Business Finance

Impact of COVID-19 on International Trade in India

During the pre-COVID-19 period, India’s exports of goods and services stood strong in 2020, accounting for 19.74 percent of its GDP, while imports accounted for 23.64 percent. The introduction of COVID-19 wreaked havoc on the global import-export market and stifled cross-border trade. According to the World Trade Statistical Analysis 2019, India is one of Asia’s emerging economies with a rising role in foreign trade and the global value chain. However, the effect of COVID-19 on Indian trade is estimated to be 348 million dollars, and India is one of the world’s 15 most-affected economies, according to a UN study.

Because international trade has slowed, now is an excellent time to promote domestic goods and manufacturers, as well as improve domestic demand, by enforcing the protectionism theory. Here’s a closer look at the impact of covid-19 on international trade in India, first with the perspective of protectionism.

Theory of Protectionism

Protectionism is a philosophy that seeks to raise exports while lowering imports by erecting different types of trade barriers so that domestic industries have a reasonable chance to compete with foreign goods and services. Until the 1990s, India was a protectionist country. However, as part of the Liberalisation, Privatisation, and Globalisation (LPG) model, India opened its market to foreign trade in the late twentieth century.

COVID-19 has spread to all of the world’s major nations, resulting in a decline in global trade. As a result of the reduced trade, countries have begun to use their goods. The question here is whether developing countries like India are prepared to face Covid-19’s challenges and use domestic goods.

Protectionism can be implemented in a variety of ways

The Indian government’s recent decision to boycott Chinese products and halt trading practices with China encourages them to follow the protectionism theory. Furthermore, on the grounds of national security, sovereignty, and integrity, the Indian government has banned 59 Chinese mobile applications and later banned 118 Chinese apps, including PUBG. As a result of the government’s intervention, numerous alternative apps appeared, and people were encouraged to use them in combination with domestic products to become self-sufficient, i.e. Atma Nirbhar.

In the gaming industry, Bollywood actor Akshay Kumar has announced the launch of the FAU-G game, which will donate 20% of the game’s revenue to the BharatKeVeer Trust, in keeping with Atma Nirbhar’s vision.

Atma Nirbhar Bharat 

To resolve the issue of a lack of local development, Prime Minister Shri Narendra Modi announced the concept of Atma Nirbhar Bharat in his speech on May 11, 2020. The vision envisions products being generated and India’s potential is increased. Economy, structure, technology-driven framework, vibrant demography, and demand are the five basic features of the Atma Nirbhar Policy.

The Prime Minister’s vision for Atma Nirbhar Bharat is for India to become self-sufficient. This does not imply that India is isolated or anti-global. India has great potential to become a manufacturing hub because it can mass-produce ready-to-use and consumable products. The goal of this vision is for India to be competitive with the rest of the world. India has drawn 38 billion in foreign direct investment, also at the height of COVID – 19. The vision involves not only manufacturing products for the domestic market but also the global market. 

The New Education Policy (NEP), which was announced earlier this year, would expand the reach of the education sector, enabling Indian students to gain more exposure and establishing India as a global education hub. It will prepare the youth to make India a global leader in science, technology, and other fields, thus forming the Atma Nirbhar Bharat vision. Protectionism is promoted by the philosophy, vision, and steps taken to achieve the Atma Nirbhar Bharat.

Relaxations are given by the government after the advent of COVID 19

According to a new study published by the World Trade Organization (WTO), foreign trade will decrease by 32% by 2020. To mitigate the economic losses that are impacting trade, the Indian government has launched new policies to promote foreign trade. 

  1. The government has announced a Rs 10,000 crore incentive program to encourage the development of active pharmaceutical ingredients (API) in India. Imports and exports of API may be considered shortly for ramping up manufacturing for domestic use and exports. 
  1. To recoup the country’s economic impact and improve the MSME market, the government has devised new economic packages to shift income to the poorest segments of the economy, as well as complementary monetary authority liquidity-enhancing initiatives.
  1. The government is allowing customs clearance 24 hours a day, seven days a week to facilitate hassle-free international trade transactions. Also, the Foreign Trade Policy, which was set to expire in March 2020, has been extended for an additional year to promote import and export within the country. 

Relaxations are often granted in terms of the paperwork provision and its observance. The validity of various schemes that allow duty-free import of products, certificates, authorizations, and licenses, among other things, has been extended.

  1. Fourth, by the time various countries implemented the lockdown, physical copies of Certificates of Origin have become an impediment to international trade.

To make this process easier, the Indian government has agreed to issue Certificates of Origin retrospectively through approved Indian agencies, on the condition that, following the reopening of offices, India’s trading partners would allow qualified imports under preferences on a retrospective basis, subject to the creation of a certificate of origin by Indian exporters. 

Never before has the world faced such a compelling crisis, putting foreign trade in jeopardy. Protectionism’s goal has been furthered in a way as a result of this. In India, this has resulted in the funding of domestic producers and goods to achieve self-sufficiency. To achieve this goal, the country must have a strong backbone capable of supplying the necessary products at a reasonable price and of high quality. According to global standards, such local products should be competitive.

The Indian government should frame policies that support upcoming, existing, and small startups to support locals and have good products and producers within the country. Startups should have access to the best testing tools available anywhere in the world at a lower cost. The government should provide some protection to start-ups so that fresh graduate minds from all over the world are not afraid to start something new. These actions will inspire people to try new things and create new products, as well as promote Atma Nirbhar Bharat.

This would boost the cost and quantity of domestic goods on the foreign trade market, bolstering the protectionism argument.

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