Mega Trade Agreements Likely To Boost India's Exports Of Labour Intensive Goods

Amid the ongoing geopolitical crisis across the globe, finalisation of mega free trade agreements (FTAs) may boost India's exports of labour-intensive goods and contribute to the country's economic growth, the World Trade Center (WTC), Mumbai has said.

The increasing oil prices may pose a risk to India's current account position, which was manageable in the last financial year. However, the expectation of finalizing Free Trade Agreements (FTAs) with economies such as Oman and the UK may present new export opportunities to Indian exporters. The current financial year may prove to be challenging yet filled with opportunities for India's international trade," said Vijay Kalantri, Chairman, MVIRDC World Trade Center Mumbai.

India's merchandise exports surged by 1.07 per cent to nearly USD 35 billion in April, despite global market uncertainties stemming from economic slowdowns and geopolitical tensions, as per data from the Union Commerce Ministry released on Wednesday. However, imports saw a significant increase of 10.25 per cent during the same period, reaching USD 54.1 billion, primarily due to heightened gold purchases.

Kalantri said, “Following a year-on-year decline in the previous financial year, India's merchandise exports have begun the current financial year on a positive note, showing a year-on-year growth rate of 1.08 per cent for April 2024. Additionally, service exports have sustained their momentum from the previous year, demonstrating a robust growth of 14.7 per cent, rising from USD 25.78 billion in April 2023 to USD 29.57 billion in April 2024.”

Merchandise export growth in April 2024 was driven by petroleum products, organic and inorganic chemicals and pharmaceutical goods. Among goods exports, 13 out of 30 principal commodities have recorded positive year-on-year growth, while exports of 17 commodities have declined year-on-year. Although India's overall goods export may have seen a marginal increase, the combined exports of 23 commodities, including agro-related and labour-intensive principal commodities, have declined by 3.6 per cent, dropping from USD 10 billion to USD 9.6 billion.

However, the merchandise trade deficit has surged significantly by 32.3 per cent year-on-year, escalating from USD 14.4 billion to USD 19.1 billion, primarily due to a sharp increase in oil imports. This upsurge in oil imports is attributed to the heightened international prices of the Indian basket oil, which, according to the Petroleum Planning and Analysis Cell, has increased by 7 per cent year-on-year for April. We anticipate the trade deficit to further expand in May, given the expected sharp increase in oil prices for the Indian oil basket.

Kalantri mentioned, “Going forward, we suggest the government to support Indian exporters in this challenging geopolitical situation by extending the Interest Equalisation scheme (IES) for the full financial year.”

Gold morts notably tripled in April, soaring to USD 3.11 billion from USD 1.01 billion in the same period last year. March 2024 witnessed gold imports at USD 1.53 billion. Commerce Secretary Sunil Barthwal expressed optimism, viewing the rise in merchandise exports as a promising start to the 2024-25 financial year.

Key performing sectors in exports included electronics, pharmaceuticals, chemicals and petroleum products. The Ministry revised its total export estimate for 2023-24 to USD 778.2 billion from USD 776.7 billion, projecting a 0.42 per cent increase over the record USD 776.4 billion exports in 2022-23, anticipating robust growth in services exports.

Federation of Indian Export Organisations (FIEO) President Ashwani Kumar welcomed the over 1 per cent growth in the new financial year amidst challenging circumstances, highlighting the resilience of the export sector. Kumar also pointed out that ongoing global conflicts such as the Russia-Ukraine war and geopolitical tensions like the Red Sea crisis and the Israel-Hamas conflict have added to the complexity of international trade for Indian exporters.

Furthermore, Kumar suggested that the tariff dispute between the US and China might present opportunities for India's export sector.

Icra's chief economist Aditi Nayar attributed nearly half of the widening trade deficit between April 2023 and April 2024 to the surge in gold imports, driven by rising global prices. Nayar indicated that based on current trends, the current account deficit for FY2025 is expected to remain modest at around 1.2 per cent of gross domestic product (GDP).

India’s exports increase significantly despite geopolitical headwinds. The total exports of merchandise and services in FY 2024-25 begin with a strong growth of 6.8 per cent. The April 2024 exports at USD 64.5 billion are higher than USD 60.4 billion in April 2023, said Sanjeev Agrawal, President, PHD Chamber of Commerce and Industry (PHDCCI)

Agrawal added, “We look forward to a great export growth trajectory in the current financial year. Further, recently India signed a monumental long-term contract for the development of Shahid Beheshti Port Terminal, Chabahar. This port is expected to boost regional connectivity between India, Iran, Afghanistan and Central Asia thereby reducing the cost of trade and enhancing exports to Central Asian countries. This port is also anticipated to act as a gateway to boost trade with European countries,” said Agrawal.