The story so far: On March 21, the value of India’s outbound shipments in fiscal year 2021-22 hit $400 billion, the highest on record. By the end of the year this Thursday, an additional $10 billion worth of goods is expected to be shipped. This would translate to around 41% growth from the pandemic-hit year 2020-21, making it India’s fastest export growth rate since 2009-2010.
How important is it to achieve India’s $400 billion export target?
Firstly, 2021-22 reflects the first time in several years that the country has met its export target, but for a broader context, India’s export trend line before the COVID-19 disruptions was far from normal. to be close to this year’s performance. According to data from the Reserve Bank of India, outbound trade in goods had reached $303.5 billion in 2017-2018, $330.1 billion in 2018-2019 before dropping to $313.4 billion in 2019 -2020, when the figures were slightly shaken due to the severe national confinement measures imposed. during the last week of this fiscal year. While higher commodity and oil prices helped push up the value of exports, with exports of petroleum products jumping over 141%, some industrial sectors in India also shone. Engineering exports, for example, jumped 46.5% to cross $100 billion for the first time, even as chemicals, cotton yarn, handloom products and garment industry fared well. India has managed to meet its export target despite supply disruptions due to the pandemic, difficult shortages of shipping containers and surging freight rates. It could also be partly explained by the world shifting its global sourcing preferences to diversify its reliance on China following the outbreak of the COVID-19 virus. Australia, which is in the midst of a fierce trade battle with China, has given way to India, pushing its exports up 94% so far this year. Shipments to the United States are also up 47%. India hopes to consolidate these gains and establish its credentials as a credible alternative to China, although it could face fierce competition in some sectors from Asian peers such as Vietnam and Bangladesh.
What about imports and the trade deficit?
Even though exports could increase by nearly $120 billion this year, India’s imports have reached record highs and could reach nearly $200 billion from the 2020-21 import figure of 393, $6 billion. The trade deficit for the year could be around $190 billion, significantly higher than the $102 billion recorded in the year of the pandemic. The monthly trade deficit recently peaked and hit a record high of $22.9 billion in November 2021 as imports grew larger than exports.
What are the risk factors for Indian exports in the coming year?
Although India’s direct trade with Russia is not significant at around 1% of its trade basket, the conflict between Ukraine and Russia could create more opportunities for Indian agricultural exports, especially for crops like wheat and corn. But that would be offset by a sharp rise in India’s energy import bill as well as higher import costs for edible oils like sunflower oil, the production of which is dominated by the two warring nations. . India imports 80% of its oil and demand is expected to increase as the economic recovery gathers pace, provided the pandemic does not resurface. This could translate into a terms-of-trade shock, with high trade and current account deficits and sustained pressure on the rupiah even as monetary tightening in the developed world could suck emerging market dollars. RBI Governor Shaktikanta Das pointed out that unlike the taper tantrum of 2013, the country’s foreign exchange reserves, sufficient to cover more than 12 months of imports, are strong and can fund higher current account deficits if needed. However, most economists expect the rupiah to weaken in 2022-23, which in turn could be a minor benefit for exporters.
While high shipping rates, container shortages and the realignment of trade routes around the Black Sea will pose a challenge, timely actions on the political front could help create more export opportunities. First, a quick conclusion of the free trade agreements currently being negotiated with countries such as the United Kingdom, Australia and Canada could create easier access to these large markets. Second, exporters await a long-awaited review of foreign trade policy for 2015-2020, which has now been extended to the first months of 2022-23 as well. Third, a parliamentary committee has urged the government to include special economic zones and sectors such as pharmaceuticals, steel and chemicals under the export duty and tax rebate program ( RoDTEP), which finally launched last year after a significant delay. These could help balance out some of the most significant tectonic shifts in business patterns from the European crisis, including a firming up of the COVID-induced fallback shift in nations’ stance on globalization.