USA: Despite reaching an all-time high of USD 422 billion in 2021-22, the country's export growth in 2023 is projected to be negatively impacted by the slowdown in key western markets and the geopolitical crisis brought about by Russia-Ukraine war.
All the elements that support global trade such as political stability, free flow of goods, adequate availability of shipping lanes and containers, demand, a stable currency and efficient banking system are in disarray.
The problems have been made worse by the recent re-emergence of Covid cases in countries like China, Japan, South Korea and the US.
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The start of the Russia-Ukraine war in February severely disrupted global supply chains and pushed up commodity prices before COVID-hit economies could recover. The war also had an impact on the transport of goods along the important Black Sea route.
The World Trade Organization (WTO) predicts that global trade will grow only 1% in 2023 in light of the worsening geopolitical situation.
According to the Geneva-based multilateral trade organization, world trade is expected to slow in the second half of 2022 and remain sluggish in 2023 as the world economy grapples with several shocks.
“WTO economists now forecast that global merchandise trade volume will grow by 3.5% in 2022, slightly higher than the 3% forecast they made in April. However, they expect a 1% increase for 2023. , which is significantly lower than the previous estimate of 3.4%" it said.
According to experts, it will be challenging for India to save itself from this ominous development.
However, he also said that India has so far moderated its export growth and a healthy growth in services exports will also aid the country's overall outbound shipments in 2023.
Services exports are set to reach a record high of US$ 254 billion in 2021-22, and sector experts predict they could cross US$ 300 billion this fiscal. Exports have increased by 2.14 per cent, 1.62 per cent and 4.82 per cent in July, August and September this year.
It experienced a 12.12% contraction in October and flat growth in November. Exports are set to increase by 11% to USD 295.26 billion from April to November 2022 as against USD 265.77 billion during the same period last year.
However, during the first eight months of this fiscal, imports increased by 29.5% to USD 493.61 billion. According to commerce ministry data, it was USD 381.17 billion during April to November 2021.
The ministry cites a number of factors, including COVID- and Russia-Ukraine conflict-related recessions in some developed economies, a slowdown in demand and specific measures to control domestic inflation, as reasons for the decline in merchandise exports.
A growing trade deficit (the difference between imports and exports), which affects the value of the rupee and the current account deficit, will be a big issue for India.
The trade deficit widened to a new high of US$30 billion in July. The Indian currency started depreciating as a result of mounting deficit and repeated interest rate hikes by the US Federal Reserve, reaching an all-time low of 83 against the US dollar in October.
Rupee is currently trading above 82.
According to Rumki Majumdar, an economist at Deloitte India, given the global trade dynamics, India's exports are likely to take a hit, although the rupee's depreciation against the dollar could partially offset the impact.
A weaker INR would be beneficial as more than 85% of trade is conducted in US dollars. However, last mile connectivity and logistics issues need to be resolved to improve efficiency, reduce delays and reduce trade costs," Majumdar said. Several initiatives of the government are helping to increase exports.
"We are optimistic" on India's exports for 2023, declared Nischal S Arora, partner-regulatory at Nangia Andersen LLP, despite the fact that India's share of global trade may not grow rapidly.
Yes, currency depreciation helps promote exports of certain goods and services that are not dependent on costly imports of raw materials in the short run. However, according to Arora, the burgeoning impact of rupee depreciation on exports will relatively diminish over time, as India shifts from a service-driven export economy to a goods export economy.
According to Ajay Sahay, director general of the Federation of Indian Export Organizations (FIEO), a 1% slowdown in global trade in 2023 could negatively impact Indian exports as well.
We are aware that our contribution to global trade is still less than 2%, so the global trade graph shouldn't have a greater impact on us. Additionally, a few promising developments will benefit India in 2023, Sahai continued.
He claimed that the UAE and Australia's recently concluded free trade agreements would be effectively utilised to boost exports in the coming months. Additionally, new agreements with the UK and Canada are anticipated in the first half of 2023 to give exports a boost.
Regarding the depreciation of the rupee, Sahai stated that in the 52 weeks ending December 14 the local currency had lost 8% of its value, compared to losses of 8.3% for the Chinese Yuan, 15.7% for the Japanese Yen, 20.9% for the Pakistani Rupia, and 8.3% for the Argentina Peso (40.9 per cent).
In a way, this is advantageous for the Indian economy because our imports are currently 50% higher than our exports. Little currency volatility is advantageous for exporters, but significant volatility is risky and raises the cost of hedging as well," he continued.
Although all the major economies of Europe, the US, and Japan are exhibiting signs of a recession, according to exporter and Chairman of Technocraft Industries Sharda Kumar Saraf, based in Mumbai, India's exports are still expected to grow by 8–10% in 2023.
This will be prompted by the various Free Trade Agreements that the government has signed with a number of important nations, Saraf said.
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In order to increase exports and decrease the overall trade deficit, the government has implemented a number of policies, including the extension of the current foreign trade policy through March 31, 2023; the extension of the interest subsidy programme on pre- and post-shipment rupee export credit through March 31, 2024; and the implementation of the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme beginning in January 2021.
Exports would be aided by the implementation of the production-linked incentive programme, the release of the logistics policy, and the PM Gati Shakti initiative for integrated infrastructure development.
