India’s export growth is likely to remain flat in the next financial year if the global economy does not pick up, the Economic Survey on January 31 said.
Although India’s merchandise exports are set to hit a record high of $422 billion in 2021-22, the global economy has begun to face a severe slowdown and the impact of global trade slowdown, the survey said. India’s exports of goods have begun to show growth.
According to government data, India’s exports fell 12.2 percent to $34.48 billion in December 2022 due to a slowdown in global demand, and the trade deficit widened to $23.76 billion during the same period.
During April-December of this financial year, the country’s total exports increased by 9% to $332.76 billion, while imports increased by 24.96% to $551.7 billion.
The trade deficit widened to $218.94 billion during April-December 2022 from $136.45 billion in April-December 2021.
“If global growth does not pick up in 2023, the export outlook could remain flat in the coming year, as many forecasts indicate,” the survey said.
In such cases, he said, diversification of export destinations and product basket through Free Trade Agreements (FTAs) would be useful to expand trade opportunities.
He noted that while the base (global growth and global trade) is not growing, export growth will have to come primarily through market share gains.
In turn, this comes from a focus on efficiency, productivity, technology, and innovation. Must pick up this game. Governments can try to open markets through FTAs. But, leveraging this is in the hands of private sector participants,” he added.
The World Trade Organization (WTO) predicts a growth of only 1 percent in world trade in 2023.
In December 2022, the main export sector recorded negative growth and includes engineering goods, gems and jewellery, leather goods, pharma, carpets and petroleum products.
“A slowdown in Indian exports is inevitable in a slowing global economy, characterized by a slowdown in global trade,” it said.
India’s external sector has been affected by fluctuations in global commodity prices. tightening of international financial conditions; increasing financial market volatility; changes in capital flows; currency devaluation, and a slowdown in global growth and trade
“However, it has been able to weather these headlines from a position of strength on the back of strong macroeconomic fundamentals and buffers,” it added.
The government is expecting measures like the announcement of the National Logistics Policy and the recently implemented FTA (UAE and Australia) to remove external frictions by creating export opportunities.
“Thus, the entire ecosystem will evolve over time in an export-friendly manner,” the survey said, adding that the threat of supply chain shocks has never been more apparent than today, following the complexities of the US-China trade war. , the COVID-19 pandemic, and the war in Ukraine.
In this rapidly evolving context, as global companies adapt their manufacturing and supply chain strategies to build flexibility, India has a unique opportunity to become a global manufacturing hub this decade.
The survey suggested that the three main assets to take advantage of this unique opportunity are significant domestic demand, the government’s drive to encourage manufacturing, and a distinct demographic advantage, including a significant proportion of the young workforce.
It said that FTAs will help provide greater market access with reduced tariffs (customs duties) and non-tariff barriers on goods and services and make exporters more competitive.
Recognizing that FTAs will continue to feature prominently in global trade, India has engaged with its trading partners/blocs with a view to expanding its export markets.
“The economic rationale for FTAs was to diversify and expand India’s exports to its trading partners, giving competing countries preferential access to our trading partners as well as equal access to raw materials. was to provide a platform for intermediate products, at lower prices, to encourage value-added domestic manufacturing,” he said.
India has so far signed 13 FTAs and six preferential trade agreements. The country is currently engaged in negotiations with the United Kingdom, Canada and the European Union.
Limited progress in multilateral trade negotiations at the WTO is one of the reasons responsible for the increase in FTAs. While merchandise exports are witnessing some slowdown in the second half of 2022, India’s services exports have remained strong.