Indian exporters have achieved a remarkable feat in the time of global crisis on Wednesday by crossing the $400 billion mark for merchandise exports from the country. The pandemic had dented India’s export sector to an extent that in FY21 exports fell 7.3 per cent to $290 billion from $313 billion the previous year.
But even before the pandemic (FY15-FY20) India’s export competitiveness was being questioned as merchandise shipments from the country grew at a meagre 0.19 per cent. The highest export value in the last decade came in the year 2018-19 at $330 billion, even as India lost its markets to smaller countries like Bangladesh and Vietnam. One of the reasons cited for bad performance of Indian exporters was missing out on Free Trade Agreements that allowed smaller nations to eat into not just India’s market share but also take away the incremental growth that was a result of China’s exit from the space of textiles and other low-end products.
But going forward, can India sustain its newfound vigour?
Amit Sadhukhan, who teaches economics at Tata Institute of Social Sciences says, “We are growing at a very low base. India’s exports sector is still dependent upon low value added items that may not be able to sustain this kind of high growth in the coming years without structural changes. If India has to grow exponentially in value terms from here, it will have to focus on high-value added products.”
A major cause of concern for India should be the lacklustre performance of its pharmaceutical industry. The exports of pharmaceuticals from the country registered a decline of 3.13 per cent during February, 2022 to $1.94 billion as compared to the same month last year. In the 11 month period from April 21’ to February 22’ pharma exports grew marginally at 0.16 per cent compared to last year.
One of the biggest challenges India will face in terms of growth in the next financial year is expected slowdown in global trade due to the geopolitical environment that has pitted the West against Russia and China. Even India is facing the heat from the US, which has forced India to take an open stance against Russia’s decision to attack its neighbour Ukraine. Keeping its need of defence equipment and energy in mind, India has so far resisted any kind of pressure coming from the US, but it may result in losing out export markets for garments and other products that are the mainstay of the Indian export basket. Apart from that, Russia, which is facing financial sanctions in the form of being excluded from the SWIFT payment system, making it difficult for any country in the world to trade with the European nation. Among the CIS countries, Russia is the biggest importer of Indian engineering goods. Exclusion of Russia from the SWIFT payment system would result in delayed payment realisation for exporters. While India has the option of exploring rupee denominated payments with Russia, but given the growing pressure from the West, it might get tricky to push such mechanisms beyond a point, because the US remains India’s largest export market.
Another factor that is worth noticing is the fact that higher export value, more than anything else, is on account of inflation in the commodities market in the world, which has pushed the price of raw materials in the international market. This means that even if the exporters are not earning enough margins due to high cost of raw material and shipping costs, the final value of their exported products is giving a different picture.
“India has witnessed a sudden rise of export growth in the past as well, but that has not sustained in the long run. We need to see if India can maintain the growth momentum once the price of commodities, especially petroleum products, comes down in the international market. Moreover it is important to see where this growth has come from. Petroleum gems and jewellery and rice constitute the chunk of this growth,” said Aradhana Aggarwal, who teaches international trade at the Copenhagen Business School, Denmark.