India’s Trade Deficit
Context:
- The chasm between exports and imports has widened in the first quarter of this year, with the cumulative trade deficit already hitting $70 billion, translating into an average of $23.3 billion a month.
Background:
- While the crisis between Russia and Ukraine has supported commodity prices globally, the knock-on effects of out-of-control inflation are harming trade demand and prospects for global economy.
- The “flat” exports in June are a result of a general decline in foreign demand.
- India is not the only country experiencing a trade deficit; even Germany, a super-exporter, experienced one in May, albeit a small one.
- According to the Ministry of Commerce, India’s imports increased last year along with its exports.
- The total value of goods exported in 2021–22 was $422 billion, a significant increase over the $313 billion pre–COVID levels in 2019–20.
What are the reasons for decreasing exports?
- While the ongoing conflict between Russia and Ukraine, which began in late February of this year, has supported commodity prices globally, the knock-on effects of runaway inflation are harming trade demand and prospects for global economy.
- According to a statement from Nomura, the “lacklustre” exports in June are a reflection of the overall slowdown in global demand.
- Weakness was seen in the exports of engineering items, chemicals, medicines, cotton yarn, and plastic goods.
- These four categories, which are among India’s top ten exports, saw a decrease in outbound shipments.
- Petroleum exports were $0.7 billion lower than levels in May 2022, although being an impressive 98 percent higher than in June 2021.
Way Forward:
- The decline in exports could quicken in the upcoming months as numerous developed economies are predicted to enter recession this year.
- The weakening rupee will continue to make imports costlier while slowing exports may not be able to capitalise enough on it.
Source The Hindu
