SLOWING TRADE MOMENTUM - ECONOMY
News: Explained/
What is affecting trade momentum
What is in the news?
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Recently, Mired in a
slowing economy, inflationary setting and tighter monetary controls worldover,
India’s merchandise exports shrunk 12.7% on a year-on-year (YoY) basis to
$34.66 billion in April.
Reasons for the slowing trade momentum:
1. Russia - Ukraine war:
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Due to the war between
the two countries, the global supply
chain was affected as these two countries are the major exporters of fuel
and food products.
2. Tighter monetary control:
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Due to high inflation,
most of the countries followed tighter monetary control measures which reduced
the liquidity in the market and slowed down the trade momentum.
3. COVID 19:
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In the Covid 19 times,
most of the primary and secondary
activities were slowed down and it disrupted the global supply chain and
thus the trade momentum.
4. Collapse of financial institutions:
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Financial instability
because of the collapse of several financial institutions like the Silicon
Valley Bank, Signature Bank and First Republic Bank in advanced economies has
affected the trade activities.
5. China's slow down:
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China is considered the
global manufacturing powerhouse; The slowdown in manufacturing activities in
China has disrupted the global manufacturing supply chain and thus trade
activities.
Measures taken by India to protect its trade momentum
from global slow down:
1. Atma Nirbhar package:
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Special economic and
comprehensive package under AtmaNirbhar Bharat including measures taken by RBI amounting to about Rs. 27.1 lakh crore
which is more than 13 percent of India’s GDP– to combat the impact of the
COVID-19 pandemic and to revive economic growth.
2. Emergency Credit Line Guarantee Scheme:
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Under the Emergency
Credit Line Guarantee Scheme around 3 lakh crores has been sanctioned to
strengthen the MSME sector in the country.
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ECLGS scheme has been extended to 26 stressed sectors identified
by the Kamath Committee.
3. Production Linked Incentive scheme:
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Government has started
this scheme to improve the production capabilities of the industries in the
selected sector. So far 14 sectors were
identified by the government to increase the production capacity.
4. National Infrastructure Pipeline:
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National Infrastructure
Pipeline (NIP) is the Government of India’s roadmap to improve the
infrastructure facilities by 2024-25 by spending
100 lakh crores in infrastructure projects.
5. Increased capital expenditure:
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Government has increased the capital expenditure to 3.5% of the GDP
(10 lakh crore) to improve the capacity of the economy.
6. Free trade agreements:
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To correct the disrupted
supply chain, India has made Free trade agreements with UAE and Australia;
○ Due to this FTA India's
exports have grown over 12.5%.
WAY FORWARD:
1. Alternative supply chain:
India along with other important countries should create an alternate supply
chain to make sure that disruption in one supply chain doesn't affect the
overall supply chain.
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EG:
Alternating with the China dominant supply chain is a better way.
2. Companies friendly policies:
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Government should make
and sustain business friendly policies; This ease of doing business will
increase the efficiency of the production houses.
3. Incentives to global investors:
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Government should create
a business friendly investment environment to increase the foreign investment
into the country that will increase the production and trade momentum.
4. Widening the PLI scheme:
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More sectors can be
brought within the Production Linked Incentive scheme in order to give
incentives to increase the overall production activity.
5. Thrust to MSME sector:
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Government should give
more financial and technological assistance to the MSME Industries.
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MSME
sectors contribute 45% to the overall export of the country.