Approach:

Introduction: Briefly explain the current situation of Indian external trade and the main factors affecting it.

Body:  State your opinion on whether you agree or disagree with the given statement and give your arguments in support of your stand. Show in brief the other stand also.

Suggest some steps that need to be taken to improve Indian external trade and address the structural problems and cyclical fluctuations.

Conclusion: Give concluding thoughts on the future of Indian external trade.

Answer:

According to a recent report by the Indian Ministry of Commerce and Industry, India's external trade deficit has widened to $221 billion, the highest level in five months. This was due to a decline in exports, which fell 10.24% year-on-year, and an increase in imports, which rose 13.7%. The Russia-Ukraine war, rising inflation, and a slowdown in global economic growth are affecting Indian external trade.

In the external sector, structural factors are the long-term determinants of trade patterns, such as comparative advantage, factor endowments, and trade policies and Cyclical factors are short-term fluctuations in trade volumes, such as changes in income, prices, and exchange rates. Both types of factors affect India's trade performance and competitiveness in the global market.

The decline in India's exports in recent years is majorly due to structural issues rather than cyclical fluctuations.

1. Because the fall in exports and imports has been sustained and widespread across industries and markets, it is evident that structural problems are to blame for the current decline in India's external trade than cyclical changes. World Trade Organisation data shows that international trade has been growing more slowly than usual over the past 12 years.
2. High logistics costs, a complex regulatory environment, insufficient infrastructure, and low productivity have eroded India's competitiveness in the global market, leading to a decline in India's external trade in recent times. According to the World Bank, India will be the 63rd easiest country in which to conduct business in 2022.
3. India's export basket consists primarily of low-value-added and low-technology goods that are subject to fierce competition from other developing nations. In 2020, India's percentage of high-technology exports in overall manufactured exports was only 11.8%, compared to 43.7% for China and 18.9% for the world as a whole, as reported by the United Nations Conference on Trade and Development.
4. India's trade policy has been inconsistent and unexpected, causing uncertainty and confusion for exporters and importers, which has contributed to the downturn in Indian external trade in recent times. For instance, in 2019, India withdrew from the RCEP agreement, in 2020 it raised tariffs on some products, and in 2021 it barred the export of certain key commodities like onions and vaccines.
5. Due to its low trade diversification and concentration on a small number of countries and products. Indian government statistics show that in 2022-23, the top five export destinations accounted for 46.6% of total exports, while the top five import sources accounted for 58.4% of total imports. The top five export items from India accounted for 38.9% of the country's total exports in 2022-23, while the top five import items accounted for 44.1% of India's total imports in the same year.

However cyclical fluctuations also have a certain role to play in this decline:

• The global recession has severely impacted India's exports, especially in engineering, textiles, and petroleum.
• According to the World Bank, as the global economy recovers, the fluctuating commodity prices may subside.
• India's service exports have slowed to 0.7% in May 2023, indicating a strong competitive advantage in the IT and software industries.
• To reduce reliance on old partners, India is expanding into new markets and diversifying its export range.
• Legislative measures, such as simplifying processes, providing incentives, etc, aim to boost India's export competitiveness in the medium to long term.

To overcome these challenges and achieve its long-term goal of reaching US$2 trillion in exports by 2030, India needs to take the following steps:

• Implement the Foreign Trade Policy (FTP) 2023 to offer a stable and predictable policy environment for exporters and importers and shift from incentives to remission and entitlement.
• Focus on high-value-added products, growing sectors, and new markets to diversify exports. India should take advantage of services exports, particularly in IT, healthcare, education, and tourism.
• Improve infrastructure, logistics, quality, innovation, ease of doing business, and trade competitiveness. India could use digital technologies and e-commerce platforms to streamline trade and lower expenses.
• Improve trade with strategic partners like the US, EU, Japan, ASEAN, GCC, and Africa. India should seek favourable regional and bilateral trade deals.
• Actively participate in WTO, G20, BRICS, and APEC trade conferences. India should also work to modernise the WTO dispute settlement structure, promote trade facilitation and e-commerce, and level the playing field for developing nations.

Indian exports have a good future. Sectors like IT, medicine, and manufacturing will likely develop in the next few years, boosting Indian exports, and the country is well-positioned to take advantage of the growing global economy. Hence, government initiatives must address these longstanding issues as early as possible.