Year Ender 2020: Global trade hit but FDI inflows improve amid difficult period

The Covid-19 pandemic has devastated economies across the world. Global trade has been severely hit. India's global trade also bore the brunt of the pandemic with both exports as well as imports seeing a significant decline for the fiscal year. But despite the turbulent atmosphere in the economic sphere, there is a silvering lining, as India has seen an increase in the FDI flow in the first six months of this fiscal, reports ETV Bharat's Deputy News Editor, Krishnanand Tripathi.

New Delhi: The year 2020 has been unlike any other period in recent human history as the outbreak of the Covid-19 global pandemic devastated countries and economies and killed over 1.7 million people worldwide. The pandemic affected every sector of economy and India's global trade is no exception as it suffered severe decline in the current fiscal. Exports declined by over 14 percent while imports also declined by 30 percent, during the April-November period. Despite the gloomy picture, there are bright spots as well. India's FDI inflow registered an increase during the first six months of this fiscal on a year-on-year basis.

Major developments in the trade and commerce in 2020

As expected, Covid induced lockdowns and transport disruptions not only decimated the domestic economy, which declined by 24 percent and 7.5 percent respectively, India's export and imports were severely impacted during this period.

While India's merchandise exports during April-November declined by 17.76 percent to $173.66 billion, services exports declined by 8.52 percent to $130.60 billion. In terms of overall export, the decline was 14.03 percent, as total export during this period has been pegged at $304.25 billion.

Similarly, in case of imports, merchandise exports declined by 33.55 percent to 215.69 billion, and imports of services declined by over 17 percent to $75 billion, leading to an overall decline of 30 percent in the country's imports to bring it down to $290.66 billion.

Since imports were affected more as Prime Minister Narendra Modi's government launched an ambitious programme Atma Nirbhar Bharat (a self-reliant India) for import substitution, a sharper decline in imports led to a trade surplus situation during this period, which shows the country exported more and imported less during this period.

The biggest decline was registered in import of crude and gas as three-month complete lockdown hit the demand for petroleum products. Import of Petroleum declined by over 43%, followed by transport equipment (19.62 percent), coal and coke (12 percent), and precious and semi-precious stones (7 percent).

No major trade deal this year

Bilateral and multilateral trade agreements are an important component of a country's trade policies. However, this year, India did not enter into any major free trade agreement.

Despite a lot of expectations, India and the USA could not clinch even a limited trade deal during President Donald Trump's maiden India visit in February this year and the hopes that it could be signed by the end of the year also did not materialise. Similarly, India did not reconsider its decision to walk away from the China-backed Regional Comprehensive Economic Partnership (RCEP) due to the fears of an adverse impact on Indian farmers and other sectors.

FDI inflows shine amid pandemic

Foreign direct investment (FDI) inflows also reflect the performance of the sector. In July-September this year, according to the latest data from the ministry of commerce and industries, the FDI inflows during April-September registered an increase of 11 percent on a year-on-year basis.

The country received FDI investment of $39.9 billion during April-September this year as against inflows of $36.1 billion during the same period last year.

Similarly, the FDI inflows registered an increase of nearly 20 percent between FY 2018-19 and 2019-20, which covers three months of this year as well.

In FY 2019-20, the country received FDI of $74 billion against$62 billion in FY 2018-19.

Liberal FDI regime

In a major reform, the government allowed 100 percent FDI in coal mining activities and just this week the government permitted 100$ FDI in the direct-to-home (DTH) companies.

Stringent norms to prevent Chinese takeover

In a major decision, the Government also amended the FDI policy to protect Indian companies from opportunistic take over as they faced difficulties due to the Covid, which made them an attractive takeover option for cash surplus Chinese investors.

In April this year, the government tweaked the FDI rule for the countries adjacent to India as any foreign investment coming from these countries, particularly from China will not be under the automatic route. It means that these investments will have to seek security clearance from the government, which may determine and prevent any opportunistic takeover by the Chinese companies.

Curbing imports from China

Following a violent face-off between Indian Army and Chinese Army in Ladakh in June this year, the government not only banned hundreds of Chinese mobile apps but it also removed several Chinese companies from government tenders and procurements, particularly in telecom and railways.

Preference to Indian companies

The government not only restricted imports from China and discouraged the participation of Chinese companies in the government procurement, but it also tweaked rules to encourage Indian industry. In a major decision taken in June this year, the government said there will be no global tender for procurement or tender of than Rs 200 crores.

According to a commerce ministry data, due to preference to local suppliers with 50 percent local content, tenders worth Rs 40,000 crore were either cancelled or modified this year to support local vendors.

Digital India to boost trade

Global trade is a data extensive sector as goods and services worth hundreds of billions of dollars are traded by the country every year. In order to collect the data and streamline information flow, the government digitised all the export promotion schemes such as Export Promotion Credit Guarantee scheme (EPCG) and Merchant Export from India Scheme (MEIS). An Electronic Platform (eCOO) has been rolled out to issue digital certificates of origin, and more than 2 lakh certificates have been issued.

An import monitoring system (IMS) has also been implemented for tracking the trade of aluminum, copper, footwear, furniture, paper, sports goods and gym equipment, among other things.