The election results are in, and Prime Minister Narendra Modi is set to continue his dominance of Indian politics and economics for five years. The news of the PM’s emphatic win in the 2019 General Elections has already got markets and economists indicating positive signs for the coming five years. One hopes that the new government will continue with the economic reforms it has started in the last few months, particularly with regard to credit access for exporters and international trade agreements, thereby helping Indian exports gain global dominance. Unfortunately, the job is not going to be easy. Geopolitical tensions are on the rise around the world, as the world’s two largest economies -- the USA and China -- appear to be on the brink of a full-blown trade war. With tit-for-tat tariffs the order of the day and uncertainty in global markets, the WTO has projected a slowdown in trade growth in the coming months. Compounding the problem are India’s troubles at the WTO, with nations like the US, Japan, and EU members banding together against India’s trade policies. On the regional front too, concerns are on the rise about the proposed Regional Comprehensive Economic Partnership (RCEP) and its impact on India’s trade competitiveness. The clear majority of the ruling BJP in the elections should give the Prime Minister some confidence to bring about sweeping reforms and negotiate on India’s behalf from a position of strength. The new government has a clear mandate to push India’s trade to new highs while bringing the country’s SME export ecosystem into the mainstream. Exporters can only hope that the next five years of Modinomics will make these goals a reality.
Trade Update
25TH MAY
# 26
Stellar performance of Prime Minister Narendra Modi’s BJP with another large parliamentary majority will see continuity of macroeconomic policy in the next five years but the key economic challenge now is to continue reforms, brokerages and economists said on 23rd May. The BJP still does not have a majority in the Upper House of Parliament, the Rajya Sabha, and this will pose hurdles to the party’s legislative reform agenda, IHS Markit said in a note on the election verdict.
Indian exports to Iran are likely to take a big hit over the next few months and may even come down to zero if the new government decides not to resume oil imports from the country in adherence with US economic sanctions, say exporters. Ajay Sahai, Director-General, Federation of Indian Export Organisations (FIEO), said: “Assuming there is no breakthrough in the situation and the government sticks to the decision of not buying oil from Iran, whatever money is lying in the UCO Bank at the moment will get used up. We will not be able to sustain exports beyond four months. Virtually all exports to Iran will stop.”
Rising trade tensions have prompted the World Trade Organization (WTO) to dim its prospects for trade growth in the second quarter of the 2019 calendar year. “World trade growth is likely to remain weak into the second quarter of 2019,” the WTO said on 20th May, pointing towards falling levels of growth in international air freight, automobile production, sales and trade in agricultural raw materials. “The outlook for trade could worsen if heightened trade tensions are not resolved or if the macroeconomic policy fails to adjust to changing circumstances,” it further said.
The US has sought permission to join Japan’s consultations with India at the World Trade Organization (WTO) on tariffs imposed on cellular phones, base stations and certain other IT and telecom products on the ground that American companies export many of these items to India. “The US exports to India of goods in the specified tariff items subject to the measures identified in Japan's request, were valued at approximately $290 million in 2018. Accordingly, the US considers that it has a substantial trade interest and requests to be joined in these consultations,” it said in a representation to the Dispute Settlement Body (DSB) of the WTO.
The proposed Regional Comprehensive Economic Partnership (RCEP) agreement may hurt India’s export competitiveness as the trade balance is already skewed, TPCI said on 21st May. The Trade Promotion Council of India (TPCI) said that the proposed RCEP, which is a mega-free trade agreement, could lead to flooding of goods in the Indian market from member countries; and due to this, Indian negotiators need to move with caution on this.
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