 "Amid geopolitical tensions, growing exports to be stiffer challenge: Survey")
The Economic Survey on Monday cautioned that growing goods and services exports will be a “stiffer challenge than before” due to the risks of geopolitical tensions, rise in protectionism, higher trade cost because of the Red Sea crisis, and commodity price volatility.
To deal with this, India needs to understand what the changing paradigms mean for the country and frame policies that straddle security concerns with economic considerations, which can be done by encouraging manufacturing in niche and complex sectors through production-linked incentive (PLI) schemes and Make in India.
According to the Survey, despite the risks, in the coming years, India’s trade deficit is expected to decline further as the PLI scheme is expanded and India creates a globally competitive manufacturing base in several product categories.
The recently signed free trade agreements (FTAs) with the United Arab Emirates (UAE), Mauritius, Australia and European Free Trade Association (EFTA) are expected to increase the global market share of the country’s exports.
Besides, international agencies as well as India’s central bank expect the current account deficit (CAD) to gross domestic product (GDP) to moderate to below 1 per cent for FY24 due to growing merchandise and services exports and resilient remittances. The last quarter of FY24 ended with a current account surplus of 0.6 per cent of GDP.
Also Read
“In the future, the changing composition of India’s export basket, enhancement in trade-related infrastructure, enhanced quality consciousness and product safety considerations in the private sector and stable policy environment are expected to play a significant role in driving India’s rise as a global supplier of goods and services,” the Survey said.
It pointed out that rising protectionism is another risk that could undermine trade recovery in 2024 and 2025. One case in point is, the US was India’s second-largest trading partner in FY24 after China. However, the US’ overall import volume contracted 1.7 per cent in 2023 compared to a growth of 8.6 per cent in 2022, which significantly influenced export growth in trading partners, including India.
Fluctuations in commodity prices, especially for critical imports like oil, metals, and agricultural products, can impact India's trade balance and inflation levels. “Disappointing global growth presents a downside risk, especially for industrial commodities. Additional trade restrictions could push food prices higher,” the Survey said.
India is also working towards unlocking the potential gains from growing integration by augmenting the logistics front through large infrastructure deals such as the International North-South Transport Corridor (INSTC) that is expected to shorten trade time for shipments to Russia and Europe. Similarly, the India-Middle East-Europe Corridor (IMEC) will connect Asia with Europe via ports and railroads.
Ashwani Kumar, president, Federation of Indian Export Organisations (FIEO), said that reducing the cost of logistics in the country will help in making our exports more competitive.
“In that regard, development of an Indian shipping line of global repute is the need of the hour, as the country remitted over $109 billion as transport service charge in 2022. As India moves towards the goal of $1 trillion goods exports, this will touch $200 billion by 2030. A 25 per cent share by the Indian shipping line can save $50 billion on a year-on-year (Y-o-Y) basis, reducing arm-twisting by foreign shipping lines, particularly for our MSMEs,” said Kumar.