Exports go up, but trade deficit widens
Overseas trade data released on Monday brought in mixed tidings for India and its fast-growing economy. On the brighter side, the country's merchandise exports rose by 9 per cent to $331 billion in FY19.
That is highest ever export number achieved by the country. The earlier peak was $314.4 billion, a milestone achieved in 2013-14. The petroleum segment led from the front by clocking a healthy growth of 28 per cent last fiscal.
Other sectors which registered decent export growth include plastics (25.6 per cent), chemicals (22 per cent), pharmaceuticals (11 per cent) and engineering (6.36 per cent).
Exports went up by a five-month high of 11 per cent in March, the final month of last financial year. They stood at $32.55 billion as compared with $29.32 billion in the same month last fiscal. Pharmaceuticals, chemicals and engineering segments contributed the highest to this growth.
But the record level of exports achieved last fiscal doesn't bring much cheer because imports have also increased significantly, thereby widening the trade deficit, a bane for balance of payments position.
Overall merchandise imports zoomed by 8.99 per cent to $507.44 billion. As consequence, trade deficit, the difference between exports and imports, increased to $176.42 billion in 2018-19 from $162 billion in 2017-18.
As is the case every year, oil imports contributed the most to the bigger import bill. In FY19, oil imports went up by 29.27 per cent to $140.47 billion.
The trade deficit would have been higher had non-oil imports not registered lower growth. As per the official data, non-oil imports went up by 2.82 per cent to $366.97 billion in FY19.
However, there is a silver-lining when it comes to imports. In March this year, imports rose by just 1.44 per cent to $43.44 billion.
As result, trade deficit in March 2019 narrowed to $10.89 billion as compared with $13.51 billion in March 2018. It is to be seen whether this trend will continue in the current financial year.
Industry bodies like the Federation of Indian Export Organisations (FIEO) maintained that exports registered robust growth despite global challenges like protectionism, trade wars.
It also pointed out constraints on the domestic front. To boost exports, they sought more incentives such as exemption from GST and more flow of credit.
There is also demand for focusing food exports for sustainable growth in outbound shipments. Such a shift is expected to cushion India's export sector from volatility and shocks.
One good sign is that overall exports, both merchandise and services, crossed the milestone of $500 billion for the first time and reached $535.4 billion in FY19. That represents a growth of 7.97 per cent year-on-year.
But India needs to pull up its socks and increase its exports to not only reduce its ballooning trade deficit, but also boost economic growth so that our economy zooms to $5 trillion in five years or so as targeted by the central government, from over $2 trillion.
But exports can only be grown if the government encourages Indian companies to achieve economies of scale on the lines of China.