India’s merchandise exports dropped 15.9% to a five-year low of $261 billion in FY16 while imports contracted 15.3% to $380 billion, which helped narrow the trade deficit to $118.5 billion
India’s merchandise exports dropped 15.9%to a five-year low of $261 billion in FY16 while imports contracted 15.3% to $380 billion, which helped narrow the trade deficit to $118.5 billion. Falling commodity prices and weak global demand have hit India’s shipments.
The decline in foreign trade is not an India-specific phenomenon as emerging and global markets have seen exports decline because of a sustained fall in commodity prices—the IMF’s commodity price index collapsed 35% in the last one year —leading to a decline in the value of merchandise trade. Slowdown in the US, Europe and China led to a slump in consumer demand which affected exports.
While the global slowdown is expected to continue for some time, India will have to increase its productivity and move up on the global value chain. Most fast growing economies over the last decade have seen a significant rise in the share of manufacturing exports. In India, resource-based and primary products form the bulk of exports. Moreover, countries that produce sophisticated goods report faster growth. It is not the amount of exports, but the sophistication of exports that matter as an IMF shows India lags in exports sophistication unlike other emerging nations, which have a competitive edge.