Global Growth and Trade Situation: Though there was some recovery in the global economy after the 2008 crisis, the developments in US and Euro area have worsened the global economic outlook. The world economy has been receiving shocks at regular intervals. Accordingly, GDP growth of global economy is revised downwards to 3.3 percent in 2012 and 3.6 percent in 2013 which is down by 0.2 and 0.3 percentage points respectively as per October 2012 projections compared to the July 2012 projections. IMF has also reduced its earlier projections for world trade in goods and services to 3.2 percent for 2012 and to 4.5 percent for 2013, drastically down by 0.6 and 0.7 percentage points respectively. There is a drastic fall in import and export projections for emerging and developing economies by 0.8 and 1.7 percentage points respectively for 2012, compared to the marginal fall for advanced economies by 0.2 and 0.1 percentage points respectively. Like the month wise export growth rates, the month-wise import growth rates of the different trading partners of India which affects the demand for India‟s exports are also not encouraging.
After the 2008 crisis, many countries could reach the pre-crisis levels of exports, but few countries could reach the pre-crisis trends of export growth. India‟s export performance has been much better than many other countries on the export front as it could not only surpass pre-crisis levels but also reach precrisis trends and maintain it for a fairly long time in the post-crisis period. But in the last few months India‟s export growth has also started to decelerate.
Indian Economic and Trade Situation: The overall growth rate of the Indian economy was 6.5 percent in 2011-12 as against 8.4 percent achieved in each of the previous two years. In 2012-13 Q1, growth was at 5.5 percent compared to 8.0 percent in 2011-12 Q1. The slowdown is attributable both to domestic as
well as global factors. There has been a slowdown in the global economy from 5.1 percent in 2010 to 3.8 percent in 2011. The RBI also followed a tight monetary policy during most of 2011-12 to rein in on inflation which contributed to the increase in the cost of borrowings. These along with reduced investment
activity contributed to the slowdown in the industrial sector. Overall industrial growth moderated sequentially in each of the four quarters of 2011-12 and was at 2.9 percent compared to a growth of 8.2 percent in 2010-11. During April–August of the current fiscal, industrial growth was at 0.4 percent. Due to a combination of factors like industrial slowdown affecting tax revenues and higher expenditure on subsidies on fuel and fertilizers, fiscal deficit shot up to 5.8 percent of GDP in 2011-12 as against a BE of 4.6 percent of GDP. Headline WPI inflation, though moderated from 9.56 percent in 2010-11 and 8.94 percent in 2011-12 was at 7.81 percent in September 2012. Food inflation has particularly been a cause of concern. Trade and current account deficits widened to 10.3 percent and 4.2 percent of GDP in 2011-12 espectively. The sharp decline in the rupee during Q1 (April-June) of 2012 indicates among others, supply-demand imbalance in the domestic foreign exchange market dueto widening of CAD, slowdown in FII inflows and strengthening of US dollar in the international market due to the safe haven status of US Treasuries. Like
many other currencies rupee also depreciated though sharply by 12.7 percent against the dollar in 2011-12 and by 7.8 percent in September 2012 compared to March 2012 though it has recovered marginally in the recent past.
During 2011-12, India‟s exports and imports registered growth rates of 21.3 percent and 32.3 percent respectively. Rising crude oil prices, along with increase in gold and silver prices contributed significantly to the import bill resulting in a high trade deficit growth of 55.6 percent. In April-September 2012 export growth was negative at (-)6.8 percent. After a growth of 10.1 percent in January 2012, export growth has been negative or low in the subsequent months. In September 2012 it was at (-)10.8 percent. In fact,
exports have been falling month over month even in absolute terms since May 2012. During April-September 2012, import growth was also negative at (-)4.4 percent. Trade deficit in April-September 2012-13 is lower by 0.2 percent over corresponding period of previous year.
