Growth in Exports, March 2019

Why in news?

Recently-released data from the Ministry of Commerce and Industry shows growth in exports in India.

What is the trade scenario?

India's goods exports picked up in March, 2019 boosted by the weaker rupee, despite a slowdown in global trade growth.
Merchandise exports rose 11.02% to $32.55 billion in March from a year earlier, the highest such growth for several months.
Twenty of the 30 overall product lines saw an increase in exports, including chemicals, pharmaceuticals and petroleum products.
Merchandise imports were up 1.44% to $43.44 billion during the same period.
Oil imports, the biggest item in the import bill, rose 5.55%, driven by a rise in Indian demand and increases in global crude prices.
Total exports of goods and services were estimated at $535.45 billion in the recently ended financial year, up 7.97% from a year earlier.
The total imports are estimated at $631.29 billion, up 8.48%.
On a different note, trade numbers for 2018 showed India-China trade deficit falling by a significant $10 billion.
This is mainly because of a sizeable increase in exports by India.
However, during the same period, there was a sharp rise in Hong Kong's export to India of the same goods that India was buying from China.

What is the concern?

2018-19 exports, in dollar terms, has come in as being marginally higher than in 2013-14, after long years of stagnation.
However, exports measured as a proportion of GDP have not kept pace.
The trade deficit in March 2019 was $10.9 billion, which is $1.3 billion more than in the previous month.
Although exports grew in 2018-19, imports grew even more sharply.
Thus the trade deficit for 2018-19 was over $176 billion, compared to over $161 billion in the previous year.

What is the welcome development?

The “core” trade balance (removing oil and gold) showed a surplus and not a deficit for the first time since February 2014.
It is perhaps too soon to declare that a five-year-long trend of weak core exports is over.
But the recent development is worth noting and seems to suggest some scope in the sector.
Notably, this has come despite the fact that many Southeast Asian competitor economies are dealing with sluggish export growth.

What are the driving factors?

Exports growth did contribute to the above development in trade deficit, but this is not the only factor.
The government’s effort to crack down on imports of electronic goods, often through the use of tariffs, has also played a role.
Electronic goods imports went down for the second successive month in March, 2019.

How does the future look?

Exports - The prospects for exports look very challenging going forward.
This is especially given the slowdown in global trade amid trade tensions between the U.S. and China.
BoP - The recent numbers on trade are too soon to celebrate about a new and healthy balance of payments.
This is because the basic vulnerabilities of India’s economy on the external account have not been addressed.
As and when crude oil imports increase once again, there is no doubt that the balance of payments will be correspondingly stressed.
A strong revival of domestic demand would also raise both the oil and non-oil import bill sufficiently to make it difficult to finance.

What should be done?

India imports over 80% of its crude oil. To not to be subjected to the associated vagaries, India has to ensure that growth in exports is sustainable.
Government should make exports its top priority, as this sector also has a huge potential for creating jobs, the most pressing need now.
Exports should be properly backed by procedures and reforms that ensure its stability and competitiveness.
Reform of processes around the goods and services tax is also a key priority at this end.

Source: Livemint, Business Standard, Economic Times