Abstract

The case is about widening of the trade deficit in India as a consequence of the COVID-19 pandemic The outbreak of the pandemic disrupted normal economic activity and life in India. The travel and transport curbs imposed in the wake of a nationwide lockdown had an adverse impact on the country’s economic growth. Indian trade was severely impacted as businesses became highly vulnerable to the unfolding economic crisis. For the fiscal year 2020, India reported a decline in exports and imports, with the trade deficit narrowing down to US$152.88 billion as against US$184 billion in the previous financial year. In the first quarter of 2020-21, the country reported merchandise trade surplus, which was attributed to the pandemic-induced contraction in the economy, especially with the low demand and import of goods due to the lockdown. For the period April-September 2020, India’s trade deficit came down due to a massive fall in local and global demand amid the pandemic-induced lockdown. From October 2020 India again started experiencing an increase in the volume of trade deficit. In February 2021, trade deficit widened as exports grew marginally by 0.67% year-on-year to US$27.93 billion while imports increased 6.96% year-on-year to US$40.54 billion, leading to a trade deficit of US$12.62 billion. While analysts were expecting exports to strengthen once the uncertainty over COVID-19 came to an end, exporters and business houses were waiting for a new Foreign Trade Policy to be announced.

Learning Objectives

The case is structured to achieve the following Learning Objectives:

• Understand the foreign trade in India
• Evaluate the impact of the COVID-19 pandemic on Indian trade
• Critically analyze the outcomes of trade deficit for the country’s economy
• Discuss the need to revisit the trade policy to enable it face all challenging situations.

Keywords

Indian Economy; Closed Economy; Foreign Trade; Balance of Trade; Balance of Payment; Trade Deficit; Merchandise Trade; Trade in Services; GDP Growth; LPG Model; Liberalized Trade Policy; Inward-oriented Policy; Outward-looking Policy; Foreign Trade Policy; Imposition of Tariff