World trade is slowing, drastically. This, by itself, does not warrant export pessimism in India. Concerted effort by industry and the government can still accelerate India’s exports from their current emaciated pace, by raising our share of the global export market. In April, WTO thought 2019 would end with global merchandise movement growing 2.6%; on October 1, this number has been slashed to 1.2%. In that time, of course, tensions between the US and China, the world’s largest economies, have got worse: what began as posturing from Washington DC, is now a full-blown trade war. America’s trade deficit remains high and the latest numbers show employment slacking off and manufacturing shrinking.
The US has restricted oil supplies from Iran, imposing sanctions on any entity that transacts business with Iran. In tandem with Opec’s production cuts to keep oil prices from crashing and assorted tensions in the Middle East, including the attack on Saudi Arabia’s oil infrastructure blamed on Iran, oil prices are volatile.
Central bank efforts in the US, the EU and Japan to counter the slowdown in their economies have further lowered interest rates in these economies and pushed capital out in search of higher returns, making cross-border capital flows an evergrowing factor in determining the value of developing country currencies. The rupee is stronger in real terms than what would help Indian exports get a price advantage.
Boosting exports in a world of slowing world demand, volatile energy prices and upward pressure on the rupee from capital inflows calls for dexterous macroeconomic management and strengthening of Indian industry’s competitiveness, damaged by rising protection, among other things. This is where policy gets tested.
This piece appeared as an editorial opinion in the print edition of The Economic Times.
via The challenge of slowing world trade