GS Paper 3
Syllabus: Indian economy and related issues.
Direction: The article highlights the main reasons behind the declining exports and areas where the Indian economy is doing well.
Context: According to the Ministry of Commerce, India’s exports declined by about 16.7 (sixteen point seven) % in October compared with the year earlier.
- This is the first slide reported for any month since February 2021.
- The October imports rose at a much milder pace than earlier, most likely because of softening commodity prices worldwide, resulting in the widening of the trade deficit by 50%.
Main reason for this performance of the export sector:
- Engineering goods (the backbone of India’s merchandise exports previously), fell by 21%. The Engineering Export Promotion Council of India attributed the slowdown to –
- High inflation in developed regions,
- Falling demand in China,
- The slowdown in the EU and the U.S. and
- The Russia-Ukraine war.
- In October, a decline of $2 billion worth of exports was seen in steel and allied products.
- Due to the export duty levied on these products to help increase local availability.
- The government has since removed this duty.
- The Diwali festive season prompted workers to take leave, thus impacting output.
How have the other exporting nations performed?
- Vietnam, an export-dominated country, recorded a 4.5% growth and in the Philippines, it grew by 20%.
- China is an exception this year (registering a decline in export growth) due to harsh lockdowns affecting its manufacturing output.
Signs of relief for the Indian economy:
- Resilient local demand: The investment cycle will spur growth and job creation in the coming days.
- The private sector capital expenditure, on track to touch six lakh crores this fiscal, would be the highest in the last six years.
- The private Capex typically depends on credit or loans, from the banking system
- Inflation has been driven by local factors: Including higher food prices, than imported reasons. However, retail inflation, which has been consistently above 7% in the past few months, stood at 6.8% in October
- Easing international commodity prices and the arrival of the Kharif crop.
Conclusion: Whether the above indicators (positive and negative) signify a temporary or permanent trend, remains to be seen over the coming months.
Q. How would the recent phenomena of protectionism and currency manipulations in world trade affect the macroeconomic stability of India? (UPSC 2018)