India's Foreign Trade

Syllabus:   

GS 3  >  Economic Development   >   Indian Economy and issues   >   International trade

REFERENCE NEWS

India's exports declined by 2.83 percent to USD 33.90 billion in November this year compared to USD 34.89 billion a year ago, government data released on Friday showed. 

ABOUT INDIA’S FOREIGN TRADE

India’s overall exports (Merchandise and Services combined) in November 2023 are estimated to be USD 62.58 Billion, exhibiting a positive growth of 1.23 percent over last year.

Overall imports in November 2023 are estimated to be USD 67.88 Billion, exhibiting a negative growth of (-) 6.16 percent over last year.

(Source: Ministry of Commerce & Industry.)

A. Merchandise Trade

Top 10 export destination	Top 10 export commodities
Top 10 import partners	Top 10 import commodities

B. Services Trade

Top export destination

Top export services

Business Services, Travel, and Transportation are the three top service imports.

SIGNIFICANCE OF INDIA’S FOREIGN TRADE

• Economic Growth and Development: The IT industry in India, through giants like TCS and Infosys, has significantly contributed to economic growth by exporting software services globally. This export-oriented approach has propelled India into a prominent position in the global IT sector.
• Diversification of Revenue Streams: India's software services exports, particularly in the domain of financial technology (fintech), have significantly diversified revenue streams. Companies like Paytm and Zerodha, through their innovative fintech solutions, have not only captured domestic markets but have also expanded globally. This diversification has reduced the country's reliance on traditional revenue sources and positioned India as a hub for cutting-edge financial services worldwide.
• Job Creation and Employment Opportunities: The automotive sector, including companies like Tata Motors and Mahindra & Mahindra, has created jobs by exporting vehicles to various international markets. This has not only led to employment opportunities in manufacturing but also in associated industries like research and development.
• Access to Advanced Technologies: Importing state-of-the-art defense technologies from countries like Israel and the United States has enhanced India's defence capabilities. This technological exchange has been crucial for maintaining national security and strengthening the indigenous defense industry.
• Balance of Payments Improvement: India's robust service sector, particularly IT and business process outsourcing (BPO), has led to a positive balance of trade. The export of IT services to countries like the United States has contributed significantly to a favourable balance of payments position.
• Cultural Exchange and Diplomacy: The export of Bollywood films to various countries, including the Middle East and Southeast Asia, has not only contributed to economic gains but also facilitated cultural exchange. This soft power diplomacy has strengthened India’s global influence and bilateral relations.
• Market Diversification and Risk Mitigation: The export of agricultural products, such as basmati rice and spices, to diverse markets like the Middle East, Europe, and the United States, has allowed Indian farmers and exporters to diversify their market presence. This diversification helps mitigate risks associated with fluctuations in domestic demand or international trade policies.

CHALLENGES OF INDIA’S FOREIGN TRADE

• Trade Imbalances: India faced a trade deficit of USD 20.58 billion November 2023, mainly due to substantial imports of crude oil, electronics, and gold. This deficit highlights the ongoing challenge of managing trade imbalances and their impact on the country’s economic stability.
• Infrastructure Bottlenecks: Despite progress, infrastructure bottlenecks persist. In 2022, delays at major ports like Mumbai and Chennai led to an estimated 20% increase in transaction costs for exporters, highlighting the need for further investment in port and transportation infrastructure.(Similar is the case with lagged Vizhinjam project)
• Non-Tariff Barriers: Stringent quality standards in European markets have affected Indian agricultural exports. For instance, the European Union’s regulations on pesticide residues have created challenges for Indian fruit and vegetable exporters, impacting their market access.
• Exchange Rate Volatility: The Indian Rupee experienced a depreciation of around 7% against the US Dollar in 2022. This volatility affects industries like textiles and information technology, as the cost of imported raw materials and technology increases, impacting their global competitiveness.
• Global Protectionism: The escalating trade tensions between the United States and China have created a ripple effect globally. India, as a major player in the global market, faces challenges due to the protectionist measures implemented by various countries, impacting the export prospects of industries such as steel and textiles.
• Intellectual Property Rights Concerns: India’s pharmaceutical industry, a significant contributor to exports, faces scrutiny over its patent laws. Ongoing disputes with the United States regarding intellectual property rights impact the growth of pharmaceutical exports, affecting an industry worth billions of dollars.
• Geopolitical Tensions: Recent geopolitical tensions with neighboring countries, such as trade disputes with China and Pakistan, have led to uncertainties in cross-border trade. These tensions can disrupt supply chains and impact industries such as electronics and textiles, affecting both imports and exports.

GOVT.INITIATIVES TO BOOST FOREIGN TRADE

WAY FORWARD

1. Trade Diversification and Infrastructure: Broaden the export portfolio across various sectors, including services, and invest in infrastructure upgrades for ports, logistics, and transportation to streamline export processes.
2. Policy and Market Access: Streamline policies to improve the ease of doing business, pursue aggressive trade agreements to expand market access, and ensure the adoption of international quality standards to foster global trust in Indian exports.
3. Export Competitiveness and Incentives: Offer financial incentives and tax benefits to high-potential export sectors, with a focus on SMEs, and promote the use of digital technologies to enhance trade facilitation.
4. Brand Building and Market Intelligence: Invest in global branding and marketing of Indian exports, coupled with robust market research, to identify and capture emerging international trade opportunities.
5. Innovation and Compliance: Encourage innovation, skills development, and compliance with global environmental and social governance norms to meet the evolving demands of international markets and to mitigate barriers such as non-tariff measures.

With improved domestic capabilities and alignment of Government and industry objectives, India can become a global manufacturing powerhouse.

PRACTICE QUESTION

Q: Analyze the impact and challenges of India's Foreign Trade Policy 2023 on export growth and suggest measures for its effective implementation.(15M,250W)