Economic Survey: Global Risks, The Achilles' Heel For Exporters

Trump has threatened the BRICS (Brazil, Russia, India, China and South Asia) bloc with 100 per cent tariffs on their exports, if they look at any de-dollarisation exercise.

Taking this into account, the Survey, authored by Chief Economic Adviser V Anantha Nageswaran, said geopolitical tensions have reshaped global trade, leading to increased risks and policy uncertainty. 

The potential risk arising from the European Union’s restrictive trade policies in relation to avoidance of carbon leakage could hurt India’s exports, the government's report card said.

In December, India’s merchandise exports dropped by about 1 per cent to $38.01 billion against $38.39 billion a year ago.

However, the Survey noted that India's trade sector has remained reasonably stable overall, registering growth despite global economic headwinds.

In the April-December period of the current financial year, India's total exports, comprising both merchandise and services, grew year-on-year at 6 per cent, touching US$ 602.6 billion.

Total imports during this period touched US$ 682.2 billion, an increase of 6.9 per cent year-on-year.

While the Survey said the positive import growth showcases “a steady demand for goods in the Indian market, supporting domestic consumption and production needs”, it also noted that the increase of inward shipment compared to exports, has led to a rise in the overall trade deficit, from US$ 69.7 billion during April-December 2023 to US$ 79.5 billion in the corresponding period of this financial year.

Textile Sector

Underlining that India’s textile exports have shown resilience since the Covid period, the Survey highlighted that the country's exporters do not get a level playing field, and that they are constrained by complex procedures. This is aggravated by lack of localisation and the complexity of the value chain, which in turn results in higher costs relative to global competitors.

India's major textile markets comprise the US and the EU. Indian apparel exports do not get a level playing field compared to their competition, the Survey says. 

"In contrast, vertically integrated ‘fibre-to-fashion’ firms in competitor nations like China and Vietnam export low-cost products, maintain consistent quality and are nimble enough to adjust to the fast-changing nature of the industry," the official report card of the government read.

It further said that simple and liberal customs procedures can further reduce regulatory costs and lend a competitive edge to the exports of global textile competitors like China and Vietnam.

The worst impacted is the micro, small and medium enterprises (MSME) sector.

Meanwhile, the Survey added that despite unfavourable geopolitical conditions, exports of the services sector, which performed better than merchandise shipment, grew at 11.6 per cent in the first nine months of the current fiscal.

Trump And Tariff 

Trump, who has held a telephone conversation with Prime Minister Narendra Modi, has identified India, China and Brazil as “tremendous tariff makers”. The US President has made it clear that New Delhi not only needs to reduce tariffs on American imports, but also increase imports from Washington.

The US is India’s largest trading partner. India’s merchandise exports accounted for over 18 per cent in value. India's primary exports to the US include engineering goods, electronic goods, gems and jewellery, pharmaceutical products, light crude oil and petroleum, and electrical goods, among other items.

All Eyes On The Union Budget

The Union Budget could come up with measures to support the export sector. According to data portal Statista, the contribution of MSME-related exports as a share of total exports from India in FY25 is set to be 45.79 per cent — an increase over FY22, FY23 and FY24. But the share is still lower than the around 49 per cent figure during FY20 and FY21. 

The Budget needs to urgently remove roadblocks and increase competitiveness. Will Sitharaman, who will present her eighth Budget tomorrow, expand the Production Linked Incentive (PLI) Scheme to boost manufacturing and employment?