November , 2019
Decoding the trade deficit
15:54 pm

Ankit Singh

India’s trade deficit has hit a seven-month low. The trade deficit for September 2019 was estimated at $10.86 billion as against a deficit of $14.95 billion in September 2018. Exports shrank by 6.57% to reach $26.03 billion while imports declined by 13.85% to reach $36.89 billion, indicating a slump in global demand as well as in the domestic market.

Analysts believe that rising trade tensions between states have unsettled the global economy. The precarious global outlook has prompted the World Trade Organisation (WTO) to slash its trade forecasts for 2019 and 2020 to 1.2% and 2.7% respectively. The International Monetary Fund (IMF) has also cut the global economic growth forecast for 2019 by 20 basis points, adjusting it at 3%, indicating an uncertain recovery from the synchronised slowdown. Out of the 30 major items in India’s export and import baskets, 22 export items and 25 import items reported a negative growth.

Dr. Ajitava Raychaudhuri, Professor, Department of Economics, Jadavpur University, told BE, “It is because of the US - China trade war and Brexit, the global economy is reeling under a slowdown and export demand has fallen. With the world economy spiralling, exports will be stable if the products are competitive enough. As far as India is concerned, going by our per unit cost and the quality of the product, if it is a quality adjusted price we do not stand a very good chance internationally. Therefore our exports have suffered. The significant drop in import indicates towards a serious economic crisis in the domestic market.”

An official of a leading trade promotion organisation in India informs BE, “The escalating trade war between the US and China, and rising protectionism have cast a shadow on India’s prospects for higher exports recently and it is not just a specific monthly phenomena.” Among large export items, gems and jewellery (-5.56%), chemicals (-3.5%), engineering goods (-6.2%), ready-made garments (-2.2%) and petroleum products (-18.6%) have all contracted. Only eight out of 30 key export sectors have shown growth. Among them are pharmaceuticals (8.7%) and electronic items (33%).

In major importing items, import of coal (-24%), petroleum (-18.3%), chemicals (-16.2%), plastic material (-10.7%), precious stones (-17.3%), iron and steel (-14.6%), electronic goods (-0.14%), gold (-50.8%) and transport equipment (-51%) have shown reduction. Non-oil and non-gold imports fell by 8.8% - indicating weak domestic consumption. However, the import of electrical and non-electrical machinery expanded by 19.4% - bringing some relief.

Gold imports have plunged by 50.82% to reach $1.27 billion. According to experts, this is a drastic fall in gold import and should be a cause of concern for the government. According to Raychaudhuri, “Our main import is petroleum productsand then coal and machinery. All of these saw contraction.”

He added, “Export of engineering goods saw a decline in trade. The main problem is that if the domestic market is slow, engineering goods manufacturing and export will have a very slow growth as it primarily caters to the domestic market.

After meeting the domestic demand, the excess is then exported. As the domestic demand has gone down drastically, resultantly the production has also fallen. This has impacted the export proportions of Indian engineering goods.”

The Indian economy could have benefited from the trade war between China and the US by taking advantage of the situation like many South-East Asian countries. According to Raychaudhuri, “But it could not do so due to the mismatch between high-value export items in the world and that of the Indian economy. When the global economy slowed down, we also faced the brunt of it.”

On the bright side, pharmaceuticals, organic chemicals, and electronic goods managed to have a good market. India needs to focus on medium and high-tech goods.


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