India must try harder to turn balance of trade in its favour

A country’s exchange rate, on the other hand, is an important determinant of its export performance in either direction.
India’s merchandise trade deficit widened to USD 21.9 billion in December from USD 18.8 billion a year ago, though it narrowed from the USD 32.82 billion registered.
India’s merchandise trade deficit widened to USD 21.9 billion in December from USD 18.8 billion a year ago, though it narrowed from the USD 32.82 billion registered.(Photo | ANI)
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India’s merchandise trade deficit widened to USD 21.9 billion in December from USD 18.8 billion a year ago, though it narrowed from the USD 32.82 billion registered in the previous month.

Meanwhile, exports and imports witnessed interesting contrasts. While merchandise exports contracted in December, their imports grew simultaneously—and the reason for both was largely led by the gems and jewellery segment.

As total exports fell 1 percent on-year to USD 38.01 billion, imports increased 4.9 percent to USD 59.95 billion, with gold imports rising 55.4 percent and silver inflows jumping 211 per cent.

However, core import growth decelerated to 3.9 percent in December from 6.1 percent the previous month, while core exports grew 8.3 percent. With exports shrinking for the second consecutive month, the third quarter registered an overall contraction of 3.3 per cent.

RBI data shows that the services trade surplus stood at USD 14.8 billion—barely up from USD 14.4 billion a year ago—with their exports growing 13.9 percent on-year in November and imports rising 26 per cent.

Helpfully, the services trade has held up well even as the overall export performance has been volatile for much of the current fiscal. After a steady growth in Q1, exports contracted in Q2. They grew in October, raising hopes of a positive Q3; but the November and December numbers scuppered that chance.

Given imports have outpaced exports, India’s trade deficit has widened. Geopolitical uncertainties, including the proposed tariff hikes by the incoming Donald Trump administration, pose significant risks for the future.

The combination of the expected higher US tariffs on Chinese goods and the anticipated slowdown in our neighbour’s economy may push up Chinese exports to Asian markets, particularly India—complicating our export strategy.

Exports drive growth, create jobs, and earn valuable foreign exchange. A country’s exchange rate, on the other hand, is an important determinant of its export performance in either direction.

On this, we must note the World Bank’s take that depreciations bring about smaller export responses than currency appreciations. A bigger trade gap widens the current account deficit, which in turn weakens the rupee, which is already under pressure.

Put another way, there is no time to waste: the government must make substantive efforts to tilt the balance of trade in its favour.

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