A worker walks past gantry cranes at the Jawaharlal Nehru Port, operated by Jawaharlal Nehru Port Trust (JNPT), in Navi Mumbai. (Photographer: Dhiraj Singh/Bloomberg)

Why India’s Trade With The World Jumped To Its Highest In Eight Quarters

India’s trade with the rest of the world jumped 11 percent in the January to March period, driven by several factors ranging from a weaker rupee to environmental interventions in China, according to the AP Moller-Maersk Trade Report.

Containerised trade with the world beat the past performance in export-import growth over eight quarters. Imports jumped 16 percent and exports rose 7 percent, the report said. Together, they led India’s trade to a strong start this 2018.

This comes at a time when global trade has taken a hit on account of protectionist measures rising in countries such as the U.S., China and the U.K. due to growing geopolitical tensions. The World Trade Organisation anticipates a merchandise trade volume growth of 4.4 percent in 2018, as measured by the average of exports and imports, lower than the 4.7 percent increase recorded for 2017. Growth is expected to moderate to 4 percent in 2019.

Over the last few months, the Narendra Modi-led government too has made it more expensive to import automobile parts, cameras, televisions, electricity meters, smartphones and even palm oil.

So how did trade jump in the first quarter of 2018?

Recovery From The Twin Shocks

Demonetisation in 2016 and the implementation of the Goods and Services Tax not only led to a drastic fall in India’s gross domestic product—as low as 5.7 percent in a quarter—but also hit consumer demand.

Now, as the country leaves the effects of the twin shocks behind, consumption and demand are gathering pace leading to an uptick in imports, the report said. Dry, imperishable imports were one of the reasons for the overall trade jump.

Recyclables commodities such as paper and metal were the two dry cargo commodities that led this growth and registered strong 61 percent and 55 percent increases, respectively.
AP Moller-Maersk Trade Report

On the other hand, as the adverse effects of the GST faded and the inflow of GST refunds began, it created surplus capital in the hands of local manufacturers leading to a jump in exports of Indian vehicles, fruits and nuts.

Also read: India's Oil Demand Surges for Eighth Straight Month in April

China’s Environmental Intervention

The Xi Jinping-led Chinese government has imposed limitations like increased restrictions on waste paper imports. This has benefited India — a major importer of this commodity for local recycled paper manufacturing, the report said. “Together, these key developments have augured well for India’s import growth.”

U.S.-China Tiff

As Donald Trump and China impose trade tariffs on each other, “India as well as other emerging countries are expected to witness strong inflows of select commodities”, the report stated.

The U.S. imposed tariffs worth $50 billion on steel and aluminium imports from China, leading to reciprocal tariffs on American goods imported into China.

“Commodities have to find markets, and as India’s domestic consumption continues to rise, we can expect to see many of them find takers here. Also, the increasing aspiration of India’s populace will sustain this trend over the months to come, assuming there are no significant policy changes,” the report read.

Also read: China Slams Trump's `Flip-Flop' on Tariffs as Trade Spat Worsens

A Weaker Rupee

India’s rupee depreciated 2.67 percent in the January to March quarter, boosting the overall value of goods imported from India. The weaker rupee — down 5.84 percent against the dollar so far this year — also acted as an incentive for exporters to sell more goods abroad.

Also read: India’s Central Bank Needs Better Rupee Policy, Modi’s Aide Says