NEW DELHI – India’s government said that the nation’s trade deficitwidened last month amid an increase in imports and the mounting fiscal andstructural challenges facing the country’s exporters, while internationaltrade tensions appear to have come at the detriment, rather than benefit,of the Indian economy.
Kristian Rouz — The Indian economy is facing mounting challenges, posing apolitical risk for Prime Minister Narendra Modi ahead of a nationalelection, as imports rise, exports remain low, and higher tax costs putadditional pressure on smaller private-sector companies.
Modi finds himself under pressure for not having done enough to increasethe nation’s role in international trade over the past five years.
According to a report from the Commerce Ministry, India’s trade deficitrose to $14.73 bln last month, up from $13.08 in December. The nation’simports increased due to a rise in gold imports, while exports posted amodest expansion, contributing to the widening trade gap.
For their part, India’s small exporters — which contribute roughly 35percent to the nation’s overall exports — are facing rising fiscal risksafter the disorderly launch of the national sales tax back in 2017. India’sexports in textiles, engineering products, and agricultural goods wereimpacted by the lack of bank financing of private-sector exporters, as wellas protraction of refunds in the goods and services tax.
“Exports by small companies could have done much better if supported byflow of bank credit”, Ajay Sahai of the Federation of Indian ExportOrganisations said.
The Commerce Ministry said that in January goods exports rose 3.74 percentto $26.36 bln, while imports increased 0.01 percent to $41.09 bln. Goldimports alone jumped a massive 38.16 percent to $2.31 bln.
A separate report from the Reserve Bank of India’s Centre for AdvancedFinancial Research and Learning (CAFRAL) in Mumbai also found thegovernment’s statistic could be insufficiently representative of the stateof affairs in the Indian economy. Experts believe the real macrofundamentals could be worse than they appear in governmental statistics.
“We have an unhappy situation where markets, agencies, and foreigninvestors are all making their own assumptions”, CAFRAL’s Amartya Lahirisaid.
Economists say India’s foreign trade could have been impacted by theongoing tensions in international trade. The nation’s trade deficit in thefirst 10 months of the 2018-2019 fiscal year increased to $156 bln comparedto $136 bln over the same period of the previous year.
“Global trade growth is slowing down and global economies including Chinaand South East Asian nations are also facing contraction in manufacturing,worsening the fragile global situation”, Ganesh Kumar Gupta of the IndianExport Organisations said.
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Indian exports could face additional pressure in the 2019 calendar year,and experts believe the nation’s trade deficit could increase further.
India’s exporters also said that the nation has not benefited from thedisruptions in the US-Chinese trade, while countries like Bangladesh andVietnam have increased their own exports to the US market amid the elevatedfriction. India has largely failed to take over China’s share of exports tothe largest international markets, and PM Modi is facing rising criticismfor the inefficient trade policies.
This as India’s exports to the US rose 10.5 percent between last April andDecember, compared to 11.8-percent growth over the same period of 2017.However, imports from the US increased a whopping 35 percent last year,hardly contributing to the profitability of Indian trade.
Officials in New Delhi said they are in the middle of talks with US traderepresentatives to increase bilateral cooperation in aerospace and defence,as well as biopharmaceuticals and energy sectors. This as India has facedcriticism from US President Donald Trump, who said that the nation’stariffs are too high, while some local taxes prevent the expansion of UScompanies into the Indian market.
However, Indian experts say that deeper cooperation with the US might notnecessarily benefit the Indian economy due to its slowing exports andrising imports from the US. However, stronger US ties could help bringforeign investment to India, albeit possibly at the cost of a deeper tradedeficit.
The “country… needs foreign capital inflows to the tune of nearly $100billion every year”, CAFRAL’s Lahiri said.
For its part, the International Monetary Fund (IMF) said India’s GDP couldgrow 7.5-7.7 percent in 2020-21, making it the fastest-growing economy inthe world.
This outlook, however, happens to be at odds with the Indian government’snominal GDP growth projection of 11 percent — yet again raising a questionof how accurate India’s official data is. – Sputnik
