External sector

Prepared By:- The Goal Diggers (Group 5)

Group 5 (AIIM)
Introduction
• India’s external sector continued to be resilient and strong in 2017-18 due to
1) Balance of Payments situation continuing to be comfortable
2) Current account deficit at 1.8 % of GDP in the first half of 2017-2018
3) Merchandise exports picking up with a growth of 12.1%
4) Net services receipts increasing by 14.6%
5) External debts improving.
Global Economic Environment
• The global economy is gathering pace and is expected to accelerate from 3.2 % in 2016 to 3.6 % in 2017
and 3.8% in 2018.( Table 1)
• World trade volume is also expected to increase from 2.4% in 2016 to 4.2% in 2017 and 4%in 2018.
• Commodities prices are also expected to grow, in contrast of previous years of decline.
• According to the IMF(October 2017), global recovery is yet not complete because inflation is still below
the target.
 Overview Of World Trade And Balance
Actuals Projections Difference from July
2016 2017 2018 2017 2018

World Output 3.2 3.6 3.7 0.1 0.1

World trade volume 2.4 4.2 4.0 0.2 0.1
(Goods and services)

Imports
Advanced Economics 2.7 4.0 3.8 0.0 0.2
EMDEs 2.0 4.4 4.9 0.1 0.2

Exports
Advanced economics 2.2 3.8 3.6 -0.1 0.2
EMDEs 2.5 4.8 4.5 1.0 0.0
Does India’s External Sector Prospects Look Bright?
India’s Balance of Payments Developments
Overview :-

• India’s balance of payments continues to be comfortable in the first half of 2017-18.

• India’s CAD increased from US$3.8 Billion in H1 of 2016-2017 to US$ 22.2 Billion in H1 of 2017-18 which
widened due to higher trade deficit.

• The surge in imports of gold, with its volume more than doubling as uncertainty over GST implementation
resulted in front loading of purchases by Jewelers in Q1.

• The rise in crude oil prices resulting in oil import bill, led to the increase in imports.

• Net invisibles receipts were higher in H1 of 2017-18 due to increase in net services earnings and private
transfer receipts.
 Trade Performance
(value in US$ billion) (Growth rate (y-o-y)in percent)
2016-17 2016-17 2017-18 2016-17 2017-18 2016-17 2016-17 2017-18
( April-Dec)(April–Dec) (April-Dec) H1 H2 H1
Exports 275.9 199.5 223.5 5.2 12.1 -1.3 11.9 10.8
POL Exports 31.5 22.5 26.7 3.1 18.5 -15 25.7 16.3
Non POL exports 244.3 177 196.8 5.4 11.2 0.7 10.3 10.1
Non POL, non 200.9 144.7 165.6 4.4 14.5 -1.9 10.8 13.4
Gems & Jwly exports
Imports 384.4 277.9 338.4 0.9 21.8 -13.3 16.9 25.9
POL Imports 87 61.3 76.1 4.8 24.2 -18.1 36.8 17.8
Non POL imports 297.4 216.6 262.2 -0.2 21.1 -11.8 12.2 28.2
Gold &silver 29.4 19.1 29.1 -17.3 52 -55.2 29 113.8
imports
Non POL, non 268 197.5 233.2 2.1 18.1 -5.5 10.1 22.3
Gold & silver imports

