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Indian Trade Looking Up?

Global Economic Engagement in 2008 Was Unprecedented
9 November 2009

by Daniel Michaeli

As reported last week in India’s Business Standard, in spite of stagnation in global trade growth over the past couple of years, India has just increased its trade activity to an impressive 54% of GDP, including services trade.

Last month, I wrote a blog post questioning India’s potential as a trading power, and raised potential implications of Indian trade performance for India’s regional and global reach. Limitations like infrastructure, manufacturing capacity, and economic openness loom large as India seeks greater heft through growing economic ties around the world.

Has something changed? How is India suddenly being called a major trading power?

A brief look at World Trade Organization and World Bank statistics suggests that, in fact, India’s merchandise and services trade data have both seen impressive growth from 2007 to 2008. All together, trade constituted 44.4% of GDP in 2007 and 54.0% of GDP in 2008.

The most impressive growth for India was in merchandise trade. The uneven nature of this growth, however, means that India’s merchandise trade deficit grew two-thirds larger in just one year. India imported $116 billion more than it exported last year, compared with $70 billion in 2007, surpassing the deficit in U.S. merchandise trade. Net international trade added up to a loss of 8.0% of Indian GDP in 2008, compared to 4.5% in 2007.

So the news is mixed: India is gaining a stronger global trade profile, which bodes well for its strategic potential. But its internal constraints continue to harm the competitiveness of Indian companies in international markets.

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