world-trade-fall-mustnt-stoke-export-pessimism

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.

More on the news 

  • 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.

Way Forward

India would need to undertake several structural and policy changes. 

  1. India’s annual exports currently form less than 2% of the world’s. 
    1. It should aim for 5%.
  2. It also needs to reverse  the tariff barriers that have been raised in recent years. 
    1. These are protectionist and tend to keep the producers secluded in a high-cost environment. 
    2. Exposure to foreign competitors would force them to turn efficient and perform better. Duties on inputs, especially, need to come down. 
    3. So do other taxes that hold companies back. 
  3. Other steps to raise productivity will help, too. 
    1. Good logistical backup is another big requirement. 
  4. 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). 
  5. The cost of capital in India needs to be low, too,and it depends on managing crucial government deficits.

Source: https://www.livemint.com/opinion/online-views/world-trade-fall-mustn-t-stoke-export-pessimism-11586455050199.html

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