Amid Global Lockdowns, India Finds Itself Facing Autarky-Like Conditions
The word ‘autarky’ traces its origins back to the Greek language. In English, it means self-sufficiency. And in economic parlance, it denotes a system which is more self-sufficient than inter-connected.
The global spread of Covid-19, which has forced many a country to impose complete or partial lockdowns, may force India into a period of autarky-like conditions as global trade and supply chains are disrupted significantly.
Disruptions will likely to hit both inbound and outbound trade as India and most of its key trading partners curb normal business activities to prevent a further spread of the novel coronavirus, which has infected over a million people globally and more than 2,000 in India.
“Essentially, for the next three-odd months, India will move closer to being a closed economy, with foreign trade likely to remain disrupted,” said NR Bhanumurthy, professor at the National Institute of Public Finance and Policy.
India is in the midst of a 21-day nationwide lockdown scheduled to last till April 14, 2020. India is not alone. Its top ten largest trading partners, which account for about half of all of the country’s total trade, have imposed restrictions too.
- In the U.S., which accounts for over a tenth of India’s total trade, there is a partial lockdown, with factories in some parts of the country continuing to work.
- In China, which also makes up for over a tenth of India’s total trade, manufacturing and trade are steadily resuming after a period of stricter shutdowns.
- Across Europe, which collectively accounts for 10.5 percent of India’s imports and 17.2 percent of its exports, manufacturers in major countries have suspended operations.
Early signs of the impact such lockdowns can have are visible in the data for some countries.
For instance, the Chinese economy, which was closed for parts of January and February 2020, saw exports fall by 17.2 percent in dollar terms in the first two months of 2020, while imports contracted by 4 percent, according to a statement from the Chinese customs department. The U.S., which reported its first case of coronavirus in January and issued travel advisories in February, saw imports slip by $5.3 billion to $196.4 billion in February from the preceding month, while exports grew by $0.7 billion to $136.5 billion for the duration.
Before India imposed partial and nationwide lockdowns beginning in March, India’s exports rose to $27.65 billion in February 2020, 6.5 percent higher than in January 2020. Imports fell to $37.5 billion, 8.8 percent lower than in the preceding month.
Both imports and exports will likely take a hit in the coming months, said Bhanumurthy.
“The Indian economy is now running entirely on one engine, i.e. government expenditure. Even assuming that the Indian economy begins to recover in the coming weeks, it will take longer for foreign trade to rebound and normalise depending on when other economies, especially the advanced economies, flatten the curve,” he said.
Inbound Trade Disruptions
India’s total import bill added up to $436.03 billion between April 2019-February 2020, according to data from the commerce ministry. Oil and gold imports accounted for over a third of these imports. However, disruptions in oil imports are unlikely to make a difference at a time when demand is weak.
The demand for oil imports is likely to fall by about 5.1 percent on an annual basis, as Indians will remain wary of traveling in the days to come, according to estimates by Urvisha Jagasheth, research analyst at Care ratings. Along with lower demand for petrol and diesel, even demand for aviation turbine fuel will remain substantially low as airlines will continue to operate at sub optimal capacity, she said. While demand for LPG is expected to remain strong, it will not be enough to lift demand for petroleum products, she added.
India’s major non-oil non-gold imports include coal, precious stones, electronics, telecom, organic chemicals and machinery. These imports totaled $289.61 billion in April-February 2019-20.
It is the non-oil, non-gold import segments which will be disrupted. While some of this will be because of reduced demand, global supply chains being thrown off gear will also play a large part.
There is bound to be an adverse impact across non-oil non-gold imports, said Sharad Kumar Saraf, president at one of India’s key trade organisations, the Federation of Indian Export Organisations. Most of these imports can either not be produced domestically or are not economical to produce here, he said.
Some other critical imports, such as APIs for pharmaceuticals may also take a temporary hit, said Manoj Pant, Director at Indian Institute of Foreign Trade. However, with China now resuming production, the impact is likely to be mitigated.
To be sure, demand for these imports had already fallen due to a weak economy. Non-oil non-gold imports contracted by 7.06 percent from April 2019- February 2020, on an annual basis, according to data from the Ministry of Commerce.
Outbound Trade Slump
Most in the industry say it will be exports that take the bigger hit.
The cumulative value of exports for the period April-February 2019-20 was $292.91 billion. This was 1.5 percent lower compared to last year. Key export items include precious stones, pharmaceuticals, iron and steel, ready made garments, organic chemicals and electrical machinery.
Ajay Sahai, director general at FIEO, said that while it is very difficult to ascertain the extent of overall impact on foreign trade, exports are likely to be hit harder than imports.
“The decline in exports could be anywhere between 12-15 percent or 25 to 30 percent. The decline in imports is expected to be smaller,” Sahai said. He added that about 30 percent of all export orders are likely to be cancelled and supply chains are likely to be disrupted as well. The decline in export value will also be determined by the impact of prices of commodities, he said.
Pant is more optimistic. It is not as bad as it appears, he said. Once the lock down is lifted, workers will come back, manufacturing will restart and conditions should return to near normal in about a month, he said.
The eventual picture may even work in India’s favour, Pant said. “Production, globally, will reorient in a big way. Countries will not want to put all their eggs in one basket. They will want to diversify imports, rather than just relying on countries such as China. The question to ask is if India is ready to capture this market,” Pant said.
Restarting The Trade Wheels
Not everyone believes that global trade can be revived at the flip of a switch.
C. Rangarajan, former governor of the Reserve Bank of India, told BloombergQuint that supply bottlenecks are being created world over as production systems come to a near halt in many countries across the world. “After all, we have all moved to a global system in which the supply chain is international. Absence of material inputs can make it difficult for production systems move,” he said.
What will be needed as the immediate crisis passes, according to Rangarajan is global leadership to get things moving again.
“Some sort of a global leadership is required to ensure that we can move from the present system to a more balanced system in which goods start moving,” said. “When all is said and done, we are paying the price of globalisation,” Rangarajan added.