—By Charu Latha
The world economy had the worst contraction due to COVID-19. India was no exception and the economy in 2020–21 was severely impacted due to the pandemic. The economy was expected to take a V-shaped recovery path (a quick sharp improvement in an economy that occurs after a quick sharp decline), but the country’s gross domestic product (GDP) continued to be below the pre-COVID level. This lack of a significant recovery after a downturn in economic activities could be largely due to low domestic demand and weak final consumption throughout this recovery phase. The Indian economy still kept going due to strong export growth and foreign demand. The ability of a country to export is crucial in contributing to revenue generation and economic growth. It was observed by several economists that increased exports help countries expand faster in terms of GDP and output.
The top five export destinations for India are the US, the UAE, China, Bangladesh, and the Netherlands. According to data from the Ministry of Commerce and Industry, the top five commodity groups of exports in April 2021–March 2022 period were engineering goods, petroleum products, gems and jewellery, organic and inorganic chemicals, and drugs and pharmaceuticals. According to the United Nations Conference on Trade and Development (UNCTAD), an intergovernmental organisation intended to promote the interests of developing states in world trade. Global trade hit US$ 28.5 trillion in 2021 after two years of stunted growth, one of the reasons for India’s export surge. The increase in exports was mainly due to the increase in demand for products such as petroleum, gems and jewellery, and engineering products. After the lull in economic activities in the first wave, as a result of the strictly-imposed lockdowns, the demand for products from different regions was not affected that severely during the second wave and the lockdowns. Relaxation of COVID-19 restrictions also caused the increase in demand. Not only the rise in demand, but also the growth of domestic manufacturing led by production-incentive schemes in sectors such as mobile manufacturing, electronic and textile products and interim trade pacts signed with different countries helped in boosting the exports. The government’s engagement with all the stakeholders and a detailed strategy, country-wise and product-wise targets also helped.
Another important reason for a huge rise in exports is the rising crude oil price. One of India’s largest export item is processed petroleum products and increase in price of crude oil has also worked in favour of India, though indirectly. A significant portion of the imported crude oil is converted into refined petroleum products by the country’s petroleum industry and exported as value-added products to the global market, including those countries that exports crude oil to India. Rise in price of raw materials like steel, chemicals, and plastics aided the value of exports. Apart from this, the increase in food security concerns in Africa, the Middle East, and other countries contributed to increased agricultural exports from the country.
India’s exports touched record high levels to many destinations. A target of reaching US$ 400 billion worth merchandise export in the fiscal year 2021–2022 was set and the exports have touched US$ 400 billion for the first time, even before 10 days of the set target. India achieved an all-time high annual merchandise exports, touching US$ 417.81 billion in FY 2021–22, an increase of 43.18 per cent over US$ 291.81 in FY 2020–21, as per data from the Ministry of Commerce and Industry. The last highest was around US$ 331 billion in 2018–19. India’s exports to the US have increased and reached to US$ 58 billion. Exports to China and Bangladesh have also increased while the exports to the UAE have declined, as compared to the previous years. One of the important reasons for the decline in exports to the UAE could be because of the loss in momentum due to decrease in India’s oil imports over the past few years. To continue to perform well with exports, India is seeking to ink free trade agreements (FTAs) with several countries. So far, India has signed 13 FTAs, including 2 in 2022: the India-UAE Comprehensive Economic Partnership Agreement (CEPA) and the India-Australia Economic Cooperation and Trade Agreement (ECTA). The government is looking forward to negotiating FTAs with the UK, European Union, Canada, and Israel. FTA with the US has been in speculation for several years and there could be a possibility with the new government there. With all the possible FTA negotiations, 2022 could become an important year for India with regard to trade.
The sectors which contributed to the phenomenal increase in merchandise exports are engineering goods (rose by 50 per cent), petroleum products (rose by 152 per cent), gems and jewellery (grew by 49 per cent) inorganic and organic chemicals (grew by 32 per cent), drugs and pharmaceuticals, electronic goods, readymade garments (RMG) of textiles, plastic and linoleum, and rice exports. India is exporting considerable amounts of raw materials, iron ore and cotton and also processed goods. The FTAs that are being negotiated by the government aim to increase exports of value added goods as well. The US is our biggest market for engineering goods and services, UAE is our largest market for petroleum products, and the Netherlands and the US are the largest markets for drugs and pharmaceuticals. India has signed interim trade deal with Australia, comprehensive FTA with UAE, which will reduce duties on 90-95 per cent of the exports from the day these pacts are implemented.
Exports are crucial for determining a country’s economic growth as they help in expanding GDP, creating demand, jobs and improving infrastructure. There is a huge possibility, given the strong performance of exports, that it will be an important growth trigger for the Indian economy. Exports had been an intrinsic component of India’s economic growth and the revival back to normalcy from the pandemic-induced slump. But the only concern in the present situation is the rising level of imports. The imports rose to US$ 611 billion in 2021–22 from US$ 394 billion in 2020–21, which is a 59 per cent rise from last year. Though the exports are heading uphill, it is important to control and reduce the import burden on India as a rising level of import and a growing trade deficit have negative effect on the country’s exchange rate.
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