• China
  • Economic Growth
  • Global Economy
  • Report
  • Eurozone Crisis
  • USA
May 27, 2019

Indian Economy: Exports in a time of flux

Simmering United States (US)-China trade tensions have scripted a new phase in traderelations globally. The continued tensions are beginning to tell on the rest of the world --global trade flows, investments, and growth have slowed.


India’s export growth is predominantly led by global trade growth. As global growth startedslowing by the second half of fiscal 2019, India’s exports, too, followed suit. Growth slippedto 8.6% on-year in fiscal 2019 from 10% in the previous year. While imports moderated from20.4% in fiscal 2018 to 10.4% in fiscal 2019, the rate of slowdown was lower than exports.This led to the widening of trade deficit from fiscal 2018, after four years of moderation.


Consequently, India’s bilateral trade balance deteriorated with all major economies,except China, in fiscal 2019. Trade deficit with the Gulf Cooperation Council widened themost (at $13.5 billion), driven by rising oil imports. Trade balance with Hong Kong and theEuropean Union also swung from surplus in fiscal 2018 to deficit in fiscal 2019. Moreover,imports continued to rise from these economies. The shrinking imports from China must beread with rising imports from Hong Kong. It seems some exports from China to India arebeing routed through Hong Kong.


We conclude that trade wars can create both opportunities and challenges for India. Risingrisks to global growth from trade protectionism can limit India’s exports growth prospects,going forward. However, bilateral trade wars between other economies can also lead toshifting of production structures and new trade networks.


However, the benefits are not a given. Opportunities have come in the past too, butdomestic bottlenecks prevented India from reaping them. India remains a tightly regulatedmarket by global standards, despite some improvement in the past few years. Under theWorld Bank’s Ease of Doing Business rankings, India ranks 77, compared to China at 46 andVietnam at 69. This serves as a dampener for investor interest in India.


Also, concerns have also been raised over India’s trade restrictions. The Trumpadministration has criticized India’s high tariffs and barriers to market access. It has alsothreatened removing India from its Generalized System of Preferences, a program thatallows preferential access to imports from beneficiary countries. Finally, India’s slowprogress in drafting trade agreements has hindered its participation in global value chains,and thereby export growth.


Thus, India should be proactive in addressing these concerns, in order to adapt tomanifesting opportunities and plug into new trade networks. Reaping these opportunitieshas become more crucial now, given that the global environment is becoming morechallenging.