With the adverse effects of the global epidemic and subsequent lockdown affecting all walks of activities ,trade is also not left out. With the abrupt stoppage of shipping, manufacturing , exports etc. , the regular flow of industrial activities has been completely has received a major blow, all in the backdrop of a global financial crisis. With the industrial sector struggling to get back on the track of normalcy , will the government come to save the day?
An inevitable “trade-block”
As part of COVID-19 containment strategy, it was a unspeakably vital role of the government in bringing cessation to international as well as inter-state trade activities. As a result of which, millions of workers across different sectors of industrial production, transportation and tertiary sector ,and other allied services, would get affected. Global businesses brought to knees and the already debt-ridden economy of numerous small and medium-scale enterprise on the verge of bankruptcy. The Foreign Trade regime of the Indian economy has so far seen a rapid surge in prices of both essential as well as non-essential commodities. India’s international trade system also suffered badly in the wake of the global crisis. With crude oil prices going in literally cents per Barrell and, even being sold for free in USA , the global crash the demand-supply cycle is bound to be hampered. India ,however, has remained a major exporter to most economies worldwide, it’s trade network remains confined to little over 10 countries, which also account for 50% of the total exports. The fall in exports this season have not been a good sign for either of the two sides.
This trade deficit, being lowest of the 4 years, has acted majorly in further making India’s trade cycle more imbalanced. The imports too fell by more than 58% compared to last year, owing to the pandemic. Trading for far too long with few selective territories has posed a serious trade barrier for Indian industries. However, this prolonged bilateral exchange can prove beneficial as when the smaller economies prepare to reopen their markets, Indian exporters find a beneficial opening to restart their supply lines. However, keeping in view the prevailing lockdown situation throughout the nation , the manufacturing, processing and shipping sector may take reasonable time to get back on their feet and, with the coming months likely to pose as a worse climate with recessionary implications. WTO has predicted the world trade to go down by 13-32% in the FY2020.With economies crumbling due to drainage of national resources, which in turn would lead to waning of GDP, unemployment and deep gashes in the demand and supply chain, plus the already ongoing price war, India’s response to the reviving the trade balance needs to be swift and hard.
Exports in turmoil
The Indian export market, which was already facing a period of uncertainty, has received a major setback in the pandemic. The Indian exports have shrunk to an all-time low by 60.28% pegged at $10.36 billion in April. Compared to the exports of the month of March 2020, the fall has been of 26%.The Indian export basket , which comprise of three components- essential, non-essential and luxury goods, saw a drastic change from pre-covid months to today. The non-essential goods comprise the biggest slice (62.5%) of Indian exports, they, however do not influence the actual demand chain. The essential good (foodgrains, medical equipment etc.) infact , determine the future position of exports, considering the fall in oil prices. There has been 18% decline in the export of non-essential goods to USA, while the essential goods remained almost unchanged since January .What’s another worry for the Indian export sector is competition from the north, since the Chinese manufacturing and shipping industry have began operations catering to the orders made by USA, Things look pretty tense for the $50 billion worth Indian exports to USA.
Huge meltdowns have been recorded across various industries, owing to cancellation of orders and fall in global demand. The country hasn’t faced this low in trade deficit since May 2016. Not just non-essential, but essential goods segment too has undergone a sharp decline in terms of shipments. Precious Gems and jewellery plunged by 98.74 %, leather by (98.3%), followed by petroleum (66.2%) and chemicals (42%), barring iron ore, all major items in the export basket registered a negative growth.
Sharad Saraf, President of Federation of All India Export Organization (FIOE) stated “We may expect revival in exports from the third quarter of the fiscal, depending on the condition evolving in the international market.” He also pointed towards the worrisome “highest ever decline in monthly exports” ;with over 50% cancellation of orders, along with job losses, uncertain export figures and mounting outstanding loans, he stressed on the govt. to provide some sort of relief package and incentives to help export units tide over this chaos.
