Russia-Ukraine war, recession fears could cloud India’s exports in 2023

Russia-Ukraine war, recession fears could cloud India's exports in 2023

Healthy growth in service exports will help India’s outbound traffic in 2023, experts say. (document)

New Delhi:

India’s exports are likely to hit a record high of $422 billion in 2021-22, but recessions in key Western markets and the geopolitical crisis caused by the Russia-Ukraine war are expected to dampen growth in the country’s outbound traffic in 2023.

All the factors that facilitate global trade, such as political stability, the flow of goods, sufficient availability of containers and shipping lines, demand, stable currencies, and a smooth banking system, are in disarray.

To add insult to injury, COVID cases are starting to rise again in countries such as China, Japan, South Korea and the United States.

The Russo-Ukraine war that erupted in February severely disrupted global supply chains and pushed up global commodity prices before the COVID-stricken global economy emerged from its woes. The war also affected the movement of goods through the important Black Sea route.

The World Trade Organization (WTO), noting the deteriorating geopolitical situation, expects global trade to grow by just 1% in 2023.

World trade is expected to lose momentum in the second half of 2022 and remain subdued in 2023 as multiple shocks weigh on the global economy, the Geneva-based multilateral trade body said.

“WTO economists now forecast global merchandise trade volumes to grow by 3.5% in 2022 – slightly better than the 3% forecast in April. However, they expect 1% growth in 2023 – well below the previous estimate of 3.4%% ,”it says.

Experts believe that in the development of the situation, it is difficult for India to be alone.

However, India has maintained its export growth rate so far and healthy growth in services exports will also help the country’s overall outbound traffic in 2023, they added.

Exports of services in 2021-22 are also at an all-time high of $254 billion and could reach $300 billion this financial year, according to industry experts. Exports in July, August and September this year increased by 2.14%, 1.62% and 4.82% respectively.

It contracted by 12.12% in October, and the growth rate was flat in November. Exports rose 11% to $295.26 billion in the April-November 2022 period, compared with $265.77 billion a year earlier.

Imports, however, rose 29.5 percent to $493.61 billion during the eight-month period of the fiscal year. $381.17 billion for the April-November 2021 period, according to the Commerce Department.

According to the ministry, the decline in merchandise exports was due to a slowdown in some advanced economies due to COVID and the Russia-Ukraine conflict, as well as the ensuing slowdown in demand and certain measures to curb domestic inflation.

The bigger problem facing India is the widening trade deficit (the difference between imports and exports), which affects the value of the rupee and the current account deficit.

The goods trade deficit jumped to a record high of $30 billion in July. India’s currency began to lose value as the deficit ballooned and the Federal Reserve repeatedly raised interest rates, hitting an all-time low of 83 per dollar in October.

Rupee is currently hovering above 82.

Rumki Majumdar, an economist at Deloitte India, said India’s exports are likely to slow given global trade dynamics, although a depreciation in the rupee against the dollar could partially cushion the impact.

“More than 85% of trade is done in US dollars, so a devaluation of the Indian rupee will help. Several government initiatives have played a significant role in boosting exports…However, last mile connectivity and logistics challenges must be addressed, to increase efficiency, reduce delays, and reduce trade-related costs,” Majumdar said.

Nischal S Arora, managing partner at Nangia Andersen LLP, said that while global trade may not grow rapidly, “we are bullish” on India’s exports in 2023, given India’s growing share of global trade.

“In the short term, yes, currency depreciation does help boost exports of services and some goods that do not depend on imports of high-cost raw materials. However, as India shifts from a services-driven export economy to exports of goods, the depreciation of the rupee has a negative impact on exports. The volume impact will be relatively weakened for a period of time,” Arora said.

A slowdown in global trade to 1% in 2023 could also adversely affect Indian exports, said Ajay Sahai, director-general of the Federation of Indian Export Organizations (FIEO).

“However, we realize that our share of global trade is still less than 2%, so the global trade map should not have more influence on us. Also, certain positive developments will also help India in 2023,” said Ajay · Sahai (Ajay Sahai) added.

Effective use of the recently finalized free trade agreements with the UAE and Australia will help export growth in the coming months, he said. New agreements with the UK and Canada are also expected in the first half of 2023 to further boost exports, he added.

On the depreciation of the rupee, Ajay Sahai said that in the past 52 weeks to December 14, the local unit depreciated by 8%, but the Chinese yuan depreciated by 8.3%, the Japanese yen by 15.7%, the Pakistani rupee by 20.9%, the Argentine paso (40.9%) ).

“In a way, this is good for the Indian economy, especially because we import about 50 percent more than we export. Small currency fluctuations are good for exporters, but huge volatility is risky and will Increased hedging costs,” he said adding.

Despite signs of recession in all major economies in Europe, the US and Japan, India’s exports are still likely to grow by 8-10% in 2023, said Sharda Kumar Saraf, chairman of Mumbai-based exporter and Technocraft Industries.

“This will be spurred by the various free trade agreements the government has signed with several strategic countries,” Sarraf said.

The government has taken measures to boost exports and reduce the overall trade deficit, including extending the existing foreign trade policy until March 31, 2023; extending the interest subsidy scheme for rupee export credits before and after shipment until March 31, 2024; The Export Duty and Tax Relief (RoDTEP) program was launched in January.

The introduction of production-linked incentive schemes, the announcement of logistics policies and PM Gati Shakti’s comprehensive infrastructure development initiative will also help boost exports

(Aside from the title, this story is unedited by NDTV staff and published via a syndicated feed.)

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