Trade Puzzle

Source-This post on Trade Puzzle has been created based on the article “The uptick in goods exports is heartening, but difficult to sustain” published in “The Hindu” on 18 March 2024.

UPSC Syllabus–GS Paper 3-Indian economy

Context-India’s goods export has increased in last few months despite concerns about disruptions in the Red Sea and the drought-hit Panama Canal.

What is the status of goods export of India?

India’s goods exports jumped 11.9% in February, marking the healthiest uptick in 20 months (about 1 and a half years).
The $41.4 billion tally is the highest in 11 months. It is only the third occasion in two years that the $40 billion mark has been breached.

Read more- India’s New Foreign Trade Policy (FTP) and its significance

Why is it difficult to sustain this export growth momentum?

1) It is possible that the high export growth in February may be because some shipments that were probably dispatched earlier reached their destinations only last month or in February using longer routes.

2) The WTO expects global trade to rise 3.3% this year after a 0.8% crawl in 2023. However, till March 8, there were only modest gains. Further, these gains could be easily derailed by regional conflicts and geopolitical tensions.

3) While electronics goods exports have been an exception in 2023-24’s weak exports narrative (-3.5% so far), the WTO’s latest barometer reading for electronic components trade has decreased it to 95.6. This is visible in February’s numbers as both electronics imports and exports grew just fractionally by over 1%. Thus, it will be difficult to sustain high momentum on account of weak electronics export.

4) The impact of increased freight costs on profit margins for exporters is an ongoing issue that requires attention.

Policymakers may be satisfied over surpassing last year’s record overall exports (merchandise and services combined). However, they must not lose sight of the lingering risks and challenges, including the impact of freight hikes on margins. They can support exporters, especially in adversely hit employment-intensive sectors such as textiles, and gems and jewellery.