Jayantilal Bhandari
To reduce the increasing trade deficit, on the one hand, we have to reduce imports and on the other hand we will have to emphasize on increasing exports equally. There is no doubt that by moving strategically, we can change the scenario of increasing imports from China and increasing trade deficit.
The latest figures of the Ministry of Commerce and Industry are showing that during the financial year 2021-22, the country’s trade deficit widened to one hundred and ninety nine billion dollars. Here, the increase in global crude oil prices due to the Russo-Ukraine war also made petroleum imports very expensive. The cost of importing crude oil has almost doubled compared to a year ago. Significantly, India imports eighty-five percent of its total crude oil requirement.
In such a situation, if its prices increase, then the trade deficit will increase. In the financial year 2021-22, the share of petroleum imports in the total import value of the country was twenty-six percent. In addition to petroleum products, imports of electronic goods and gold increased by one-third, leading to a widening of the trade deficit. India’s product imports grew by 54.71 per cent in the financial year 2021-22 as compared to $394.44 billion in the previous financial year 2020-21. As a result, the product trade deficit has crossed the $100 billion mark for the first time.
It is also important that in the financial year 2021-22, apart from rising crude oil prices, a major reason for the widening of the trade deficit was also the increase in imports from China. At present, the increasing foreign trade deficit is also more worrying because for the last six-seven years, the exercise to reduce the trade deficit is going on. Efforts are on to promote the use of local products through self-reliant India campaign and production and sale at the local level. In recent years, to challenge China’s economic challenge, the government has made various efforts such as banning various Chinese apps including Tik-Tok, controlling the import of Chinese goods, increasing tariffs on many Chinese products and the trend of using local products in government departments. are happening.
In the year 2019 and 2020, due to tension with China, there was a strong boycott of Chinese products across the country. Due to this, imports from China started declining in India and the trade deficit seemed to be narrowing. But the widening of the foreign trade deficit in the year 2021-22 is a question to consider.
It is challenging to widen the trade deficit at a time when India’s product exports crossed the $400 billion target to a historic level of $418 billion in 2021-22. It is to be known that in the financial year 2020-21, India’s exports were two hundred and ninety nine billion dollars.
India’s previous best performance in terms of exports was $330 billion in 2018-19. Rising exports indicate that the demand for Indian products is increasing across the world. If we analyze the new data on product exports, we find that exports of goods like petroleum products, electronic products, engineering products, leather, coffee, plastics, ready-made clothing, meat and milk products, seafood and tobacco has played an important role in the growth. Also exports of engineering goods, parts, machines, apparel and textiles etc. indicate that the perception that India is a major exporter of primary commodities is slowly changing. Now India is also exporting more and more value added and high quality products on a large scale.
There are many reasons for the boom in exports from India. Keeping the manufacturing sector out of restrictions amid the second wave of corona infection in the country did not stop production. Apart from this, corporate tax was reduced to give impetus to industries. Production Linked Incentive (PLI) schemes in many key sectors for the first time promoted production rather than raw materials. The definition of MSME has been reformed so that many medium sized units also get benefitted from it. These steps helped in increasing the size of the domestic industry and led to an increase in foreign trade and exports. Improvements in infrastructure have helped India to connect to the global value chain and exporters started reaching remote parts of the country in search of cheap labour.
It is noteworthy that in 2021-22, the expectations were strengthened by the maximum export of agricultural products and spices. According to the Arab-Brazilian Chamber of Commerce report, for the first time, India became the largest agricultural exporting country in the league of twenty-two Arab nations, surpassing Brazil and other countries. The World Trade Organization’s Global Agri-Trade Report-2021 states that India ranked ninth in agricultural exports in the world. The share of agriculture in total exports exceeded 11 per cent.
To reduce the increasing trade deficit, on the one hand, we have to reduce imports and on the other hand we will have to emphasize on increasing exports equally. There is no doubt that by moving strategically, we can change the scenario of increasing imports from China and increasing trade deficit. Many industries in the country are still based on imported goods from China, such as the pharmaceutical industry, mobile industry, medical device industry, vehicle industry and electrical goods manufacturing. Although in the last one-and-a-half year, the government has allocated about two lakh crore rupees to thirteen industries under the PLI scheme to create an alternative to China’s raw materials. Many of the country’s producers have also been successful in making substitutes for raw materials from China. Now with additional efforts in these areas, imports from China and other countries can be reduced.
It is noteworthy that with proper implementation of the provisions of the new concept related to Special Economic Zones (SEZs) in the budget of the year 2022-23, quality manufacturing will be done at low cost for both domestic and international markets by making full use of the resources available in the SEZs, but Along with manufacturing such products, strategic efforts will have to be made to reduce imports from many countries including China.
At this time when the country is celebrating the Amrit Mahotsav in the seventy-five year of independence, there is a need to once again give priority to local products and intensify the campaign started to control the import of Chinese goods. Apart from this, possibilities of increasing exports to BIMSTEC countries will have to be explored. The government will also have to address several issues affecting exports such as non-tariff barriers of other countries, currency fluctuations, difficulty in dealing with customs officials and service tax. There will have to be some control on comparatively less useful imports, while new possibilities of exports will have to be explored.
Undoubtedly, at this time when the scenario of global recession is emerging in the world due to Russia-Ukraine war, then reducing India’s foreign trade deficit is not an easy task. India’s rapidly growing exports will also be affected as well as fears of widening trade deficit will increase in view of the World Trade Organization reducing the global trade growth forecast for the year 2022-23 from 4.7 percent to three percent. In such a situation, the government will have to take measures to increase exports strategically and make a strategy for import control. Only then will we be able to achieve the target of reduction in trade deficit.