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Surge in Engineering Goods export to Russia

Context:

As Russia-Ukraine war enters its third year, the export of Engineering goods to Russia has increased significantly.

Relevance:

GS III: Indian economy

Dimensions of the Article:

  1. Details
  2. Current Scenario of Indian Export
  3. Status of the Export Sector in India
  4. Challenges Related to the Export Sector in India

Details:

  • The outbound shipments of India in the ‘engineering goods’ category doubling in 2023 to cross a record $1-billion mark.
  • The export of Indian manufactured machines, auto parts, steel and aluminum products, internal combustion (IC) engines, pumps and other items to Russia are on the rise.
  • Owing to the continuing Russia-Ukraine war, which has entered its third year, there is a surge in Russian industries supplying goods to its military.
    • This has significantly increased the requirement of engineering goods in Russia.
  • As per the official data from the Ministry of Commerce and Industries, India’s total exports to Russia in 2023 surged 40 per cent to cross the $4-billion mark, largely driven by engineering goods which nearly doubled to $1.32 billion in 2023 from $680 million in 2022.
  • Fall in exports to Europe:
    • On the Contrary, there is a fall in India’s engineering goods export to Europe. It fell by 11%.
    • The surge in Indian exports to Russia is mainly attributed to near collapse of Moscow’s trade with the West and Ukraine.
    • Sanctions and counter-sanctions on Russia led to its closer trade ties with China and India.

Current Scenario of Indian Export

The current scenario of Indian exports indicates a series of decelerations in both goods and services exports:

Goods Export Performance:

  • Goods exports have been facing a downward trend in recent months, experiencing a significant 22% decline in June 2023, which marks the steepest fall in 37 months.
  • The total export value for June 2023 was USD 32.7 billion, the lowest since October 2022.

Services Export Performance:

  • Exported services have also witnessed a slowdown, with forex earnings from intangible exports growing by only 5.2% to USD 80 billion in the first quarter of 2023-24.
  • In contrast, the previous year 2022-23 saw substantial growth of around 28% in services export earnings, reaching USD 325 billion.

Factors Influencing Exports:

  • A sharp decline of 33.2% in petroleum exports during the first quarter was primarily caused by reduced global oil prices. Additionally, sanctions on Russian oil shipments with price caps have contributed to a moderation in demand.
  • The World Trade Organisation’s (WTO) forecast of slower global trade growth in 2023 is influencing India’s export outlook, necessitating a more cautious approach.
  • As per the new Foreign Trade Policy, India’s broader target for exports is to achieve USD 2 trillion by 2030, with services and goods exports each contributing a trillion dollars.

Status of the Export Sector in India:

  • Merchandise Trade Deficit: The merchandise trade deficit, representing the gap between exports and imports, increased significantly by over 39% in 2022-23, reaching USD 266.78 billion, compared to USD 191 billion in the previous year 2021-22.
  • Merchandise Imports and Exports: In 2022-23, merchandise imports rose by 16.51%, while merchandise exports saw a more moderate increase of 6.03%.
  • Overall Trade Deficit: Despite the substantial merchandise trade deficit, the overall trade deficit stood at USD 122 billion in 2022-23, benefiting from a trade surplus in services.

India’s Major Export Arenas:

  • Engineering Goods: The exports of engineering goods witnessed a remarkable growth of 50% in FY22, amounting to USD 101 billion.
  • Agriculture Products: Agricultural exports received a boost due to the government’s efforts to meet global food demand during the pandemic. India’s rice exports were particularly significant, reaching USD 9.65 billion, the highest among agricultural commodities.
  • Textile and Apparels: The textile and apparel sector, including handicrafts, experienced substantial growth, with exports amounting to USD 44.4 billion in FY22. This sector has been further supported by government initiatives like the Mega Integrated Textile Region and Apparel (MITRA) Park.
  • Pharmaceuticals and Drugs: India plays a major role in the pharmaceutical industry, being the third-largest producer of medicines by volume and the largest supplier of generic drugs. India’s pharmaceutical exports contribute significantly to fulfilling global demand, supplying over 50% of Africa’s generic drug requirements, around 40% of the US’s generic drug demand, and 25% of all medicines in the UK.

Challenges Related to the Export Sector in India:

  • Limited Access to Affordable Finance: Exporters in India often struggle to access affordable and timely finance. High interest rates, strict collateral requirements, and limited credit availability from financial institutions, especially for small and medium-sized enterprises (SMEs), hinder their ability to conduct international trade effectively.
  • Overdependence on Few Sectors: India’s export basket is heavily concentrated in a few sectors, such as engineering goods, textiles, and pharmaceuticals. This concentration makes the country’s export sector vulnerable to fluctuations in global demand and market risks. Diversification of exports is crucial to reduce reliance on specific industries and enhance overall resilience to changing global trade dynamics.
  • Protectionist Trade Policies: The global political order has been disrupted by events like the Russia-Ukraine War, leading to an increase in protectionist trade policies in various countries. The weaponization of supply chains and the rise of protectionism in international trade pose significant challenges for India’s export capacities, restricting access to certain markets and affecting trade flows.

-Source: The Hindu, The Indian Express


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