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Trade Trapeze
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Context
After a challenging 2023-24, India's merchandise exports have started to recover. Recent months show a positive trend in export growth, despite global economic uncertainties.
Current Trends and Positive Developments:
- Recovery in Exports: India's merchandise exports declined by 3.1% in 2023-24, but there has been a notable turnaround with exports rising 1.1% in April and 9.1% in May 2024. The January to March quarter saw exports grow by 4.9%, reaching a seven-quarter high of over $120 billion.
- Sectoral Performance: 20 out of India's top 30 export items outperformed their previous year's figures in May 2024. Key sectors like apparel, man-made yarn, and engineering goods, which are employment-intensive, showed significant recovery.
- Global Economic Factors: The European Central Bank's interest rate cuts have raised hopes among exporters for similar moves by other major economies, potentially boosting demand for Indian exports.
Challenges and Concerns:
- Commodity Prices: Rising prices of industrial commodities such as metals and food items could temper the optimism. The U.S. Federal Reserve has indicated only one rate cut this year, suggesting continued caution.
- Sectoral Declines: Despite the overall positive trend, certain sectors like spices and marine products saw sharp declines, with spices dropping by 20.3% and marine products falling again. Negative reports on quality and workplace standards in key markets are likely contributors.
- Trade Deficit: May's import bill reached a seven-month high of $61.9 billion, leading to a trade deficit of $23.8 billion. A significant portion of this deficit is attributed to a record $13.2 billion deficit in petroleum products, influenced by high oil prices.
Policy Implications and Recommendations:
- Managing Trade Deficit: Officials suggest that rising services exports and foreign exchange inflows from global investments could help offset the trade deficit. However, challenges remain with declining foreign direct investment inflows and sluggish private investments.
- Revitalizing Export Schemes: The government needs to enhance its efforts to support goods exports, including increased budgetary allocations for export promotion schemes. Relying on intangible factors like investment inflows and import substitution may not be sufficient.
UPSC Mains Questions
Q. Analyze the impact of global economic factors, such as interest rate changes by major economies, on India's trade performance.
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