Buoyant exports but unfavorable trade balance: Why there is a dichotomy

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India’s exports have risen sharply in this fiscal year. However, India’s imports have also risen sharply during the same period, leading to a sharp uptick in India’s fiscal deficit. 

How have Indian Exports and Imports performed in the Fiscal Year 2021-22?

Exports

India’s exports between April and December 2021 has reached $301.4 billion. This is an increase of 49.7% year-on-year period. This has also put the country on track to hit a target of $400 billion in merchandise exports. 

Exports of two traditional sectors — petroleum products and gems and jewellery — have been key contributors to the export growth.

The export demand has risen due to: a) worldwide increase in trade and b) Outbreaks of Covid-19 infections in key competitors such as Vietnam, leading to disruptions in supply.

Imports

India’s merchandise imports have grown even faster than exports. It has reached $443.8 billion, a 68.9% year-on-year increase.

Key imports for India during this fiscal include petroleum and petroleum products, gold and electronic goods.

But the higher imports of machinery, electronic goods, vegetable oil, coal, and chemicals were key contributors to the sharp uptick in imports.

Trade Deficit

The rise in imports has led to an increase in the trade deficit to $142.4 billion in the April-December period.

India’s services sector has a trade surplus which is estimated to be about $74.4 billion.

How is India planning to overcome the trade deficit?

India is currently in the process of negotiating free trade agreements (FTAs) with the UK, UAE, Australia, Israel and the EU.

But India is no longer signing free trade agreements (FTAs) just to join a group. Instead, India is looking for reciprocal access, good market conditions, and fair play in trade in both goods and services.

Source: This post is based on the article ‘Buoyant exports but unfavorable trade balance: Why there is a dichotomy’ published in Indian Express on 24th January 2022.