Intervention by State
The government is the statutory body tasked with resuscitation of the industrial sector admist this crisis.With the rs. 20 lakh crore COVID-19 economic relief package announced by the PM Narendra Modi, the primary sector can be hopeful to benefit from this respite. The finance minister Nirmala Sitharaman,on 15 May, introduced a stimulus package worth approx. rs. 1,00,000 cr. To facilitate agri-based export growth. The Foreign Trade Policy (FTP) for 2015-21 has further been extend , in view of the ongoing pandemic.All Export promotion schemes under the FTP policy would, thus be granted an extension of one year.The Transportation Assistance Scheme for various agri products too has been given an additional 12 month extension. Apart from that, the waiver of payment of IGST and Compensation cess on imports under EPCG authorizations, and duty free under various import authorizations for the specified period of time.In mid-april, The Department of Agriculture took initiative to from an All India Agri Transport Call Centre, to facilitate inter-state transportation of perishable and non-perishable food grains across inter-state borders. This initiative would help foster coordination between states and the people directly and indirectly attached to the primary sector.
The Directorate General of Foreign Trade (DGFT) has resolved to setup a online helpdesk to give heed to the growing import/export related issues that are coming up amid the financial crisis of 2020.The DG is also instrumental in protecting the local economy and providing a safeguard to the essential commodities basket from exports that might promote internal deprivation. On March 25, DGFT had already passed an order prohibiting the export of the drug Hydroxychloroquine , a potential COVID vaccine.The ban was complete on all formulations of the drug ,being exported from all the SEZs of the country.Owing to international pressure, however, the government lifted the export ban only recently, albeit the production units were directed to reserve a certain quota of production for the local market.
What’s more is that The Ministry of Commerce, under the government has come up with a fresh business-restructuring scheme named the “The Invest India Immunity Platform” .
This is an online platform, designed to help investors, entrepreneurs and businessmen keep track of market-related activities in response to the COVID-19 . An online help and redressal platform, Invest India has tied up with Small Industries Development Bank of India (SIDBI) to help resolve queries related to MSMEs and other cottage industrial units.This virtual platform was launched on March 21, with a view to enable accessibility and ease of procurement of information and resources related to COVID response wrt services such as location of testing centres, dispensaries and permissions. As stated by Mr. Deepak Bagla, MD & CEO, Invest India “This is a platform for all of us to get together in the face of this unprecedented challenge of COVID-19. The team is working towards finding clarifications and solutions in a rapidly evolving scenario, especially from the perspective of business continuity for the business community.” ]
- Press Trust of India , “Covid-19 aftermath: Exports plunge by record 60.28% in April in India, trade deficit lowest in 4 years”, (India Today , Online) , <https://www.indiatoday.in/business/story/covid-19-aftermath-indian-exports-plunge-record-60-28-per-cent-april-trade-deficit-lowest-4-years-1678562-2020-05-15>
- Asit Ranjan Mishra , “Covid-19 pulls down India’s exports by 34.6% in March; trade deficit narrows to $9.8 bn” ,(Livemint, Online) < https://www.livemint.com/news/india/india-s-trade-deficit-narrows-to-9-8-bn-in-march-exports-dip-34-6-11586955282193.html>
- Pranjal Dubey , “Analysing the Impact of COVID-19 on Indian Exports and Global Business – Part 2” ,(dripcapital.com , Online) <https://www.dripcapital.com/en-in/resources/blog/coronavirus-impact-indian-exports-global-trade-part2>
- Strategic Investment Research Unit, Measures taken by Government of India to aid Businesses during COVID-19 lockdown”, (Online) < https://www.investindia.gov.in/bip/resources/measures-taken-government-india-aid-businesses-during-covid-19-lockdown>
- Image Credits
-  (Online), accessible at – https://pib.gov.in/PressReleasePage.aspx?PRID=1609704
-  (Online) , accessible at – https://pib.gov.in/PressReleasePage.aspx?PRID=1607905
This blog is authored by- Akshit Gupta