International Trade in Services: Global exports of services have shown consistent rise in the 2000s decade with a healthy average annual growth rate of around 9.5 percent, except in 2001 and 2009 - periods of global slowdown and economic crisis. In 2011, while world exports of commercial services grew
by 12 percent in Q1, 17 percent in Q2 and 14 percent in Q3, since Q4 the slowdown started with 5 percent growth, thus resulting in an overall growth of 11 percent in 2011. While in the first quarter of 2012 world exports and imports of commercial services grew by only 3 percent and 4 percent respectively, in the second quarter of 2012 both exports and imports of services grew by zero per cent. Thus, trade in services has also been affected by the emerging global situation.
India’s Trade in Services: In 2011-12, India‟s services export growth was 7.1 percent, services import growth was (-)6.9 percent and net services trade growth was 31.3 percent. Among the miscellaneous category, while software services exports grew by 12.2 percent, non-software services exports grew by a
negative (-)11.2 percent. Services export growth in Q1 of 2012-13 (April-June 2012) is at a low of 2.0 percent, while services import growth is at 15.9 percent. As a result, growth in net services trade is negative at (-) 13 percent. In July and August 2012, net services trade growths were 1.3 and (-)4.8 per cent, respectively. Thus lesser cushion is available from services trade to trade deficit this year.
The challenges and Policy options on the Trade front for India: The challenges for India on the trade front are many. Some are due to the current emerging global situation and some are systemic and long term in nature.
Macro and long term challenges and policies: While the Government has initiated second generation reforms, in the trade sector these could include further lowering of tariffs to ASEAN levels, while carefully taking note of domestic concerns and simultaneously removing duty benefit schemes which may become redundant in a low tariff regime. While India is relatively less vulnerable to the developments in the US, EU, and other developed countries due to its diversification of exports to Asia and ASEAN, there are concerns on the bilateral trade deficit front with countries like China and Switzerland. While substantial progress has been achieved on the market diversification front, a lot more needs to be done on the product diversification front as India‟s export presence is limited in the top items of world trade. While India has made new forays in skill-and capital-Intensive exports like information technology (IT), gems and jewellery, and engineering goods, it is losing steam in its traditional areas of strength, i.e. in the labour-intensive exports like textiles, leather and leather manufactures, handicrafts, and carpets. India‟s push towards regional and bilateral agreements should result in meaningful and result-oriented FTAs and CECAs, which carefully avoid inverted duties and take care of domestic concerns. A more conducive environment for trade in services can be created by liberalizing FDI inflows as FDI and trade in services have a close relationship given the nature of intra-firm trade of multinational parent firms with affiliates.
Rationalizing taxes in services like shipping and telecom, going forward with totalization agreements, streamlining domestic regulations like licensing requirements & procedures and technical standards can also help in the growth and export of services.
(By Dr. H.A.C. Prasad, Ministry of Finance, GOI)
After the 2008 crisis, many countries could reach the pre-crisis levels of exports, but few countries could reach the pre-crisis trends of export growth. India‟s export performance has been much better than many other countries on the export front as it could not only surpass pre-crisis levels but also reach precrisis trends and maintain it for a fairly long time in the post-crisis period. But in the last few months India‟s export growth has also started to decelerate.
Indian Economic and Trade Situation: The overall growth rate of the Indian economy was 6.5 percent in 2011-12 as against 8.4 percent achieved in each of the previous two years. In 2012-13 Q1, growth was at 5.5 percent compared to 8.0 percent in 2011-12 Q1. The slowdown is attributable both to domestic as
well as global factors. There has been a slowdown in the global economy from 5.1 percent in 2010 to 3.8 percent in 2011. The RBI also followed a tight monetary policy during most of 2011-12 to rein in on inflation which contributed to the increase in the cost of borrowings. These along with reduced investment
activity contributed to the slowdown in the industrial sector. Overall industrial growth moderated sequentially in each of the four quarters of 2011-12 and was at 2.9 percent compared to a growth of 8.2 percent in 2010-11. During April–August of the current fiscal, industrial growth was at 0.4 percent. Due to a combination of factors like industrial slowdown affecting tax revenues and higher expenditure on subsidies on fuel and fertilizers, fiscal deficit shot up to 5.8 percent of GDP in 2011-12 as against a BE of 4.6 percent of GDP. Headline WPI inflation, though moderated from 9.56 percent in 2010-11 and 8.94 percent in 2011-12 was at 7.81 percent in September 2012. Food inflation has particularly been a cause of concern. Trade and current account deficits widened to 10.3 percent and 4.2 percent of GDP in 2011-12 espectively. The sharp decline in the rupee during Q1 (April-June) of 2012 indicates among others, supply-demand imbalance in the domestic foreign exchange market dueto widening of CAD, slowdown in FII inflows and strengthening of US dollar in the international market due to the safe haven status of US Treasuries. Like
many other currencies rupee also depreciated though sharply by 12.7 percent against the dollar in 2011-12 and by 7.8 percent in September 2012 compared to March 2012 though it has recovered marginally in the recent past.
