India Crosses $400 Bn Exports: Measures Required To Sustain High Growth

It was indeed a proud moment for India when its merchandize exports crossed $ 400 billion for the first time in third week of March and closed the FY 2022 with $ 417.8 billion achieving a growth of over 26 per cent in exports compared to the previous record high of $330 billion achieved in FY 2019 prior to the Covid-19 pandemic.  

The main drivers of India’s merchandise exports were petroleum products, engineering goods and gems & jewellery whose exports increased by 114 percent, 32 percent and 57 percent respectively. Other sectors which witnessed significant growth were electronics goods whose exports grew by 42.8 percent, export of cotton yarn/fabrics/made-ups, handloom products, man-made yarn/fabrics/ registered a growth rate of 50-60 percent. Agriculture sector exports growth was driven by commodities such as rice, marine products, wheat. Products such as organic chemicals and aluminium also witnessed robust growth. The major markets for India’s export were US, UAE, China, Bangladesh and Netherlands.  

Several internal and external factors led to high growth of India’s exports. Policy initiatives and schemes of the government initiated in last couple of years showed positive results. The government formulated a detailed strategy, which included country-wise, product-wise and Export Promotion Council – wise specific targets and took corrective actions mid-way to boost exports. The push given by government resulted in a range of new products being exported for the first time in FY 2022. These included fresh vegetables and mangoes from Varanasi, black rice from Chandauli, oranges from Nagpur, bananas from Theni, bhoot jolokia chilli from Nagaland, red rice from Assam and millet from Himachal Pradesh.  

Government also pushed exports of several processed items like honey, cocoa, fruit jams, and wine, which were not exported earlier. Boost in domestic manufacturing through Production Linked Scheme (PLI), implementation of interim trade pacts and increased FTA utilization by exporters were other factor which had impact on high growth in India’s export.  

While these efforts need to be applauded, it is also important to recognise that India’s exports were also influenced by several external factors.  

During major waves of Covid-19 pandemic, the demand was subdued across all major economies of the world. When world economy started showing signs of recovery it resulted in high demand. Along with pent up demand, expansionary monetary policy by developed economies in response to the economic impact further boosted the demand. Many developed countries, in response to the pandemic, provided cheap credit which also had positive impact on India’s exports.  

Another factor that also contributed to high export value was inflation in the commodities market in the world. The Bloomberg Commodity Spot Index, which covers a broad basket of globally traded raw materials, has risen more than 45 percent over the past one year which was highest since 2011. Petroleum products which accounts for 15 percent of total India’s export saw a considerable increase in export value primarily due to increase of crude oil prices from $ 64.8 per barrel at the beginning of the year to $117 per barrel in March 2022. Similarly, prices of key raw material such as steel, chemicals and plastics have also increased in FY 2022.  

There are several challenges that India might face in coming times. There might be slowdown in global trade on account of tensions between west with Russia and China. India might also face some trade restriction from US on account of neutral stance taken in ongoing Russia-Ukraine war. US being India’s key trade partner, such restriction will impact India’s exports adversely.  

If India wants to sustain high growth and achieve the target of $1 trillion merchandize exports by 2030, there are several steps required to be taken.  

There is need to further improve logistics infrastructure and trade facilitation measures. The cost of logistics, for India is around 14 percent of GDP, whereas in many developed nations it is just about 8-10 percent. India needs to lift merchandise export to GDP ratio, which is on a declining trajectory. Government should also increase the budgetary allocation to enhance the export promotion programmes. According to parliamentary standing committee on commerce the merchandise export to GDP ratio of 12.2 percent in 2018-19 has come down to 11.07 percent in 2019-20 and 10.94 percent in 2020-21. There is a shortfall of ₹1,296 crore in the total allocation due to the lowering of budgetary support for several government export promotion agencies like Marine Products Export Development Authority (MPEDA), Tea Board, Export Credit Guarantee Corporation (ECGC), Trade Infrastructure for Export Scheme (TIES) etc. This would adversely affect the optimal functioning of export promotion schemes and would hurt the export growth. There is also a need to strengthen every export sector to sustain growth in long-run. 

Export competitiveness of Indian goods have also not been very encouraging. During FY15-FY20 merchandise export from the country grew at a meagre 0.19 per cent. India lost its markets to smaller countries like Bangladesh and Vietnam. Cost of credit, at present, in India is comparatively high. It is available at around 10 percent rate of interest, whereas in countries like China, Vietnam and South Korea it is available at around 4 percent. Other reason was India missed out on FTAs that allowed several smaller countries to take away India’s share. With signing of recent FTA with Australia, where tariff elimination will be there for almost all Indian products entering Australia, it is expected that this will give favourable results to Indian exports. To sustain high growth in long-run India should also speed up its FTA negotiations with EU and the US. 

India also needs to focus on export of high value items for example there has been a substantial jump in the export of primary steel in FY22 while many value-added steel products have seen a 15-35 percent decline. Similarly, in textile there needs to be focus on supplying high-value finished products rather than yarn and fabric.  

Last financial year has been a breakthrough year and crossing $ 400 bn is a big morale booster. Now it is time for exporters and government to work in tandem to sustain this growth through better trade facilitation, improved trade infrastructure and exporting high value-added products.