Context: The scale of the global economic crisis caused by the covid-19 pandemic that is widely expected to be in comparison with that of America’s Great Depression of the 1930s, or worse, has huge implications for World trade.
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- Commerce across the high seas has also suffered in an uncontrollable manner..
- As per the World Trade Organization (WTO) predictions, global trade could fall by 13-32% this year owing to disruptions and all the turmoil.
- It also noted that a trade revival may have to wait till 2022 or later.
Impact on India
- Indian exports have been in a slump for a large part of the past decade, and recent reports point to a rash of cancelled orders from abroad (except, notably, for drugs).
- The OECD estimates that India’s shutdown could potentially knock off about a fifth of gross domestic product (GDP) in its initial period, and the entire year’s growth would surely suffer too.
Should it entail Export Pessimism for India ?
- Global supply chains will surely suffer from this disruption.
- But it won’t stop nations from exchanging goods and services so long as it makes economic sense.
- Lower prices, and higher quality will push nations to engage in the world trade.
- Economies that trade as the historical record has shown, tend to grow faster.
- There is another good reason for export orientation.
- India needs foreign earnings, not just for oil imports and suchlike, but also for overall economic stability, given our reliance on foreign capital for growth.
- In tough times like the COVID-19 crisi, when India may need to borrow money from abroad to bridge a hugely enlarged fiscal deficit, streamlining future foreign earnings becomes even more crucial.
- As of now, the covid crisis is expected to take a heavy toll on India’s overall output.
- To enable the issuance of dollar bonds India needs to get its export right.
India would need to undertake several structural and policy changes.
- India’s annual exports currently form less than 2% of the world’s.
- It should aim for 5%.
- It also needs to reverse the tariff barriers that have been raised in recent years.
- These are protectionist and tend to keep the producers secluded in a high-cost environment.
- Exposure to foreign competitors would force them to turn efficient and perform better. Duties on inputs, especially, need to come down.
- So do other taxes that hold companies back.
- Other steps to raise productivity will help, too.
- Good logistical backup is another big requirement.
- The rupee’s slump is good for exporters, but it should be checked that currency’s value doesn’t get over-inflated by inflows of foreign “hot money" (when they return).
- The cost of capital in India needs to be low, too,and it depends on managing crucial government deficits.
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