Weakening Global Economy Poses Risks for India's Export Growth: FIEO

Geopolitical tensions may impact India's exports, leading to potential demand slowdown in Q1 of 2024-25. The ongoing Russia-Ukraine war has already affected India's exports in 2023-24, causing a decline. Experts suggest further escalation could have severe implications for world trade. High inflation, interest rates, and other global uncertainties also contribute to demand slowdown. India's stable currency compared to other countries has helped mitigate the impact. Exporters face challenges with longer payment periods and require liquidity support. The government is urged to consider interest subvention and enhancement of interest equalization scheme rates. Labor-intensive sectors like apparel and footwear face market share decline. The focus on technology and knowledge-based sectors is seen as crucial for achieving export targets.

The escalating geopolitical tension may have implications for the country's exports in the first quarter of 2024-25 as it is likely to impact global demand, apex exporters body FIEO said.

The global uncertainties caused by continuing war between Russia and Ukraine has impacted India's outbound shipments in 2023-24, which recorded a decline of 3.11 per cent to USD 437 billion. Imports too dipped by over 8 per cent to USD 677.24 billion.

''If the global situation continues to be like this, it would impact global demand. In the first quarter numbers, the demand slowdown may be visible,'' FIEO Director General Ajay Sahai said.

He added that despite all the challenges, freight rates are softening and it is giving an indication that demand may be impacted in the times to come.

He cautioned that further escalation of the current situation could have serious implications on the world trade.

''Besides geopolitical uncertainties, high inflation and high interest rates are also crucial reasons for demand slowdown,'' he said, adding certain advanced economies like Europe may witness more slowdown.

He also said that India's domestic currency depreciated only about 1.3 per cent during 2023-24 as against Chinese Yuan's 4.8 per cent; Thai Baht 6.3 per cent and Malaysian Ringgit's 7 per cent.

When asked about the impact of Israel-Iran war, he said certain exporters from engineering sector have stated that the demand for goods that are going to the UAE and then to Iran has come down.

Jewellery demand may also come down, he said.

The director general suggested the government to take certain steps for exporters at the liquidity front.

''Due to demand slowdown, offtake of goods will be low so foreign buyers will also take a longer period to make payments. So we require funds for longer period. Exporters also need interest subvention support,'' Sahai said.

He asked for continuation of interest equalisation scheme.

On December 8, 2023, the Union Cabinet approved an additional allocation of Rs 2,500 crore for the continuation of the scheme up to June 30.

The scheme helps exporters from identified sectors and all MSME manufacturer exporters to avail of rupee export credit at competitive rates at a time when the global economy is facing headwinds. Exporters get subsidies under the 'Interest Equalisation Scheme for pre- and post-shipment rupee export credit.

''The rates should be enhanced to 3 per cent and five per cent,'' he said.

He added that technology and knowledge-based sectors like electronics, electricals, telecommunication, machinery, auto, pharma, medicine and diagnostics would help achieve USD one trillion exports by 2030.

''But we have a problem in labour intensive sectors like apparel, footwear, and gems and jewellery as our market share is going down,' he said.

(This story has not been edited by Devdiscourse staff and is auto-generated from a syndicated feed.)