RBI AND GTRI REPORTS HIGHLIGHT TRADE UNCERTAINTY IN INDIA

The Reserve Bank of India has in a recent report on 19 January highlighted concern over global supply chains coming under pressure due to the recent attacks on commercial ships in the Red Sea trade route, necessitating rerouting via the South African Cape of Good Hope.

- NIVEDITA MUKHERJEE

“Geopolitical risks remain elevated, posing both upside risks to commodity prices and downside risks to growth. This is raising transit times and war-risk premiums. This is also raising freight charges which have suddenly come under renewed pressure due to hostilities around the Red Sea,” the RBI cautions in the January report, also noting that these developments are reflecting in the daily trade volume transiting through the Bab el-Mandeb Strait and the Suez Canal which has fallen considerably. The impact of this disruption has most felt in petroleum, chemical and nonmetallic mineral products, mining and quarrying and agriculture sectors. These developments impart considerable uncertainty to the near-term outlook for India’s merchandise trade. In the context of recent increases in freight costs, it is worth noting that the ratios of transport costs to India’s goods imports and exports stood at 2.8 and 4.8 per cent, respectively, in Q2 of FY2023-24, declining from highs recorded a year ago. According to the RBI report, crude prices fell in spite of production cuts, although they are jittery on tensions in the Red Sea through which 12 per cent of seaborne oil trade and 8 per cent of liquified natural gas trade flows.