India tested negative on trade balance

Business Economy India National Trade

The trade balance for service sectors stands at 49.50 percent, however, the oil and non-oil trade stands at minus 78.13 percent which increases the price of consumer goods.

Bengaluru: While the service trade balance showed a healthy increase after the pandemic, the merchandise trade has a deep fall said the Reserve Bank of India (RBI). Fall in merchandise, amidst a rise in the service sector makes living costlier.

The exports of merchandise goods showed a trade deficit of Rs. 1.69 lakh crores in September 2021. At half-yearly between April-September 2021, the merchandise exports resulted in a deficit of Rs. 5.85 lakh crores.

This may lead to a fall in India’s global trade, reduce import prices, and create a financial burden on trade which will induce inflation into the market. However, the service sector is performing with positive growth.

Merchandise trade includes exports of cashew, oilseeds, petroleum products, non-petroleum, and non-gem products, drugs, tobacco, iron ore, and imports of crude oil, etc. Service trade includes the imports and exports of legal, engineering, architectural services, etc.

Lali Thukral, Twenty Second Miles Private Limited, a garments industry owner said, “India exports raw materials on a large scale and it imports finished goods. This way we are also losing employment and profits. We should do value-added exports. We should sell our raw materials after proper processing as finished goods.” He added that there was a downfall during the pandemic but now they have come back.

The service exports of the country were Rs. 1.5 lakh crores and imports were Rs. 96,000 crores leaving a trade surplus of Rs. 61,000 crores in Sept. 2021. The exports were Rs.8.6 lakh crores and the imports were Rs.4.87 lakh crores which resulted in a trade surplus of Rs.3.7 lakh crores for April-September 2021.

Rajan Nair, President of the EXIM club and the owner of All time Shipping, a freight service company said, “All the commodity prices have globally increased due to the transport rates. They are almost six to seven times higher. When somebody writes this as invoice value, it shows the sale value has gone up. Of course, there is an overall export growth. But the major reason is the hike in prices.”

He said the growth in the service sector is due to the high demand and supply after the ease of the pandemic; however, this growth is temporary because of the global rise in the price of all commodities. He also added that the pharmaceutical industry has made ‘butter and cream’ out of the pandemic.

Santhosh Kumar, a Chartered Accountant in Bengaluru said, “Service sector is showing good growth on account of outsourcing advantage. We have a compensating factor like our medical import bill, increase in crude price, and other import dependence causing a huge burden on the trade deficit.”

The Union Minister of Commerce and Industry, Piyush Goyal said that the Government plans to scale $1 trillion exports in both Merchandise and Services. “We must position India as a global player by becoming competitive,” he added. However, the overall trade deficit of India stood at a negative growth of 14.43 percent despite an 8.16 percent positive growth in service trade.

Nair said that the impact of the trade deficit and the induced inflation will have an impact on the consumers. He said, “Today, the producers are paying a high price for petrol and diesel, so automatically the commodity price is going to increase. So, the country will be facing it.”

One of the major factors in the merchandise trade balance is due to the high imports of oil products. Oil imports in September 2021 had seen an increase of 199.27 percent from August 2021 and a 91.90 percent rise in value from September 2020.

Thukral said, “There are so many problems in exports. All the dealers were uncertain and cancelled orders. A few country’s clients went bankrupt and they cancelled the order.

Now we are getting a lot of orders from big companies after the pandemic. But the problem is that India does not have the infrastructure and technology,” he added

Veena, faculty at the International Institute of Import and Export Management said, “The industries are picking up after the pandemic. Of course, we have not come to the pre-Covid times yet and the shipping and containers prices have gone up by several times.

We have a bad trade deficit. Any country’s economy is judged by the foreign exchange reserves and it will help in boosting our own industries, economy and employment. It has a cascading effect,” she added.

The Services and Infrastructure Outlook Survey for Q2:2021-22 by RBI said, “Services sector enterprises reported a rebound in turnover as well as overall business situation during Q2:2021-22 after a sharp decline in Q1:2021-22.”

Also, the Survey of Professional Forecasters on Macroeconomic Indicators report gave hope for the merchandise trade and said, “Merchandise exports and imports are projected to grow by 30.0 percent and 36.1 percent, respectively, during 2021-22.”

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