How to conserve foreign reserves: possibility of international trade in rupee?

The World Trade Organization (WTO) has revised downwards its previous global trade growth forecast from 3.4% to 1%. Interest rate increases, which have been resorted to by major economies for fighting inflation have resulted in fears of recession, consequent to monetary tightening.

- Dr TK. Jayaraman

The news on the external sector of India's economy, as we enter the new year is not favourable. 2023 began with challenges. They stem from both global and domestic factors. The World Trade Organization (WTO) has revised downwards its previous global trade growth forecast from 3.4% to 1%. Interest rate increases, which have been resorted to by major economies for fighting inflation have resulted in fears of recession, consequent to monetary tightening. The International Monetary Fund has comforted its 190 members with its prediction that the recession would only cover one third of the world. However, it is obvious that any recession in the advanced countries would have adverse effects on demand for goods ranging from raw materials and primary goods to manufactured consumer goods from the developing and less developed countries in the globalised world. The seemingly endless Russian-Ukraine conflict's impact on demand and supply conditions have been identified as responsible for the gloomy forecast of falling world trade.

Widening trade deficit

The news on hand reveals that India's merchandise exports at $34.5 billion contracted by 12% on a year-on-year (y-o-y) basis in December 2022. The negative momentum on a month to month (m-o-m) basis is 1.1%. According to the latest official release, India's merchandise exports, during April-December 2022, rose by 9% to reach about $333 billion while imports rose by 25% to $552.7 billion.