India’s economy is definitely struggling, but a 6% growth in merchandise exports in September has come as a pleasant surprise in the middle of a gloom. India’s outbound shipments rose for the first time in seven months.
The export growth is much higher than the estimated 5.3%, as per the provisional data released earlier. The growth was a result of a sudden rise in demand for engineering goods, petroleum products, pharmaceuticals and ready-made garments.
India’s exports rose to $27.6 billion, while imports contracted 19.6% to $30.3 billion, resulting in a trade deficit of $2.7 billion, according to data released by the commerce ministry.
In the six months ended 30 September, exports fell 21.3% to $125.3 billion, while imports contracted 40.1% to $148.7 billion, creating a trade deficit of $23.4 billion.
India’s merchandise trade was weakening even before the COVID-19 outbreak hit. The first signs were visible as early as June 2019.
As per the World Trade Organization (WTO) data, the trade scene is likely to improve in 2021. Global merchandise trade declined by 21% in the quarter ending June this year. Global volumes of merchandise trade is set to decline by 9.2% in 2020, followed by a 7.2% rise in 2021. In April, the trade body had projected global merchandise trade to drop by 13-32% in 2020 because of the Covid-19 crisis.
Defeating COVID, India’s core exports grew by 11.1%, year-on-year, in September to $21.1 billion.
Indian industry displayed exemplary resilience in the last month by making local & going global. https://t.co/hZHp9cGBzc
— Piyush Goyal Office (@PiyushGoyalOffc) October 14, 2020
Aditi Nayar, principal economist, ICRA Ltd, said trade deficit fell in September compared to August due to a pickup in exports, as well as a sharp drop in gold imports.
India’s economy contracted 23.9% in the June quarter, hit by the double whammy of a demand contraction and supply shock because of a countrywide lockdown. As a consequence, the International Monetary Fund (IMF) has projected India’s economy to contract 10.3% in FY21, while the Reserve Bank of India’s estimates put it at -9.5%.
Nayar said the decline in gold imports in September suggests that the pent-up demand related to the lockdown has been met. “However, imports may rise in the next two months with the festive and marriage season coming up, as well as the potential of a rise in rural demand after the kharif harvest,” Nayar added.
Exports and not imports will help revive economy: Arvind Subramanian
A research paper co-authored by former chief economic advisor Arvind Subramanian has said India should pay more attention to exports and should not be blinded by the “misleading allure of the domestic market.”
Subramanian’s paper says India’s ‘inward orientation’ is based on the ‘misconceptions’ that the domestic market is big and exports don’t have much prospects in a ‘deglobalising’ world.
Following Prime Minister Narendra Modi’s call for an “Atma Nirbhar Bharat”, domestic demand has assuming primacy over export-orientation. Also, trade restrictions have been on the rise, reversing a trend that has been on for three decades, the paper, ‘India’s Inward (Re)Turn: Is it Warranted? Will it Work?’, by Subramanian and Pennsylvania State University professor Shoumitro Chatterjee, said. “India should zealously boost export performance and deploy all means to achieve that,” it said.
According to the paper, “abandoning” the export market will amount to “killing the goose that lays golden eggs”. It would indeed be “killing the only goose laying eggs”, it said. “Alas, to embrace ‘atma nirbharata’ is to choose to condemn the Indian economy to mediocrity,” the paper said.