The value of India’s exports in the financial year 2021-22 hit 400 billion dollars which would translate into a growth of about 41% from the pandemic-hit year of 2020-21.
How significant is the attainment of India’s 400 billion dollar exports target?
According to data from the RBI, outbound merchandise trade had clocked 330.1 billion dollars in 2018-19 before slipping to 313.4 billion dollars in 2019-20.
India’s achievement of 400 billion dollar export target refers to exports of only the goods, and does not include services.
Reasons for achieving the 400 billion dollar exports target
Diversification of procurement- The world is shifting its global procurement preferences to diversify their dependence on China- Australia, which is in trade battle with China has made way for India taking exports up 94% this year.
Higher prices- The higher prices of commodities and oil helped drive up the value of exports, with petroleum products exports jumping over 141%.
Domestic sector growth- Some of India’s industrial sectors performed as well, for instance, engineering exports have jumped 46.5% to cross100 billion dollars for the first time.
What about imports and the trade deficit?
Even as exports may rise nearly 120 billion dollars this year, India’s imports have shot up to record levels and could end up nearly 200 billion dollars over 2020-21’s import.
Thetrade deficit could be around 190 billion dollars, sharply higher than recorded in the pandemic year.
At present, imports are gaining greater momentum than exports.
What does the $400 billion number hide?
Low levels of exports as a percentage of GDP- In absolute terms, India’s merchandise exports had reached the 305 billion dollar mark in 2011-12 which was 17% of India’s GDP at that time.
Since then the weakness of India’s export performance over GDP growth can be seen.
Low base effect- What made this surge in exports even more relevant was the fact that it is coming after two years of contraction (in 2020 and 2021).
The same happened in the immediate aftermath of the Global Financial Crisis of 2009.
An outlier in the recent trend- In the past 10 financial years, India’s exports have contracted on five occasions but the recovery wasn’t as sharp.
This year’s sharp recovery is thus an outlier and begs the question of whether it is an outlier in the recent trend.
Not a broad-based recovery- Most of the commodity groups (chemicals and products, agriculture) grew at a rate lower than the overall average.
Increase in value or volume- The value of India’s exports could go up for three reasons:
Prices of exported goods are going
The volume going up (or)
A combination of both volume and prices going up.
The 400 billion dollar figure essentially refers to the value of exports and doesn’t say anything about the contribution of volume increase.
Worries over global growth, inflation and demand for India’s exports- The government has asserted that this jump in exports is a result of a detailed strategy which targeted specific countries for specific exports.
Apart from domestic policy focus, India’s exports received a boost from a surge in global demand (overall economic recovery and loose monetary policy by the developed worlds).
What are the risk factors for Indian exports in the coming year?
It is expected that the rupee will weaken over 2022-23, which in turn could be a minor perk for exporters.
The Ukraine-Russia conflict may create some more opportunities for Indian farm produce exports, especially for crops like wheat and maize.
But this would be compensated by a sharp rise in India’s energy import bill as well as increase in costs of importing edible oils whose production is dominated by the two nations at war.
There is a possibility for ‘term-of-trade’ shock, with elevated trade and current account deficits and sustained pressure on the rupee.
The high shipping rates, container shortages and re-alignment of trade routes around the Black Sea will pose a challenge.
Need of the hour- A swift conclusion of Free Trade Agreement pacts with countries like the U.K., Australia and Canada, could create easier market access in these large markets.
Exporters are waiting for a long-overdue revision of the Foreign Trade Policy for 2015-20, that has now been extended.
The RBI Governor has pointed out that India’s foreign exchange reserves are robust and can finance higher current account deficits if needed.
