Steering sustainable trade – India needs to push manufacturing exports

Source: The post is based on the article “Steering sustainable trade – India needs to push manufacturing exports” published in Business Standard on 19^th June 2023.

Syllabus: GS 3 – Indian Economy – Growth & Development

Relevance: concerns with declining exports in India and measures needed

News: India’s merchandise exports have been struggling, with declining for fourth consecutive month in May.

What are the highlights of the merchandise exports data?

The value of exports was $34.98 billion in May, down from $39 billion in the same month last year.

Even though the imports have declined, the trade deficit expanded to a five-month high of $22.12 billion.

Among the key sectors, 17 out of 30 experienced a contraction in exports, including petroleum products, gems and jewelry, and engineering goods. However, electronics exports performed well, showing over 70% growth.

What are the challenges with Indian exports?

The weakness in the global economy poses a near-term challenge for India’s exports.

According to the projections of the Organization for Economic Co-operation and Development (OECD), global economic growth is expected to slow from 3.3 percent in 2022 to 2.7 percent in 2023.

Additionally, the growth rate in the US is also expected to decline from 1.6% in 2023 to 1% in 2024.

Further, the continued tightening of financial conditions is expected to affect demand.

What are the future projections for the exports?

India is expected to maintain a manageable current account deficit (CAD) due to lower commodity prices and a surplus in trade in services. 

As per the Chief Economic Advisor, the CAD was expected to remain under 2 percent of GDP this fiscal year.

Moreover, the inflation rate in OECD countries is expected to decrease from 9.4% in 2022 to 6.6% in 2023. However, despite this, the inflation rate will still remain significantly above the medium-term target.

Therefore, financial conditions in advanced economies are expected to remain restrictive in the future, which will have negative effects on global output and fund flows.

What measures have been taken by India to boost its export?

The Indian government is taking measures to boost exports by utilizing its investment promotion agency and diplomatic missions, with a specific focus on 40 countries that make up around 85% of India’s exports.

In terms of policy, the government is working on a twin strategy of export promotion and import substitution.

However, the effectiveness of this strategy remains uncertain in the current global economic and trade environment, especially when India is reluctant to engage in large trade agreements.

What can be the way ahead for India?

As per a recent report, India’s top export items are primarily petroleum products, while mobile phones have entered the top five rankings in 2022-23.

Therefore, India needs to expand its achievements in the mobile phone sector to other areas to achieve sustained success.

Increasing manufacturing exports will not only contribute to long-term stability in external accounts but also generate much-needed employment opportunities for India’s growing workforce.