21st January 2023 (7 Topics)
Declining Indian Exports
Context
December 2022 marked the steepest fall in two years for India’s goods exports, with products worth $34.5 billion shipped out at 12.2% lower than a year ago.
Causes of declining Indian Exports:
- Clouds of recession blowing through Europe and the U.S.
- The COVID-19 situation in China
- A reversion towards protectionism in some markets.
- The Ukraine-Russia conflict
- In general, however, a weaker domestic currency stimulates exports and makes imports more expensive.
- Conversely, a strong domestic currency hampers exports and makes imports cheaper.
- A high base effect also played a role in exaggerating the year-on-year export dip in December.
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December 2021 had clocked the second highest exports (worth $39.3 billion) in 2021-22, when India’s goods shipments crossed a record $422 billion. The world’s trade dynamics have been altered since then. |
Effect of declining export on Indian economy:
- When there are too many imports coming into a country in relation to its exports it can distort a nation’s balance of trade and devalue its currency.
- When there are more exports, it means that there is a high level of output from a country's factories and industrial facilities, as well as a greater number of people that are being employed in order to keep these factories in operation.
- When a company is exporting a high level of goods, this also equates to a flow of funds into the country, which stimulates consumer spending and contributes to economic growth.
- The relationship between a nation’s imports and exports and its exchange rate as it acts as a constant feedback loop between international trade and the way a country's currency is valued.
Impact on Economy:
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A healthy economy is one where both exports and imports are experiencing growth. If exports are growing, but imports have declined significantly, it may indicate that foreign economies are in better shape than the domestic economy. Conversely, if exports fall sharply but imports surge, this may indicate that the domestic economy is faring better than overseas markets. |
Efforts for reviving exports:
- Improving access to credit and reducing cost of credit, especially for merchant exporters.
- Interest equalization support to all agricultural exports.
- Increasing budgetary support for marketing and exports related infrastructure.
- Creating a single point interface for customs clearance of import and export goods.
- Simplifying various export incentive schemes:
- Advance Authorisation Scheme (AAS)
- Export Promotion Capital Goods (EPCG)
- Service Exports from India Scheme (SEIS)
- Merchandise Exports from India Scheme (MEIS)
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