IMPACT OF THE PANDEMIC ON INDIA’S INTERNATIONAL TRADE
Author: Uday Arora, M.A. Economics (with specialization in Trade & Finance)
ABSTRACT The COVID-19 pandemic is inflicting high and rising human costs worldwide, and the necessary protection measures are severely impacting economic activity. As a result of the pandemic, India announced its first nationwide lockdown in March, which led to the economic slowdown. Consequently, India’s international trade took a huge hit as well. The objective of this report is to analyze and compare the trends of India’s imports and exports in the wake of the current pandemic, to determine the causes of disparities between them as well as to suggest the way forward.
The world is witnessing the carnage of the novel coronavirus (COVID-19) pandemic. There has been a significant loss of human lives and the global economy has also felt the impact severely. Global markets are in free fall with supply-chain disruption and manufacturing falling to the lowest levels in decades. Reduced international trade, falling PMIs across the globe and deep cuts in GDP forecasts for the year indicate that we have entered the anticipated recessionary period. With indices fluctuating wildly and crude oil futures hitting negative prices on the dollar, this is uncharted territory for traders and policymakers alike. The COVID-19 pandemic is inflicting high and rising human costs worldwide, and the necessary protection measures are severely impacting economic activity. As a result of the pandemic, India announced its first nation-wide lockdown in March, which led to the economic slowdown.
Consequently, India’s international trade took a huge hit as well. This is shown as follows: -
• Between April and July, the goods imports have fallen by 46.7% to $88.9 billion.
• In comparison, goods exports during the same period have fallen at a much slower pace of 30.3% to $74.9 billion.
TRADE TREND: EXPORTS
In June 2020, India’s exports trailed their June 2019 numbers by 12%. In July 2020, the gap to July 2019 was 10%. On the face of it, these are not bad numbers for a segment that tumbled 60% in April and is trying to claw back lost ground.
But one caveat is called for: -
➢ India’s exports have had a difficult time in recent years. In 2019-20, the year against which current performance is being benchmarked, India’s exports fell 5%, shows data from India’s central bank.
➢ India’s exports to China, Singapore, Malaysia, and Vietnam went up in June as these countries have managed to flatten the covid-19 curve.
➢ Exports to the US and Brazil, however, declined, as they continue to see a rise in infections. In July, there’s been positive growth in exports to north-east Asia (including China and South Korea) and ASEAN countries (including Malaysia, Singapore and Vietnam). By comparison, exports to North America, European Union and West Asia have shrunk.
TRADE TREND: IMPORTS
In June 2020, imported commodities such as gold, coal and petroleum products faced more than 50 percent decline as compared to June 2019. On the other hand, electronic goods were least affected.
• Why have imports crashed by 46.7%?
A major reason for the overall decline in imports is the drop in oil and oil products imports, which have plunged by a whopping 55.9% to $19.6 billion. The lack of mobility due to the spread of the coronavirus pandemic has led to the consumption of petroleum products coming down by 22.50% between April and July.
• What else is behind the crash in imports?
Due to the spread of covid-19, incomes have been substantially hit, causing consumption to fall. And this general lack of demand has shown up in imports crashing. The non-oil, non-gold, non-silver imports, —an excellent indicator of consumer demand—have fallen by 38.6% to. $66 billion. Along similar lines, a demand crash in other countries dealing with COVID, has led to a decline in demand for goods from India. This has led the exports to crash by 30.3% to $74.9 billion.
EXPORTS V/S IMPORTS
A deceleration in goods imports at a time exports are rising faster suggests that domestic demand in the country is recovering much more slowly compared to other countries. A comparison of the resulting import and export levels due to the pandemic is shown as follows: -
• Why have imports fallen at a faster pace than exports?
India’s exports have declined at a slower pace simply because some of India’s trading partners faced the COVID pandemic earlier than India did, and their economies are gradually getting back on track. As the rating agency CRISIL pointed out in a recent research note, there has been a “rise in exports to economies which have been able to control the pandemic”.
CONCLUSION & WAY FORWARD
India is again pitching to become an alternative investment destination for big global businesses in the hope that the COVID-19 pandemic would prompt them to hedge their China-dependent supply chains. But investment moves are a longer-term play. Meanwhile, Indian exporters shouldn’t be caught on the back foot as bigger stimulus packages, announced by other countries, kick in to revive demand and give a minor fillip to international trade.
India has swung to extremes during the pandemic. Data from the Organisation for Economic Co-operation and Development (OECD) shows that India suffered the second-largest monthly drop in exports in April, the worst month of the pandemic. Subsequently, it was ranked third in monthly increase in May and seventh in June. In other words, India’s exports are recovering, but they are doing so on a low base, and fundamental issues on how to become more competitive globally remain. Becoming more competitive is a long-term task. In the near term, the objective would be to at least revert to the old normal, and the recent trade data suggests reasons for hope.
As CRISIL points out: “Export prospects for this fiscal will pivot on the trajectory of the pandemic across countries. It will rise for countries that have controlled their caseload and restarted activity. China is a case in point. China entered and controlled the pandemic much earlier than other economies. Its cases peaked in February, post which activities resumed.” This is precisely how things will play out with other nations when it comes to exports.
------------------------------------------------------------------------------------------------------------------------ About the Author Uday Arora is currently pursuing M.A. Economics (with Specialisation in Trade & Finance) from IIFT (2019-2021). He graduated from Hindu College in 2019.
He is an aspiring Economist with keen interest in Consultancy, Research, Policy, Finance, Actuarial Science & Data Science. Being the sole writer at "the_vivid_stories" on Instagram, he believes in inspiring people through one story at a time. He likes to write, sing, read novels and play cricket.
"Only if we could all be a bit more sensitive towards each other, the world would be a much better place", he quotes.