India's export growth is likely to be flat in the next fiscal if the global economy does not pick up, the Economic Survey said on Tuesday.
The Survey said that though India's merchandise exports have touched an all-time high of USD 422 billion in 2021-22, the world economy has started facing formidable headwinds and the ripple effect of the global trade slowdown has started reflecting in India’s goods export growth. India's exports contracted by 12.2 per cent to USD 34.48 billion in December 2022 due to the global demand slowdown, and the trade deficit widened to USD 23.76 billion during the same period, according to government data.
During April-December this fiscal, the country's overall exports rose 9 per cent to USD 332.76 billion while imports increased 24.96 per cent to USD 551.7 billion. The trade deficit during April-December 2022 period widened to USD 218.94 billion as against USD 136.45 billion in April-December 2021. "The export outlook may remain flat in the coming year if global growth does not pick up in 2023, as indicated by many forecasts," the survey said. In such cases, it said, diversification in export destinations and the product basket through free trade agreements (FTAs) would be useful to enhance trade opportunities.
At times when the base (global growth and global trade) is not growing, export growth will have to come predominantly through market share gains, it noted. "In turn, that comes from the focus on efficiency, productivity, technology, and innovation. That game has to be lifted. Governments can try and open markets through FTAs. But, to take advantage of that is in the hands of private sector participants," it added.
The World Trade Organisation (WTO) has projected a growth of only 1 per cent in global trade in 2023. In December 2022, key export sector have recorded negative growth and that include engineering goods, gems and jewellery, leather goods, pharma, carpet, and petroleum products.
"The slowdown in Indian exports is inevitable in a slowing global economy, characterised by slowing global trade," it said. India’s external sector has been impacted due to volatility in global commodity prices; tightening international financial conditions; heightening financial market volatility; reversal of capital flows; currency depreciation, and looming global growth and trade slowdown. "However, it has been able to face these headwinds from a position of strength on the back of strong macroeconomic fundamentals and buffers," it added. The government is expecting that measures like announcement of National Logistics Policy, and recently implemented FTAs (UAE and Australia) would address the external frictions by creating opportunities for exports.
"Thus, the whole ecosystem would evolve in an export-friendly manner over time," the survey said adding the risk of supply chain shocks has never been more palpable than today, following compounding crises from the US-China trade war, the Covid-19 pandemic, and the war in Ukraine.
In this fast-evolving context, as global companies adapt their manufacturing and supply chain strategies to build resilience, India has a unique opportunity to become a global manufacturing hub this decade, it said. The three primary assets to capitalise on this unique opportunity are the potential for significant domestic demand, the government’s drive to encourage manufacturing, and a distinct demographic edge, including a considerable proportion of the young workforce, the survey suggested.
It said that the FTAs would help provide greater market access with a reduction in tariff (customs duties) and non-tariff barriers on goods and services and make the exporters competitive. Recognising that FTAs would continue to feature permanently in world trade, India has engaged with its trading partners/blocs with the intention of expanding its export market.
"The economic rationale for FTAs was the diversification and expansion of India’s exports to its trading partners, providing a level playing field vis-à-vis the competing countries having preferential access in our trading partners, as well as gain easier access to raw materials and intermediate products, at lower costs, for stimulating value-added domestic manufacturing," it said.
India has so far concluded 13 FTAs and six preferential trade agreements. The country is presently engaged in negotiations with the UK, Canada, and European Union. The limited progress in the multilateral trade negotiations at the WTO is one of the reasons responsible for the increase in FTAs.
While merchandise exports are witnessing some slowdown in the second half of 2022, India's service exports have been robust.