17 January 2023 • 9 min read
2022: Year in Review
Since mid-2021, issues with semiconductor chip availability have limited the production of a variety of electronic and automobile items.
Policy makers and governments shall make every possible effort to stay ahead of the curve.
Trade propels economic growth. For any country, both domestic and international trade are vital for sustainable development. The year 2022 was not easy for global trade by any means. It began with severe port congestion and supply chain troubles, while towards the end inflation and high interest rates have dented industrial activity and consumer spending.
In the following paragraphs, we have tried to summarize some significant developments in international trade and commerce in 2022, outlook for 2023, and major policy announcements by government.
Trade Settlement in Rupee
To promote the use of Indian Rupee (INR) for international transactions, the Reserve Bank of India (RBI) had brought out a circular in July 2022. In line with the framework suggested by the RBI, the Ministry of Commerce has amended the relevant portion in the Foreign Trade Policy (FTP) on 9th November 2022.
At present, 60% of India’s import-export payments are made in U.S. dollars. As per data from the RBI, this figure stands at 86% in the case of imports. Any shift from the present mechanism will result in saving of foreign exchange reserves. Even a limited rupee settlement window can lessen the dollar outflow to a great extent.
India’s National Logistics Policy
The need for a national logistics policy was felt since the logistics cost in India is high as compared to other developed economies. It is imperative to reduce the logistics cost in India for improving the competitiveness of Indian goods both in domestic as well as export markets. The policy is an endeavour to improve the competitiveness of Indian goods, enhance economic growth and increase employment opportunities.
Due to concerted efforts of central and state governments, the turnaround time for container vessels at Indian ports has come down from 44 hours to 26 hours at present.
India-UAE Comprehensive Economic Partnership Agreement (CEPA)
On February 18, 2022, the India-UAE CEPA was formally signed. The Agreement was ratified in March 2022 and went into effect on May 1. Businesses on both sides will gain a lot from the agreement, including improved market access and lower tariffs. In the following five years, it is anticipated that the CEPA will raise bilateral trade from its current level of USD 60 billion to USD 100 billion.
Outlook For 2023
Much of 2023 is expected to be overshadowed by contraction in economic activity throughout the world, with exception of few bright spots. Policy makers and governments shall make every possible effort to stay ahead of the curve.
- Developments in global trade logistics: Ports and shipping firms have now adapted to the difficulties brought on by the Covid-19 outbreak. In addition to the reduction of port congestion, new ships are being put into service. Although they are still higher than pre-pandemic standards, freight and cargo rates are on the decline.
- Trade deals materialising: Several smaller commerce agreements that were recently negotiated should materialise and provide international trade some pace.
- Lower economic growth: Due to high oil prices, rising interest rates, continued inflation in many nations, and detrimental global economic fallout from the conflict in Ukraine, economic growth projections for 2023 have been revised downward.
- High costs of traded goods: It is anticipated that rising energy costs, as well as the costs of consumer goods and intermediate inputs, will stifle demand for imports and reduce the amount of global commerce.
- Concerns about the sustainability of debt: The record-high levels of global debt and the rise in interest rates raise serious questions about the sustainability of debt. As financial conditions continue to tighten, pressure on already heavily indebted governments is predicted to increase, increasing vulnerabilities and harming investments and global trade flows.
Ministry of Commerce & Industry undertakes an annual “Logistics Ease Across Different States (LEADS)” survey in all States/ UTs to assess and suggest various improvements in logistics sector of the country.
The LEADS survey assesses viewpoints of various users and stakeholders across value chain (Shippers, Terminal Infrastructure Service Providers, Logistics Service Providers, Transporters and Government agencies) to understand the ‘enabler’ and ‘impediments’ to logistics ecosystem in the country. The annual survey processes the data received from stakeholders (perception data) and States/ UTs (objective data) and ranks logistics ecosystem of each State/ UT using a statistical model.
The LEADS 2022 Survey was rolled out in April this year. More than 600 physical meetings were held facilitated by more than 20 National Associations and 75+ Regional Associations across the country. Their active participation has resulted in more than 6,000 responses being collected this year. The States/ UTs too actively participated and provided necessary data pertaining to the survey.
Supply Chains and the New Normal
There have been hints that supply chain limitations are loosening, even if conditions aren't quite at pre-pandemic levels. For instance, ocean freight prices from Shanghai to Los Angeles are still 25% higher than the average for the years 2010–19, despite being down 80% from the start of the year and 83% from the peak in 2Q21. Since mid-2021, issues with semiconductor chip availability have limited the production of a variety of electronic and automobile items.
Production levels have been gradually improving, however they have not yet fully recovered, as supply chain limitations and semiconductor availability increasingly loosen.
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