Trade Balance -108.5 -78.4 -144.9 -8.6 46.4 -36.7 29.9 71.8
Merchandise
• India’s exports growth continued to be negative in the first half of 2016-17 and it started recovering in the
second half due to POL and non POL exports.
• Merchandise imports also fell from US$490.7 in 2012-13 to US$381 billion in 2015-16 and it started
improving in 2016-17.
• Increase in value of imports was due to rise in POL imports and small increase in non POL and non gold and
silver imports.
• Non POL imports registered a growth of 21.1 % and non gold & silver imports grew by 18.1%
Trade Deficit
• India’s trade deficit which had registered continuous decline since 2014-15, widened to US $74.5 billion in
H1 of 2017-18 from US$ 43.4 Billion in H1 of 2016-17.
• Among India’s trading partners, India has negative bilateral trade balance are China, Switzerland, Saudi
Arabia, Iraq and South Korea.
• India has surplus trade balance with USA, UAE, Bangladesh, Nepal and UK.
• Its share in India’s total trade deficit increased from 20.3% in 2012-13 to 47.1% in 2016-17.
 Bilateral Trade Surplus/Deficit
2012-13 2013-14 2014-15 2015-16 2016-17 2017-18(H1)
Trade Surplus
USA 11 16.6 20.6 18.6 19.9 11.9
UAE -2.8 1.5 6.9 10.8 9.7 4
Bangladesh 4.5 5.7 5.8 5.3 6.1 3.3
Nepal 2.5 3.1 3.9 3.5 5 2.6
UK 2.3 3.7 4.3 3.6 4.9 2.2
Trade Deficit
China -38.7 -36.2 -48.5 -52.7 -51.1 -32.1
Switzerland -31 -17.5 -21.1 -18.3 -16.3 -9.2
Saudi Arabia -24.2 -24.2 -16.9 -13.9 -14.9 -7.3
Iraq -18 -17.6 -13.4 -9.8 -10.6 -5
South Korea -8.9 -8.3 -8.9 -9.5 -8.3 -6.7

Total Trade -190.3 -135.8 -137.6 -118.7 -108.5 -74.3

Deficit
 Invisibles
• India’s balance of payment situation has been comfortable since 2013-14 and continued to be so in the first
half of 2017-18.
• India’s CAD has increased primarily on account of a higher trade deficit due to sharp rise in imports of gold
coupled with the rise in crude oil prices.
• Net invisibles receipts were higher mainly due to the increase in net services earnings and private transfer
receipts.
• Net services earnings increased primarily on account of the rise in net earnings from travel and
telecommunication, computer & information services.
• Private transfer receipts mainly representing remittances by Indians employed overseas also increased.
• However the structural factors viz tightening norms of hiring foreign workers in USA, labour market
adjustment in GCC countries and rising anti-immigration sentiments in many sources countries pose
considerable downside risk.
• While Trade Deficit Widened the improvement in invisible balance and the net capital flows dominated by
foreign investment and banking capital was able to finance the CAD leading to accretion in foreign exchange
reserves
Composition of trade
• Export growth in 2016-17 experienced positive growth in major categories except textiles & allied products
and leather and leather manufactures.
• There was a good growth in engineering goods and petroleum crude and products; moderate growth in
chemicals , textiles& allied products, but negative growth in gems and jewelry.
• Sector wise, import of POL increased by 4.8 percent in 2016-2017 and 24.2 percent in 2017-18.
• Low or negative growth was registered in most in 2016-17 except electronic goods , ores & minerals and
agriculture and allied products.
• In 2017-18 all major sectors registered positive growth
with the capital goods imports registering a 11.3% growth.
Trade Policy
• The important developments on trade policy during December 2017 were
1. FTP( Foreign Trade Policy)
2. Multilateral Negotiations

FTP Mid term review

 MEIS incentives for two sub-sectors( textiles & Made ups) increased from 2 % - 4 %.
 SEIS incentives increased by 2 % to provide an impetus to service trade.
 Validity period of Duty Credit Scrips increased from 18-24 months to enhance their utility in GST framework.
 New logistics Division was created in the commerce department to develop the logistic sector.
 For clarity, a negative list of capital goods which was not permitted under EPCG scheme has been notified.
 Second hand goods imported for the purpose of repair, reconditioning or reengineering have been made
free.
 Concept of DTA sale from Export oriented units on concessional and full duty has been removed .
 The union cabinet committee on 15th Dec 2017 approved special package for employment generation in
leather and footwear sector.
 Issue of working capital blockage of the exporters due to upfront payment of GST on inputs has been
addressed.
 Implementation of Central Sector Scheme “Indian Footwear, Leather & Accessories Development
Programme” with an approved expenditure of Rs.2600 crore over the three years from 2017-18 to 2019-20.
Multilateral Negotiations
• Eleventh Ministerial Conference of WTO was conducted to resolve the issues of food security & other
agricultural issues.

