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17th June 2023 (8 Topics)

Shifting sands: On India’s external trade performance

Context:

  • The 10.3% decline in goods exports marks the fourth successive month of contraction in outbound shipments and the sixth such occasion in eight months which is the Initial estimates for India’s external trade performance and is a harbinger of even tougher times ahead.

India’s External Trade:

  • Engineering goods suffered: Engineering goods which make up over a quarter of India’s goods export basket, contracted for the 11th month in a row.
  • Textiles sector: Employment intensive textile sector shrank for the seventh straight month.
  • Decline in petroleum exports: The 30% decrease is due to the cooling global prices that are also affecting other commodities’ export values.

Factors of sustainability:

  • Boom in services exports: A 26.7% boom in services exports last year had helped narrow the steep goods trade and current account deficits amid surging global prices of commodities.
  • Impact on domestic demand: The trend reversal in that pace of growth began this March and has accelerated to a critical point with a mere 0.7% rise in global services receipts in May.
  • Core imports (excluding oil and gems and jewellery): have contracted 5.5% so far in 2023-24.

Suggestive measures:

  • Maintain merchandise trade deficit: Merchandise trade deficit must be sustained as it lifted to five-month high this time.
  • Increase market demand: The market demands if made to rise will help to revive economy till September.
  • Eliminate ‘business as usual’ approach: The new policy interventions are required to boost external trade in order to achieve better results.
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