Finance Ministry says ‘urgent’ need to boost competitiveness, attractiveness of India’s exports amid global uncertainty

NEW DELHI : The Finance Ministry has said it is crucial that India’s exports are made more attractive amid continued uncertainty in global growth and trade conditions, with headwinds from geopolitical tensions, including supply-chain disruptions and higher logistics costs, posing downside risks to growth.

“Given persisting uncertainties for global output and trade growth, finding ways to enhance the competitiveness and attractiveness of India’s exports is both urgent and important,” the finance ministry’s Monthly Economic Review report for January, released on February 20, said.

The comments from the finance ministry’s economists comes amid attacks on commercial vessels by Houthi rebels of Yemen in the Red Sea, which have raised concerns about global maritime commerce.

Latest trade data released on February 15 showed India’s merchandise exports in January edged up by just 3.1 percent year-on-year to $36.92 billion, with a senior government official telling that growth in exports could have been higher if the Red Sea crisis hadn’t disrupted trade by forcing freight companies to take the longer route around Africa to reach the west or wait at nearby ports for safe passage through the Suez Canal.

“Downside risks to trade include a spike in new commodity prices from geopolitical shocks, including continued attacks in the Red Sea and supply disruptions or more persistent underlying inflation in the developed world, which could extend tight monetary conditions. This could impact the expected recovery in global demand, thereby affecting the prospects for India’s exports,” the finance ministry said in its report.

For April 2023-January 2024 as a whole, India’s merchandise exports are down 4.9 percent at $353.92 billion, while imports are lower by 6.7 percent at $561.12 billion.

Even while it flagged the need to work on India’s export strategy, the finance ministry maintained that the broader economic outlook “appears bright”.

“Prospects of healthy Rabi harvesting, sustained manufacturing profitability, and underlying service resilience are expected to support economic activity in FY25,” it said, adding that it sees household consumption improving. Further, with the private capital expenditure cycle on the up, business sentiment improving, the government continuing to focus on capex, and banks’ and companies boasting healthy balance sheets mean the prospects of fixed investment are bright.

“Many global agencies have revised India’s growth projections in FY24 upward from levels that were already higher than those of the major economies. Three successive years of high growth demonstrate the resilience of the Indian economy, built on the reforms of the past decade and reinforced by the testing experience of the pandemic,” it said.

Calling strong private consumption “the bedrock of high growth”, the report said the response from the supply side has been broad-based.

On prices, it said the government’s supply interventions had helped contain food inflation, which is expected to moderate further going ahead.

“With the stable downward movement in core inflation and moderation in food prices, the outlook for a reasonably low headline inflation rate is good,” it said.