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India's trade situation UPSC NOTE

 Recent trends

  • After a rough 2023-24, when India’s merchandise exports tanked 3.1% to around $437 billion, trade tides appear to be turning. 

  • The last two months have recorded an expansion in outbound shipments with the momentum picking up from a 1.1% rise in April to a 9.1% uptick in May. 

  • Imports as well as exports have risen in four of the last five months now

  • With the European Central Bank slashing interest rates this month after a long hawkish stance post-COVID-19, exporters and trade officials are hopeful that its peers in key markets would follow suit and help shore up demand for their produce

  • But with prices of some industrial commodities such as metals as well as food items rising in recent months, those hopes need to be tempered. 

  • The U.S. Federal Reserve has scaled back expectations, stating that only one rate cut is likely through this calendar year.

  • It is heartening that 20 of India’s top 30 export items have outperformed last May’s export tallies this year, compared with just 13 items recording a rise in April. 

  • The sectors that recovered in May include employment-intensive ones such as apparel, man-made yarn, and engineering goods

  • Worryingly, spice shipments slipped by a sharp 20.3%, while marine products tanked again

  • Spices and shrimp exports were likely hit by some negative reports in key markets about quality and workplace standards, respectively, and more must be done to counter what has been termed a misplaced narrative. 

  • On the other hand, May’s import bill hit a seven-month high of $61.9 billion, widening the trade deficit to $23.8 billion, 25% over April’s gap. 

  • A record $13.2 billion deficit in petroleum products fuelled this gap, with imports worth $20 billion mostly linked to April’s average oil price of $89 a barrel. 

  • Oil prices have eased since then, but warrant close monitoring in an import-dependent country

  • Officials have downplayed concerns about rising deficits, arguing that import demand will outstrip demand for India’s exports, as it is growing faster than the world

  • Moreover, rising services exports and forex inflows from global investments shall help offset the gap, along with import substitution efforts

  • The latter assumption could prove tricky — foreign direct investment inflows have declined for three years, earnings guidance from IT services’ majors has been far from optimistic, and private investments to substitute imports remain sluggish

  • Rather than banking on intangibles and imponderables, the Centre must revitalise its schemes and efforts to prop up goods exports, with enhanced budgetary outlays to boot.

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Learnerz IAS | Concept oriented UPSC Classes in Malayalam: India's trade situation UPSC NOTE
India's trade situation UPSC NOTE
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Learnerz IAS | Concept oriented UPSC Classes in Malayalam
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