THE GIST of Editorial for UPSC Exams : 18 July 2020 (A demand problem (Indian Express))

A demand problem (Indian Express)

Mains Paper 3: Economy
Prelims level: Trade surplus
Mains level: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment

Context:  

• The latest trade data released by the ministry of commerce paints a worrying picture. 
• While the contraction in exports observed over the past few months appears to be easing slowly, the implications of the continuing deep contraction in imports on end-demand are disquieting. 

Key Findings:

• This growing chasmbetween export and import growth has led to India registering a trade surplus of nearly $800 million in June — this is the first time in almost two decades that the country has registered a trade surplus. 
• However, this is indicative, not of a robust turnaround in exports, but of a collapse in domestic demand, despite the easing of restrictions on domestic activities during the “unlocking” phase.
• At the aggregate level, India’s merchandise exports continue to witness an upward swing with the pace of contraction falling to 12.4 per cent in June, from 36.2 per cent in May and 60 per cent in April. 
• A closer look at the data reveals that exports of items such as iron ore, drugs and pharmaceuticals, chemicals and various agricultural commodities saw an expansion in June. 
• However, 18 of the 30 major export product categories contracted in June, including some labour intensive ones such as gems and jewellery, leather, and textiles — though some of these sectors have seen a healthy recovery from the April levels.

Impact of the domestic slowdown:

• This upswing in exports could be indicative of a faster recovery of India’s export partners and probably because of the rush by Indian exporters to ship out orders to meet their seasonal deadlines. 
• On the other hand, imports continue to remain deep in negative territory, contracting by 47.6 per cent in June, as compared to a decline of 52.4 per cent in May, and 59.6 per cent in April. 
• Even more worrying, the contraction in non-oil exports has actually worsened — from 36.4 per cent in May to 41.4 per cent in June — with decline observed in both consumer and investment/industrial goods imports. 
• Some movement is visible in imports of electronic goods, but those of machinery and transport equipment have not moved significantly.
• Of the 30 main import items, while all items have contracted in the April-June quarter, only four registered mildly positive growth in June — indicative of the pace of the domestic slowdown. 

Conclusion:

• As economic activities across the world will take time to return to normalcy, India’s exports will take time to reach pre-COVID levels. 
• It seems that the chasm between exports and imports could persist, given the plateauing of the post-lockdown spurt in demand/production on account of the spread of infection.

Prelims Questions:

Q.1)With reference to the India Cycles4Change Challenge, consider the following statements:
1. The Challenge aims to help cities connect with their citizens as well as experts to develop a unified vision to promote cycling. 
2. The Challenge is open to all cities under the Smart Cities Mission, capital cities of States/UTs, and all cities with a population of more than 5 lakh population.
Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer: C

Mains Questions:
Q.1)India registered a trade surplus. What are the major findings? What growing exports and falling import indicate?