately role out some fiscal and monetary policy measures to reboot the economy and revive the market sentiment.