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Tuesday, July 16, 2024, 12:19 pm

Tuesday, July 16, 2024, 12:19 pm

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Improving goods exports is necessary to close the deficit with imports.

Improving goods exports is necessary to close the deficit with imports.
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In 2023-24, India’s merchandise exports fell 3.1% to $437 billion. However, trade tides look to be turning. Outbound shipments have increased by 9.1% in May, following a 1.1% increase in April. In the January-March quarter, exports increased by 4.9% to a seven-quarter high of more than $120 billion, despite concerns of disruptions in the Red Sea route since late 2023. Imports and exports have increased in four consecutive months.

Exporters and trade officials expect that the European Central Bank’s recent interest rate cut will boost demand for their products in major markets. However, recent price increases in industrial commodities, including metals and food, should temper optimistic expectations. The US Federal Reserve predicts only one rate cut this year.

This year, 20 of India’s top 30 export items have outpaced last May’s totals, while only 13 items increased in April. Employment-intensive industries such as clothes, man-made yarn, and engineering items benefited from the May recovery.

Spice shipments decreased by 20.3%, while marine items experienced another decline. Negative reports in important countries about quality and working conditions have undoubtedly impacted spice and prawn exports. More efforts are needed to refute this incorrect perception. In May, imports reached a seven-month high of $61.9 billion, resulting in a trade deficit of $23.8 billion, a 25% increase from the previous month.

The $13.2 billion deficit in petroleum products was fueled by $20 billion in imports, primarily due to the average oil price of $89 per barrel in April. Although oil prices have decreased, they should still be closely monitored in a country that relies heavily on imports. Officials have dismissed concerns about India’s soaring deficits, citing quicker growth in imports than in exports. Rising services exports and FX inflows from worldwide capital would assist close the deficit, along with import substitution activities. Foreign direct investment inflows have been declining for three years, earnings outlook from IT services giants has been negative, and private investments to replace imports are slow. Instead of relying on intangibles, the Centre should revive its efforts to support goods exports, including increased financial allocations.

 

ABHISHEK VERMA


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