$400 billion exports

ECONOMY/ GOVERNANCE

• GS-2: Government policies and interventions for development in various sectors and issues arising out of their design and implementation. 
• GS-3: Indian Economy & its challenges

$400 billion exports

Context: On March 21, the value of India’s outbound shipments in the financial year 2021-22 hit $400 billion, the highest ever.

• By the time the year closes on March 31st, another $10 billion worth of goods is expected to be shipped out. 
• This would translate into a growth of about 41% from the pandemic-hit year of 2020-21, making it India’s fastest exports growth rate since 2009-10. 

How significant is the attainment of India’s $400 billion exports target? 

• According to data from the RBI, outbound merchandise trade had clocked 
  • $303.5 billion in 2017-18
  • $330.1 billion in 2018-19 
  • $313.4 billion in 2019-20
• 2021-22 reflects the first time in several years that the country has met its exports target despite challenges of
  • supply disruptions due to the pandemic, 
  • challenging shortages of shipping containers 
  • surging freight rates.
• Higher prices of commodities and oil helped drive up the value of exports.
• Engineering exports have jumped 46.5% to cross $100 billion for the first time, even as chemicals, cotton yarn, handloom products, and the apparel industry have done well.
• Increase in trade can be explained by the world shifting its global procurement preferences to diversify their dependence on China following the outbreak of the COVID-19 virus. 

What does the $400 billion number hide?

• Low levels of exports as a percentage of GDP: The $400 billion merchandise exports constitute aprrox. 13% of India’s GDP (It was $305 billion in 2011-12 itself accounting for 17% of GDP). The target of $400 billion would have been achieved long back had India’s export kept pace with its GDP growth.
• Not a broad-based recovery: Of the 20 commodity groups, only six (highlighted by red circles in the chart) had a growth rate higher than the overall average (49%). 
  • Chemicals and products, which is the second-biggest export item grew by only 17%. Similarly, agriculture, with a share of 9%, grew at just 20% — less than half the overall growth rate.
• The growth was primarily due to growth of value: India’s exports could go up either due to increase in prices or increases in volume or combination of both. India’s export growth was largely due to price rise. for ex: The value of petroleum and petroleum products — accounting for 15% of total exports —grew by a whopping 158%.
• Increasing Trade Deficit: The trade deficit for the year could be around $190 billion, sharply higher than the $102 billion recorded in the pandemic year. This is because imports have also increased rapidly this year (estimated to increase by $200 billion compared to 2020-21’s import figure of $393.6 billion)

What are the risk factors for Indian exports in the coming year? 

• Although India’s direct trade with Russia is not significant at about 1% of its trade basket, the Ukraine-Russia conflict may create challenges & opportunities
  • Opportunities for Indian farm produce exports, especially for crops like wheat and maize. But this would be offset by a sharp rise in India’s energy import bill as well as an uptick in costs of importing edible oils 
• High shipping rates, container shortages and re-alignment of trade routes around the Black Sea will also pose a challenge.
• Exports increased also due to economic recovery (& pent up demand) in the developed world that was fuelled by Government spending & loose monetary Policy. The coming year might see moderation in global growth prospects thus impacting India’s trade prospects also.

Conclusion

India would hope to consolidate these gains and establish its credentials as a credible alternative to China, even as it could face stiff competition in some sectors from Asian peers such as Vietnam and Bangladesh.