Indian exports are now getting stuck due to lack of containers
The government released its broad data on October 2020 trade and the first take is that exports have actually fallen in the month on a yoy basis. What is ever so disappointing is that the trade deficit has widened back to $8.8 billion in the month of Oct-20 after almost moving into a merchandise trade surplus just a few months back in June 2020.
It is about containers
If you are wondering why the charges for containers have gone up in the last few months, it is purely because Indian exporters are faced with an absolute shortage of containers to move their goods to foreign locations. There is an extremely ironic situation about Indian trade at this point of time. In the last few months, exports picked up rapidly but imports are yet to see the same level of pick-up. Also, India is exporting big volumes to countries like the US but imports are absolutely tepid.
What this essentially means is that the containers that go laden with goods to the US have to come back empty or just partly laden. Obviously that adds to the cost of the entire trade and in majority of the cases it spoils the economics of the trade. For example, a country like Saudi Arabia exports crude oil to India and imports a variety of items of daily needs. This keeps the equation healthy and ticking. But in this context, India is running a huge trade surplus with the US and that is creating this problem.
Who will bear the costs?
That is the million dollar question. The exporters are of the view that the containers are leased by the shipping companies and hence it is their job to manage this imbalance. However, most of the shipping companies are just about coming out of a prolonged phase of slowdown and they just do not have the appetite for taking on additional costs in their books. Indian exporters just do not have the margins to bear the additional costs and that has created this kind of Catch-22 situation. The only option, therefore, is to wait for extra time to get the containers. That is really slowing down the entire export story, something India cannot afford at this point, when it needs to boost trade.
Time for calibrated trade policy
Over the last few years, India has dwelt at length on economic policy, FDI policy, investment policy etc. However, there has really not been much focus on trade policy. For example, countries like Japan and China have been net exporters and run massive trade surpluses for a long time. It would be instructive for India to understand how they have managed such situations without impacting the efficiency of their export machinery. The more important task is to have a well calibrated policy on how India proposes to grow its trade. It is not just about products but also about logistics. It is time to look seriously at trade!
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