The volume of Indian exports in merchandise plummeted by a worrying 34.6% in March, but the cloud had a silver lining not of reduced imports by 28.7% but of a decreased trade deficit of $ 9.8 billion. This owes to the global lockdown to fight the coronavirus disease (COVID).
When the virus had just entered the country through a few migrants from China in February, merchandise exports had gone up 2.9%. In fact, the economy was not doing well even before the outbreak in India, with exports falling for six months in a row. Just when India was recovering, however, the outbreak turned into an epidemic, thanks to China and Tablighi Jamaat.
Only one out of the 30 major items in India’s export-import basket did not see a contraction in March. That was iron ore exports (58.4%). Transport equipment imports (11.9%) recorded growth in that month too.
The sharp drop in merchandise exports was, Engineering Export Promotion Council chairman Ravi Sehgal said, not a surprise. “April would be worse as international trade excepting medicine and essential supplies has come to a near halt. Exporters are facing a question of survival,” he said.
India’s exports this year have shrunk 4.8% to $ 314.3 billion. Imports have contracted 9.1% to $ 467.2 billion. That means a trade deficit of $ 152.9 billion.
The World Trade Organisation (WTO) estimates that global merchandise trade would drop between 13% and 32% this year due to the global COVID pandemic. “The wide range of possibilities for the predicted decline is explained by the unprecedented nature of this health crisis and the uncertainty around its precise economic impact. But WTO economists believe the decline will likely exceed the trade slump brought on by the global financial crisis of 2008‑09,” it said last week.
Exports need govt push
As 50% of the orders are lost, with awful forecasts, big job losses and increasing bad loans hitting export units, Sharad Kumar Saraf, the president of the Federation of Indian Export Organisations, said the government must announce a relief package for exporters immediately. Any further delay would be catastrophic, he said.
“The huge support given by various economies to exports will put Indian exports in further difficulties as when the size of the cake reduces, competition intensifies with focus on prices,” Saraf said.
‘South Asia Economic Focus’ by World Bank
Reduced external demand for manufacturing and services exports would affect India, World Bank in its latest South Asia Economic Focus said: “One of India’s largest exports is business and professional services, consisting of business process outsourcing (BPO) such as technical support and call centres largely based in India. This sector is severely affected. Lockdown measures, both in origin and destination countries, have forced offices to close as their infrastructure is heavily geared towards in-office working. There is also a concern that external demand will drop precipitously even beyond the lockdown period, as clients cut costs. This situation will certainly mean fewer new projects, as well as the scaling back of existing ones.”
The bank has but also said that India’s balance of payments position may improve. “Weak domestic demand, low oil prices and COVID-19-related disruptions are expected to narrow the current account deficit to 0.2% in FY21 and to keep it low in the following years,” the report reads.