Weak Chinese demand, new Covid variants may derail world trade

A subdued demand in the world’s second largest economy China and economic slowdown caused by the emergence of new more contagious strains such as Delta variant which was behind the ferocious second wave in India in April-May this year, may derail the global trade which may impact a sharp recovery in India’s export, showed a study, writes Krishnanand Tripathi, Deputy News Editor, ETV Bharat.

New Delhi:A subdued demand in the world’s second largest economy China and economic slowdown caused by the emergence of new more contagious strains such as Delta variant which was behind the ferocious second wave in India in April-May this year, may derail the global trade which may impact a sharp recovery in India’s export, showed a study.

India’s exports in June recorded a sharp yearly jump both in comparison with June 2020 when the country was under complete lockdown due to Covid and also in comparison with June 2019 which provides a far better understanding of export trends.

India’s overall exports (both merchandise and services) in the month of June have been estimated at $49.85 billion, an all time record. It is jump of 32% over the same month last year and a solid growth of over 17% in comparison with the exports during the same month of 2019.

Engineering goods, which comprise machinery, metal products, auto-components, parts and machinery related to railways, transportation and aviation sectors, accounted for the biggest chunk, with the exports worth over $8 billion in three of the last four months.

According to the Engineering Exports Promotion Council of India, while engineering goods exports from India to most key nations recorded high double-digit growth in June, 2021 mirroring global trade recovery, shipments to China, Singapore and Malaysia fell sharply during this period.

“Exports to China, the world's largest buyer of raw material, in value terms declined 33% to $ 501.9 million in June from $747.1 million in the same month last year,” EEPC said. It means that on a cumulative basis exports to China fell 15.4% in April-June period to $1357.9 million from $1604.9 million in the corresponding period of the last fiscal.

While the US remained top importer of India's engineering goods followed by UAE, India’s total engineering goods exports to 21 of total 25 top export markets that account for nearly 80% of the engineering export registered a growth.

According to an analysis of trade data by EEPIC, impressive growth was seen in most of the product categories as out of 33 engineering panels or product segments, 31 panels witnessed positive growth in exports during June this year in comparison with June last year. Only two categories, zinc and zinc products and aircraft and spacecraft parts recorded decline at a time when engineering goods export recorded a growth of more than 50%

However, due to a slew of domestic and global factors this growth story is under risk.

“Industry is facing several challenges. On the domestic front, there has been an acute shortage of containers, high logistics cost and increasing price of key raw materials such as steel," said Mahesh Desai, Chairman of EEPC India.

However, some external factors will also have an adverse impact not only on India’s exports but could adversely affect the overall global trade.

According to Desai, domestic demand being subdued in East Asian manufacturing giants including Japan, China and Korea may pose a threat to the Indian exporters. “A falling demand in China and spread of a new and highly infectious Covid strain pose a threat to global trade,” he said.

China is one of the biggest importers of India’s engineering goods and a slowing demand from China particularly threatens India’s overall exports as engineering goods alone account for a quarter of India’s merchandise exports.

Delta variant spreads in East Asia

A more virulent strain of SarS-CoV-2 virus, known as Delta variant, which was first discovered in India and is primarily responsible for a wildfire second wave that killed more than 2,50,000 people in India, has been threatening the economic recovery and external trade in several East Asian countries.

Since its discovery in Malaysia, Vietnam, Indonesia and Thailand among others, the spread of delta variants led to imposition of Covid restrictions in these countries, adversely affecting economic activity.

A $400 billion export target

The country has set a target of achieving exports of $400 billion. That means India’s engineering exports should be in the range of $100 billion a year to achieve the target.

While appreciating the government’s support for the sector, Desai urged the government to expedite the announcement of benefits under Remission of Duties and Taxes on Exported Products (RODTEP) scheme and the release of pending funds under the MEIS scheme. "This will ensure steady flow of working capital especially for MSMEs and further boost exports," he said.