India’s Top-notch Economic Growth
India’s economic growth trajectory has increased from steady throughout the 1960s to the 1990s to robust in the 2000s and accelerated in the 2010s which is symbolic of the nation's economic potential. Over the years, a series of economic changes have boosted socio-economic growth and development, as well as created a favourable and prospective business environment.
Nonetheless, the year 2020 was challenging for the Indian economy due to the formidable impact of the pandemic-driven economic crisis. Covid-19 has resulted in severe disruptions in industrial production and growth by severely undermining the supply chains.
Growing Exports, Despite Setbacks
Over the years, foreign trade has played an important role in the Indian economy. Exports have continued to be the major focus of India’s foreign trade policy and India is considered one of the most attractive markets for foreign trade with a large base of export and import-centric industries. This can be attributed to various factors such as a large and expanding consumer base, availability of skilled and semi-skilled managerial and technical manpower, availability of capital and improved infrastructure, among others.
India’s exports have faced a challenging period in the last few years on account of a subdued global economic outlook and a major international trade slowdown. Consequently, India’s exports were stuck at around USD 260-330 billion in the last 10 years. India’s exports in the economy supported by market resilience, dynamism and facilitative reform measures, have undergone significant changes in the recent years in terms of volume, structure and direction.
It is worth mentioning that continuous efforts of the government to diversify India’s exports in terms of market and product expansion led to all-time high exports in FY 2021-22. India’s overall exports (merchandise and services) touched an all-time high of USD 669 billion in April-March 2021-22, increasing by 34.50 per cent over the same period last year.
Bullish on India
India is considered a bright spot in the global economic system and a major growth driver of the world economy. India’s credibility in the global economic system is stronger than ever and it is expected that India will be the fastest moving economy in the next very few years supported by the slew of robust economic reforms undertaken by the government.
On the back of various export promotion measures adopted by the government, India’s exports of goods and services have increased significantly from USD 44 billion in 2001 to USD 669 billion in 2021. On the other hand, India’s imports have increased from USD 51 billion in 2001 to $755 billion in 2021. India has achieved this high figure despite the worldwide economic slowdown resulting from several factors.
Changing the Mix
It is highly encouraging to note that the composition of India’s export basket has changed from traditional goods to engineering goods. Engineering goods exports contributed significantly to the total exports of India and accounted for around 25 per cent with a value of USD 111 billion. The sector had shown tremendous resilience in the pandemic and had recovered quite remarkably since then, engineering goods exports have gone up by nearly 50 per cent vis-à-vis last year.
Higher engineering exports, apparel and garment export, etc. indicate that the misconception of India being a major exporter of primary commodities is gradually changing. India is now exporting more value-added and high-end exports and this effort is by technology-driven industries. Export of cotton yarn, fabrics, made-ups, handloom products etc, gems and jewellery, other cereals and man-made yarn, fabrics, made-up etc. have also registered a growth rate of more than 50 per cent as compared to the previous year.
The domestic manufacturing industry has become more integrated into global value chains, with companies making their operational activities more efficient and increasing productivity through increasing adoption of digital technologies. In addition, the incentive structures ranged from subsidised bank credit, export targets linked to long-term credit, export subsidies, incentives for R&D, and infrastructure development providing a higher export growth trajectory.
Necessary Changes
The procedural requirements have been reduced and the communication between government departments has become transparent and hassle-free, however, the cost aspect of doing business, including the cost of capital, cost of compliances, cost of logistics, cost of land and availability of land, cost of power, energy and cost of labour needs to be reduced further. Cost competitiveness and trade facilitation measures will create a level-playing field for Indian exporters.
Despite this, the pace of India’s economic activity is expected to remain strong on the back of various structural reforms undertaken by the government during the last two years. At this juncture, to further enhance the pace of exports and achieve the vision of a USD 5 trillion economy, along with becoming Aatmanirbhar in the coming years, the continuation of bold government reforms is essential.
India’s export performance will depend on diversification across destinations, products and services. India should develop a sector-wide strategy to accomplish sectoral growth. There is an opportunity for Indian textile industries, agriculture and food processing to grow and prosper in the world market as China’s market share is expected to decline further due to the higher cost of labour, ageing population and trade restrictions imposed by the various countries.
New Opportunities
Presently, the global supply chains are undergoing a major transformation due to disruptions caused by Covid-19 and geopolitical developments. It is the most opportune time for India to capture a bigger share in the world economic system and develop strong and resilient local supply chains while remaining a part of the global supply chain network.
The focus of free trade agreements (FTAs) should be on connecting with global value chains to better position our products in front of foreign buyers, rather than inviting global producers to sell their products openly in our market without a suitable give and take. To take the advantage of FTAs, we should revamp the strategy and follow the aggressive approach for the early conclusion in each identified market.
At this juncture, India should think big and be ready with a strategy to further improve quality, build capacity, bring in economies of scale, and improve price competitiveness to make our export products more relevant and appealing to global buyers.
These reforms will go a long way toward making the economic growth trajectory sustainable to fulfil the vision of attaining an economic size of USD 5 trillion in the coming times.