During 2011-12, India‟s exports and imports registered growth rates of 21.3 percent and 32.3 percent respectively. Rising crude oil prices, along with increase in gold and silver prices contributed significantly to the import bill resulting in a high trade deficit growth of 55.6 percent. In April-September 2012 export growth was negative at (-)6.8 percent. After a growth of 10.1 percent in January 2012, export growth has been negative or low in the subsequent months. In September 2012 it was at (-)10.8 percent. In fact,
exports have been falling month over month even in absolute terms since May 2012. During April-September 2012, import growth was also negative at (-)4.4 percent. Trade deficit in April-September 2012-13 is lower by 0.2 percent over corresponding period of previous year.
International Trade in Services: Global exports of services have shown consistent rise in the 2000s decade with a healthy average annual growth rate of around 9.5 percent, except in 2001 and 2009 - periods of global slowdown and economic crisis. In 2011, while world exports of commercial services grew
by 12 percent in Q1, 17 percent in Q2 and 14 percent in Q3, since Q4 the slowdown started with 5 percent growth, thus resulting in an overall growth of 11 percent in 2011. While in the first quarter of 2012 world exports and imports of commercial services grew by only 3 percent and 4 percent respectively, in the second quarter of 2012 both exports and imports of services grew by zero per cent. Thus, trade in services has also been affected by the emerging global situation.
India’s Trade in Services: In 2011-12, India‟s services export growth was 7.1 percent, services import growth was (-)6.9 percent and net services trade growth was 31.3 percent. Among the miscellaneous category, while software services exports grew by 12.2 percent, non-software services exports grew by a
negative (-)11.2 percent. Services export growth in Q1 of 2012-13 (April-June 2012) is at a low of 2.0 percent, while services import growth is at 15.9 percent. As a result, growth in net services trade is negative at (-) 13 percent. In July and August 2012, net services trade growths were 1.3 and (-)4.8 per cent, respectively. Thus lesser cushion is available from services trade to trade deficit this year.
The challenges and Policy options on the Trade front for India: The challenges for India on the trade front are many. Some are due to the current emerging global situation and some are systemic and long term in nature.
Macro and long term challenges and policies: While the Government has initiated second generation reforms, in the trade sector these could include further lowering of tariffs to ASEAN levels, while carefully taking note of domestic concerns and simultaneously removing duty benefit schemes which may become redundant in a low tariff regime. While India is relatively less vulnerable to the developments in the US, EU, and other developed countries due to its diversification of exports to Asia and ASEAN, there are concerns on the bilateral trade deficit front with countries like China and Switzerland. While substantial progress has been achieved on the market diversification front, a lot more needs to be done on the product diversification front as India‟s export presence is limited in the top items of world trade. While India has made new forays in skill-and capital-Intensive exports like information technology (IT), gems and jewellery, and engineering goods, it is losing steam in its traditional areas of strength, i.e. in the labour-intensive exports like textiles, leather and leather manufactures, handicrafts, and carpets. India‟s push towards regional and bilateral agreements should result in meaningful and result-oriented FTAs and CECAs, which carefully avoid inverted duties and take care of domestic concerns. A more conducive environment for trade in services can be created by liberalizing FDI inflows as FDI and trade in services have a close relationship given the nature of intra-firm trade of multinational parent firms with affiliates.
Rationalizing taxes in services like shipping and telecom, going forward with totalization agreements, streamlining domestic regulations like licensing requirements & procedures and technical standards can also help in the growth and export of services.
(By Dr. H.A.C. Prasad, Ministry of Finance, GOI)
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