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Trade growth fails to support recovery mantra - Views on News from Equitymaster
 
 
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  • Sep 2, 1999

    Trade growth fails to support recovery mantra

    According to newspaper reports, India's exports grew by 2.11% (YoY) in the month of July, while imports grew by 1% (YoY). These growth figures come as a disappointment as Indian trade had registered double-digit growth rates in the months of May and June.

    The disappointment, however, arises from the fact that a slowdown in Indian trade could belie talks of economic recovery. Even though it may sound contradictory to popular wisdom, an increase in imports is more likely to support a domestic economic recovery than suppress it. This is so because trends reveal that a large part of India's non-oil imports have consisted of capital goods, which increase productive capacity and efficiency of the economy, by providing access to better technology.

    Exports, on the other hand, make it possible for Indian companies to register growth rates, which are higher than the growth in domestic demand. This again helps in achieving higher levels of economic growth, the kind witnessed in the Southeast Asian countries during the their heydays.


    From the graph above it is clear that over the last sixteen months, the performance of Indian trade has at best been erratic. If India were to attain the GDP growth rates in excess of 7% over the next few years, then it is necessary for Indian trade to register significantly higher growth rates.

     

     

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