India has a significant opportunity to improve its exports due to the ongoing shift in the global trade dynamics, a recent report published by Acuite Ratings and Research said.
The rating agency said that deterioration of trade relationships between China and its major partners such as the US, Australia, and Japan gives India an opportunity to expand its exports.
“We also expect that most of the world’s developed nations, including those in Europe, will make an effort to reduce their dependence on China, wherever applicable, and diversify their supply base for strategic reasons,” the agency said in a statement.
“This will benefit Indian exporters in various sectors such as pharma, chemicals, automotive, textiles, leather, and even agricultural products over the medium term.”
The statement cited that such a trend has started to become visible in June with India’s exports to Australia have grown by 78 percent and that to Japan and South Korea growing by 4.5 percent and 15.5 percent, respectively, despite the intermittent lockdowns.
Besides, exports to the US have been consistently improving over the past few months post the COVID disruption, and even exports to trading nations such as Singapore have increased by over 36 percent in June, reflecting the opportunities presented by the changing trade dynamics, it said.
Sankar Chakraborti, Group CEO, Acuite Ratings and Research, said: “India can take advantage of the shifting global trade dynamics by entering into bilateral or multilateral trade pacts with a wide spectrum of nations that intend to reduce their large dependence on China.”
“However, initiatives on new trade arrangements also have to be backed up by investments in indigenous manufacturing capabilities in close collaboration with the private sector and in line with the ‘Aatma Nirbhar Bharat’ campaign.”
India’s overall merchandise exports have witnessed a steady revival in the aftermath of the lockdown climbing from a low of $10.3 billion in April to $23.6 billion in July 2020.
“While the exports volumes are still 10.2 percent lower as compared to July 2019 on an overall basis, it needs to be noted that the exports of petroleum products have seen a massive contraction of 51.5 percent and adjusted for that factor, the yoy contraction has been only to the extent of 3.5 percent.”
As per the statement, the recovery has been broad-based across product segments, and there has been significant y-o-y growth in product segments such as agricultural goods, pharmaceuticals, and engineering goods.
Consequently, India’s merchandise trade deficit for the April-July period at $13.95 billion has witnessed a sharp drop of 64.1 percent from $59.42 billion in the corresponding period.
“In our opinion, the significant improvement in the trade deficit is primarily on account of continuing weakness in domestic demand along with a considerable decline in global crude oil prices but also partly due to exports recovering faster than imports,” said Suman Chowdhury, Chief Analytical Officer, Acuite Ratings and Research.
“We expect the merchandise trade deficit to drop sharply by around 70 percent to around $50-55 billion in FY21 as compared to $160 billion in last year.”