• Strong position of one of the member against agricultural reforms based on current WTO rules lead to a
deadlock without any outcome.

• Programme on disciplines on Fisheries Subsidies with a view to arriving at a decision by MC12.

• During MC11 India stood firm on the fundamental principles of WTO , including multilateralism, rule based
consensual decision making and independent appellate process.
Trade Related logistics
• Indian logistics industry has grown at a compound annual growth rate of 7.8 percent over past 5 years.
• Considering the impact of GST , Indian logistics market is expected to reach about US$ 215 billion in 2019-2020, growing
at a CAGR of 10.5%.
• India has improved in LPI from 54 in 2014 to 35 in 2016.
• Challenges
 High Cost of Logistics
 Under-developed material handling infrastructure and fragmented warehousing.
 High dwell time and lack of seamless movement of goods across modes.
• Action Plan
 Formulation of National Integrated Logistics Policy to bring in greater transparency and enhance efficiency in logistics
operations.
 Introduce Professional Standards and Certifications for service providers.
 Promoting High-end technology like RFID, GPS, EDI, etc.
 Logistics Performance Index India’s Ranking
2007 2010 2012 2014 2016
Overall LPI Ranking 39 47 46 54 35

• Efficiency of customs 47 52 52 65 38
& border management
• Quality of trade & transport 42 47 56 58 36
Infrastructure
• Competencies & quality of 31 40 38 52 32
Logistics services
• Ability to track and trace 42 52 54 57 33
consignments
• Timeliness of deliveries 47 56 44 51 42
Anti Dumping Measures
• India conducts anti-dumping investigations as the complaints of dumping have been rising in the aftermath
of global slowdown.

• In 2016 , 300 anti-dumping were initiated by all countries.

• During 2017-18 DGAD(Directorate general of anti-dumping) initiated anti dumping investigations into the
import of 24 products.

• Chemicals & Petrochemicals ,products of steel and other metals and rubber were the products on which
anti dumping duty was imposed.
Foreign Exchange Reserves
• India’s foreign exchange rate reserves reached US$409.4 billion on end-December 2017.
• Foreign exchange reserves grew by 14.1% from end-December 2016 to end December 2017 and it increased
further to US$ 413.8 Billion on January 12,2018.
• The foreign exchange reserves in nominal terms increased by US$30.3 Billion during H1 of 2017 as
compared to US$11.8 increase in previous year.
• Within the major economies running current account deficits, India is among the largest foreign exchange
reserve holder and 6th largest among all countries of the world
Exchange Rate
• On an average rupee has appreciated against other major currencies besides the US dollar.
• Rupee appreciated by 6 percent against pounding sterling , 0.2 percent against euro and 9.2 percent against
Japanese yen during April Dec 2017 in compare to last year.
• In terms of NEER rupee appreciated by 3.6% and 4.3 % against basket of 6 & 36 currencies.
• In terms of real exchange rate against 36 countries , rupee appreciated by 5.2% in April- Dec 2017.
External Debt
• India’s external debt stock increased by 5.1 % to US$ 495.7 Billion at end September , while it increased by 2.1
% from end June 2017.
• Increase in long term debt was primarily due to increase in foreign portfolio investment and short term debt
grew at 5.4 % due to increase in trade related credits.
• Foreign exchange cover to total external debt and ratio of short term debt by residual maturity to foreign
exchange improved during end September 2017.
• According to world bank data India’s external debt stock to GNI ratio at 20.4 was second lowest after China’s
12.8 %.
• India rank 26th in top debtors countries in the world.
• India is fifth highest in terms of foreign exchange reserves cover to external debt and is eight lowest in debt
service rate.
Thank you