A strong trade policy is needed to boost exports

- Global economic outlook better than previously estimated but risk of contraction

Indian exporters have to become more receptive to global developments. This is significant as the Indian exporters' boom recorded in 2021-22 is now slowing down, Union Finance Minister Nirmala Sitharaman said. A boost in global demand helped exporters a lot as the global economy grappled with the upheaval caused by the pandemic.

Currently, the global economy is slowing even as global supply chains are returning to normal. This is happening in part because major central banks are adopting a monetary tightening stance to curb inflation. While it is now believed that the performance of the global economy will be better than earlier estimates. There is still a risk of significant contraction.

According to the latest forecast of the International Monetary Fund, the global economy can achieve a growth of 2.9 percent in 2023. This figure is 20 basis points higher than the previous estimate. It is believed that the growth rate of the world economy will be 3.4 percent in 2022. Global trade growth in 2023 will be only 2.4 percent compared to 5.4 percent in 2022. Decline in world economic and trade growth is also reflected in India's trade figures.

India's merchandise exports fell 6.5 percent year-on-year in January, compared with a 4.5 percent month-on-month decline, the latest data showed. Exports have increased by 8.5 percent in the period from April to January. Keep in mind that in 2021-22 it saw a 40 percent increase. Due to which the export of commercial goods reached 422 billion dollars.

So far in the current year, India has exported goods worth 369.25 billion dollars. In the current scenario, total exports are not expected to be much different from last year. Notably, imports have also declined. This is partly due to low commodity prices. This is the reason why the trade deficit has also come down to its lowest level in a year.

The current account deficit widened to 4.4 percent of GDP in the second quarter of the current financial year, raising concerns. However, it is also expected to decrease. Analysts believe that it could remain below 3 percent of GDP for the full fiscal year. It is also worth noting that India's services exports have continued to strengthen and are believed to have grown by over 30 percent so far this year. However, a cautious approach and hiring of fewer people by large IT companies suggests that pressure may be building on this front as well.

Although the Reserve Bank of India has expressed confidence in bridging the current account deficit, foreign portfolio investors turning to net sellers could once again put pressure on the external account. This will have to be monitored.

At the policy level, when global trade is expected to rebound in 2024, India needs a strong trade policy to boost exports. The Union Budget took a good step by not increasing tariffs further but at the same time it was expected to reduce tariffs to help Indian businesses integrate with the global value chain. To harness the potential on the trade front, it is essential that policies are also adapted to changing global realities. Only by doing this will we be able to sustainably achieve higher growth and better exports.