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India plans to curb trade deficit

  • Published
    15th Apr, 2023
Context

Recently, the Union government has informed that India is looking to cut down on cheap and non-essential imports through quality control orders (QCOs), as well as substitute imports through local production by incentivising manufacturers through Production linked Incentives (PLI) schemes.

About
  • India’s goods exports declined for the second successive month in March, falling a sharp 13.9% while imports dipped 7.9%.
  • Total goods exports in 2022-23 rose 6.03%, while the import bill surged by a steeper 16.5%.
  • The Commerce and Industry Ministry pegged the total trade deficit for the year, 46% higher than the gap in 2021-22.

Trade Deficit:

  • Trade deficit is said to take place when the imports done by a country exceed that of the exports done by a country in a fiscal year. The trade deficit is also termed as the negative balance of trade.
  • Trade deficit is a way of measuring the extent to which international trade is happening between the countries of the world.
  • Trade deficit can be calculated for different types and categories of goods and services and for international transactions such as current account, financial account and capital account.

Products-wise data for Exports:

  • The top three of India’s five export items registered insignificant growth including Rice (up 1.5%), chemicals (1%), and drugs and pharmaceuticals (0.8%).
  • Petroleum exports now account for 21.1% of total exports, up from 16% in 2021-22.
  • Engineering goods declined by 5.1%.

Important segments like engineering and gems and jewellery witnessed negative growth and we may expect further slowdown in exports.

  • Non-oil exports too contracted 0.5%, and goods shipments were also seen 2.8% lower than 2021-22 (excluding electronics exports).

Country-wise export data:

  • The USA remained India’s top export destination, followed by UAE.
  • Netherlands emerged as the third largest goods buyer, displacing China to the fourth position in 2022-23.
  • Bangladesh and Hong Kong remained in India’s top 10 export markets.

Most Exported Products from India:

  • Leather and Its Products: Indian leather manufactures items such as purses, coats, cricket balls, shoes, jackets, and more.
  • Petroleum Products: Petroleum products like Petrol, diesel, gasoline, jet fuel and LPG are very demanding in countries like the US, China, and the Netherlands.
  • Gems and Jewellery: India is the world’s fifth-largest exporter of such materials. And because of that, India owns almost 6% of shares in global exports.
  • Automobiles and Equipment: India is a rich country in terms of iron and steel. Due to this, India is a leading exporting country of machinery, parts, and, most importantly, automobiles.
  • Pharmaceutical Products: Some of the most exported products include active ingredients, biopharmaceuticals, and finished drugs. India was also an active exporter of the covid vaccines in 2020-21.  
  • Electronic Goods: Mobiles, laptops, computers, and other electronic accessories are always in increasing demand, and India has been fulfilling it for multiple countries for a long time.
  • Dairy Products: India primarily is an agricultural state, which is why the dairy and agricultural exports in India are popular across the globe. 
  • Cereal (Rice, wheat etc.): Much like China and Ukraine, India is famous for its abundant amount of production of wheat and maida. 

Rise in Imports:

  • China’s share of goods imports dipped to 13.8% in the year gone by from 15.4% in 2021-22.

Indian shipments to China now account for just 3.4% of total exports, from over 5% in 2021-22.

  • While petroleum imports jumped about 30% to nearly $210 billion in 2022-23.
  • Coal imports grew at a faster 57% to touch almost $50 billion.
  • Gold imports, on the other hand, fell around 24% as global prices for the metal surged and the Rupee turned weaker.

Implications:

  • As the present situation is giving rise to more imports than exports for India, it can lead to Trade deficit for the economy.
  • Inflation
  • Rise in Bank rates
  • Increase in price of commodities

Government interventions:

The Government has taken the following measures to boost exports and reduce trade deficit:

  • Foreign Trade Policy (2015-20) extended up to 31-03-2023.
  • Interest Equalization Scheme on pre and post shipment rupee export credit has also been extended up to 31-03-2024.
  • Assistance provided through several schemes to promote exports, namely, Trade Infrastructure for Export Scheme (TIES) and Market Access Initiatives (MAI) Scheme.
  • Rebate of State and Central Levies and Taxes (RoSCTL) Scheme to promote labour oriented textile export has been implemented since 07.03.2019.
  • Remission of Duties and Taxes on Exported Products (RoDTEP) scheme has been implemented since 01.01.2021.
  • Common Digital Platform for Certificate of Origin has been launched to facilitate trade and increase Free Trade Agreement (FTA) utilization by exporters.
  • Districts as Export Hubs has been launched by identifying products with export potential in each district, addressing bottlenecks for exporting these products and supporting local exporters/manufacturers to generate employment in the district.
  • Package announced in light of the COVID pandemic to support domestic industry through various banking and financial sector relief measures, especially for MSMEs, which constitute a major share in exports.
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