Fragile global economy unsettles India’s foreign trade in 2023

The fragile state of the global economy in 2023, due to escalation of geopolitical tensions, high interest rates, surging inflation and lingering effects of Covid-19, cast its shadow on India’s goods exports which faltered after a steady performance the previous year.

The Commerce Ministry is hopeful that green shoots may have now started appearing, going by the trade data for the past two months. But as all major institutions such as the IMF, OECD and UNCTAD are projecting a further weakening in global growth in 2024, especially with the long-drawn Russia-Ukraine conflict and the more recent Israel-Hamas war creating major disruptions, the situation remains uncertain.

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With friend shoring–where supply chain networks are focussed on countries considered political and economic allies–becoming a bigger reality with an increase in global conflict, exporters have to be on the lookout for new opportunities. Foreign Trade Agreements (FTAs) forged recently with partners like Australia and the UAE need to be well utilised. The government needs to extend all possible policy support to prop up the sector.

“The launch of the Foreign Trade Policy 2023, with a vision for $2 trillion exports by 2030, has been a positive development, particularly given the emphasis on cross border e-commerce and promoting exports from districts,” points out Mohit Singla, Founder Chairman, Trade Promotion Council of India (TPCI).

While schemes like the Production Linked Incentive, announced for 14 sectors, could help India scale its exports in the coming years, there needs to be action in areas such as the DESH Bill, which is crucial to India mirroring China’s success in building robust industrial infrastructure and emerging a manufacturing superpower, Singla said.

India’s goods exports in April-November 2023 declined 6.3 per cent to $278.79 billion from $298.21 billion in April-November 2022.

While petroleum products exports took a big hit in the April-November 2023 period, due to a fall in global prices, of major concern is the fact that there was also a decline in exports from labour-intensive sectors such as engineering goods, ready-made garments, gems and jewellery, chemicals and leather products.

In November 2023, although exports went down a marginal 2.83 per cent to $33.9 billion, the fall was spread across 15 major export sectors, indicating that several sectors were performing below last year’s levels.

Narrow trade deficit

On the positive side, imports declined in the April-November 2023 period at a steeper rate of 8.67 per cent to $445.14 billion. This narrowed the trade deficit in the eight month period to $61.44 billion, which was 38.79 per cent less than the trade deficit of $ 100.38 billion during the comparable period last year. 

A narrowing of the trade deficit is good news for the economy because of its positive effect on the balance of payments. However, with the possibility of oil prices rising globally–the immediate reason being the Houthis’s threat causing a shipping crisis in the Red Sea–oil import bill may go up again. To keep the trade deficit in check, it is imperative that the export situation should improve.

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The slowdown in China is an important factor influencing world trade that cannot be ignored, said Biswajit Dhar, Distinguished Professor, Council for Social Development. “The Chinese economy is not doing as well. We don’t know what kind of headwinds it is facing but it definitely having macro economic problems. If Chinese exports are not buoyant enough then it will hit global production networks and value chains,” Dhar cautioned.

The government needs to successfully conclude Free Trade Agreement negotiations with partners such as the UK and the EU, before the upcoming elections in 2024, if some immediate gains are to be reaped, he added.

Some hope for 2024 comes from the WTO’s revised forecast of 3.4 per cent growth in world trade in the new year. It revised downwards its growth forecast for 2023 to 0.8 per cent.

However, the WTO’s revised forecast, released in early October 2023, had not factored Israel-Hamas conflict and piracy in the Red Sea which have added to uncertainties for 2024, points out Ajay Sahai, Director General, Federation of Indian Export Organisations.

On an optimistic note, Sahai said that global trade will be much more buoyant in 2024 since inflation is moderating globally and after a pause in the key rates by most of the central banks, interest rates are likely to move southward thus pushing demand. 

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