A slump in trade that could yet be reversed
India’s merchandise trade data for September released on Tuesday reinforces a declining trend. Our export of goods has shrunk 2.4% in dollar terms in the first half of 2019-20 and imports have fallen 7% over April to September 2018. This dovetails into the narrative of protectionism weakening demand worldwide while India loses economic momentum. The International Monetary Fund reckons global trade grew by just 1% between January and June, and the World Trade Organization expects world merchandise trade to rise 1.2% this year, less than half the 3% growth rate notched up in 2018. Slackening demand has affected the growth of other emerging economies too, such as Brazil, Russia and South Africa, although the Chinese slowdown has been less ominous than what would normally have been anticipated in the context of a trade war between the world’s two biggest economies. There is solace for India in service exports, but a 9.1% rise on this count between April and August does not mask the predicament over the goods we trade with others: 22 major outbound and 25 inbound items contracted in September.
India’s merchandise exports since the turn of the century have remained steady at around 2% of the overall global value, and services had more than doubled their share of exports to a quarter of the country’s gross domestic product in 2013, before settling at under a fifth in 2017 once isolationist tendencies began to solidify across the world. At this level, India’s openness to trade rests somewhere between the most dynamic exporting nations in Latin America and those in Asia. Tax and lending credits announced last month by finance minister Nirmala Sitharaman to push export competitiveness should address some pain points, but lowering the corporate tax rate could emerge as a game changer in a world caught in the crossfire between Washington and Beijing. US President Donald Trump’s warning to “currency manipulators” like India and China will naturally have influenced New Delhi’s policy response to internal calls for devaluing the rupee in order to prop up flagging merchandise exports. Commerce minister Piyush Goyal sees little merit in a cheaper rupee, while the country’s trade deficit persists—narrowing now and then only because of imports falling faster than exports.
The size of India’s domestic market has often been accused of tempering the country’s aggressiveness on trade. An inordinate reliance on consumers at home—aided by a macro-management tool-kit—to pull the economy out of a rut shows up most starkly when both domestic and international demand tank in tandem, as they now have. Half a year of declining exports and imports has raised the risk of India losing some of its already-low share of world trade. The government must draw lessons from nimbler rivals in Asia that have carved up large slices of traditional Indian exports like textiles. Though some effort has gone into freeing up labour markets for these industries, much more is awaited. Alongside, a bigger push is required to increase the value added in segments like electronic exports if India aspires to move into space vacated by maturing technology in China. There is opportunity in the rapidly changing world trade order. New Delhi’s policy response now will determine whether India’s share of world merchandise trade manages to rise above its long-term trend line.