ECONOMIC SURVEY: (CHAPTER 3) GLOBAL ECONOMIC UNCERTAINTY & INDIA’S EXTERNAL SECTOR (PART 2) from Vajirao & Reddy Institute

ECONOMIC SURVEY: (CHAPTER 3)

GLOBAL ECONOMIC UNCERTAINTY & INDIA’S EXTERNAL SECTOR (PART 2)

• Resilience and Growth: India's services exports have shown strong resilience, especially amid global uncertainties.
• Performance in FY 25: Between April and December 2024, services exports grew by 11.6%, outperforming merchandise exports, which faced a slowdown.
• Net Services Receipts: Increased from USD 120.1 billion in FY24 to USD 131.3 billion during the same period in FY25.

• Key Service Sectors:
  • IT and Business Services: India is the world’s second-largest exporter, contributing over 10% to global exports in this sector.
  • Telecommunications and Computer Services: India holds 10.2% of the global market, reflecting its strong position in IT outsourcing and digital services.
  • Other Business Services: India commands 7.2% of the global share, ranking as the third-largest exporter in this category.
  • Travel and Transport Services: Account for a smaller share in global exports (2.1% and 2.2% respectively), but there is significant potential for growth.
  • Financial Services: Underdeveloped, offering substantial potential for future expansion.

• Rapid Expansion: India’s e-commerce sector has grown rapidly, driven by advancements in technology, online payments, and digital marketing.
• Market Value: In 2022, India’s B2C e-commerce market was valued at USD 83 billion, expected to grow to USD 150 billion by 2026.
• E-commerce Exports: Valued at USD 4 to 5 billion in FY23 and are projected to reach USD 200 to 300 billion by 2030.

• Digital Infrastructure: Increased internet connectivity and smartphone penetration have facilitated e-commerce transactions.
• Government Support: Initiatives like Make in India and Atma Nirbhar Bharat have supported MSMEs and e-commerce exporters, creating a favorable environment for cross-border digital trade.
• GST and Other Policies: The introduction of zero-rated supplies under the GST regime and other financial support measures, such as export credits and e-commerce export hubs, have further bolstered the sector.

• Regulatory Frameworks: Challenges remain, particularly related to customs verification, which hinder operational efficiency.
• Growth Potential: Addressing these obstacles can unlock more growth potential, positioning India as a key player in global e-commerce.

• Focus: Improving logistics to strengthen India's manufacturing and export capabilities.
• Measures:
  • Development of logistics hubs.
  • Investment in infrastructure.
  • Policy reforms aimed at improving supply chain efficiency.
• Goal: Lower costs for businesses, make exports more competitive, and enable quicker movement of goods.

• Impact:
  • Reduced costs by ?125 crore annually through handling over 2.5 million e-BRCs.
  • Streamlined processes for exporters, helping them benefit from schemes under the Foreign Trade Policy (FTP).
  • Particularly beneficial for small exporters, including e-commerce, by enabling efficient handling of high-volume, low-cost transactions.

• Overview: A new single-window digital platform by the Directorate General of Foreign Trade (DGFT).
• Target Audience: Exporters, particularly MSMEs (Micro, Small, and Medium Enterprises).
• Features:
  • Connects exporters to key government entities, such as Indian Missions abroad, Export Promotion Councils, and trade experts.
  • Provides near real-time trade-related information and support.
  • Will serve over 6 lakh Importer Exporter Code (IEC) holders and thousands of government officials.
• Purpose: Help exporters access new markets and streamline their export journey. DGFT Trade Facilitation Mobile App:
• Features:
  • Provides updates on FTP, export/import policies, and export/import statistics.
  • Offers 24/7 virtual assistance.
  • Allows auto-generation of IEC, cutting down on approval wait times.

• Moderation in CAD: The CAD reduced slightly to 1.2% of GDP in Q2 FY 25 compared to 1.3% in Q2 FY 24.
• Factors:
• The increase in the merchandise trade deficit (USD 75.3 billion in Q2 FY 25) was offset by rising net service receipts (USD 44.5 billion in Q2 FY 25, up from USD 39.9 billion in FY 24) and increased private transfer receipts (mainly remittances from Indians abroad).

• Relative Stability: India’s CAD is manageable compared to other G20 economies, such as Brazil and Australia, which faced higher pressures.
• Private Transfers: Continued strong inflows, with remittances rising from USD 28.1 billion in Q2 FY24 to USD 31.9 billion in Q2 FY25.

• Capital Inflows:
  • Significant Growth: In Q2 FY25, net capital inflows stood at USD 30.5 billion, a rise from USD 12.8 billion in the same period of FY24.
  • Sources of Inflows:
    • Foreign Portfolio Investment (FPI)
    • External Commercial Borrowings (ECBs)
    • Non-Resident Indian (NRI) deposits.
  • Foreign Direct Investment (FDI):
    • Growth in FDI: Gross FDI increased by 17.9% YoY, reaching USD 55.6 billion in the first 8 months of FY25.
    • Long-term Outlook: FDI inflows into India have exceeded USD 1 trillion since April 2000, reflecting India’s position as a key global investment destination.

• Decline in Net FDI: Net FDI inflows dropped significantly in FY25 (USD 0.48 billion) compared to previous years (USD 8.5 billion in FY24). The decline is linked to higher repatriations, reflecting investor exits and profits.
• Global FDI Trends: FDI globally has been impacted by factors like inflation, rising interest rates, and geopolitical tensions.
• India’s Strategy:
  • Attracting More FDI: India must continue to improve its investment environment, ensuring tax certainty and stability, particularly regarding Advance Pricing Agreements (APA).
  • Improving Investment Efficiency: If attracting more FDI is challenging, India should focus on investment efficiency, as deregulation and Ease of Doing Business reforms can help achieve this.