New trade body to step up exports welcome

India will face external headwinds amid its efforts to push up exports in the current fiscal as the geopolitical scenario continues to remain grim. The Ukraine war is continuing without any pause, while the oil cartel, OPEC Plus, has cut output to push up crude prices. Recessionary trends continue in major western markets, even as worries over a global banking crisis have not gone away after the takeover of the Swiss flagship bank, Credit Suisse. The US Federal Reserve is continuing with its aggressive rate hikes in a bid to contain inflation and central banks of other countries will follow its lead.

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It is in this backdrop that the World Trade Organisation expects trade flows to be subdued in 2023. Its latest projections are that the volume of merchandise trade will grow by 1.7 per cent this year, following the 2.7 per cent growth in 2022. The reasons given for the sub-par growth this year are basically external factors as outlined above along with the stubbornly high inflation. The trade volume increase for last year was weaker than earlier projected owing to elevated global commodity prices, tightening of the monetary policy and Covid outbreaks that disrupted production in China.

According to the WTO, the forecast for 2023 is based largely on the same factors that impacted trade and output in the previous year. These include rising geopolitical tensions and weaknesses in banking systems due to interest rate hikes that could lead to wider financial instability if left unchecked.

The impact of these factors on India’s merchandise exports has been to keep growth contained to 7.5 per cent for the period for which data is available, from April 2022 to February 2023. Exports over these 11 months have touched $405.94 billion compared to $377.43 billion over the same period in the previous fiscal.

Yet, the increase has been largely in petroleum products along with gems and jewellery as the other sectors have been stagnant. What is more worrying is that February recorded a dip of 8.8 per cent in growth following a marginal rise of 1.5 per cent in January and a fall of three per cent in December. As many as 16 of the country’s top export products showed a decline, including engineering goods which have been rising at a rapid rate in recent years.

The slowdown in exports this year has dampened last year’s euphoria when exports crossed the $400-billion mark for the first time. It was then felt that India’s exports had reached a pivotal moment and trade flows were finally set to take off in a big way.

One of the biggest contributing factors to the spurt in growth in fiscal 2022 was the pent-up global demand following the pandemic. It could thus be compared favourably to the pre-pandemic year, 2019-20, when $313-billion exports had been recorded. It was also heartening that manufactured products like engineering goods, including electronics, occupied a major share of the export basket and rose by as much as 50 per cent.

However, the bubble burst with the onset of the Ukraine war in February-end last year. The momentum continued for the first half of the financial year but the slowdown in global demand as a result of abnormally high inflation rates and tight monetary policies led to a 16.7 per cent fall in exports in October. Dips in growth occurred in the following months, indicating that export growth has reached a plateau.

It is probably in the light of the challenging external environment that policymakers are now thinking of setting up a specialised trade promotion organisation. It is reported that the new trade body would be on the lines of such institutions in Japan and Korea. The Japan External Trade Organisation (JETRO) and the Korea Trade Promotion-Investment Agency (KOTRA) are known for their efficiency and productive capabilities in guiding export efforts in their countries.

A similar body is now proposed in place of the existing individual export promotion councils and would mean the winding up of the longstanding India Trade Promotion Organisation (ITPO).

While the concept must be welcomed, it can only be hoped that the new trade body will become as effective as JETRO or KOTRA. The Japanese agency has a large presence in many countries and supports both exporters and investors. The Korean organisation focuses on small and medium enterprises (SMEs) and helps foreign buyers connect with them for contracts.

The problem with setting up new public sector agencies here is that these tend to get embroiled in red tape, thereby reducing efficiency and effectiveness. This could be avoided by having a meaningful partnership with the private sector while setting it up. The new trade body could also emulate KOTRA by keeping the SMEs in its sight and helping them to enter export markets as larger companies do not need such assistance. It will also be helpful to have a network of branches abroad if it is to emulate the Japanese agency’s system of gathering business intelligence from other countries.

The creation of such a contemporary trade promotion body is in line with plans to reach a target of exports worth $2 trillion by 2030. The existing agencies, like the ITPO, have so far been involved largely in arranging trade fairs around the world and in India. A trade promotion body needs to do much more, especially to help millions of small and medium exporting enterprises. This is essential as the share of micro, small and medium enterprises (MSMEs) in the country’s total exports stands at an overwhelming 42.67 per cent.

A new trade body assumes greater significance in the light of the challenges that the country’s export efforts will face now. If India truly wants to play a significant role in the global trade arena, it must set up a productive infrastructure to support exports. At the same time, the cooling of demand in key markets and continuing geopolitical tensions are likely to put the brakes on the goal of expanding the current 2 per cent share of world trade to 3 per cent over the next four years.