If one solace that India can take from the pandemic, it is the growing number of merchandise exports that the country is witnessing. India’s merchandise exports in April-July 2022 were $130.53 billion, an increase of 73.51 percent over the same period last year, helped by the lower base of pandemic impact.
The growth was still impressive when compared to pre-COVID levels. A comparison on a 2-year CAGR basis suggests that merchandise exports grew by 21.82 percent over $107.15 billion in April-July 2019-20. Total exports in July was at $35 billion, the highest-ever monthly performance.
In a recent event, the commerce minister hailed FY22 as being on its way to be a record-breaking year for exports. And buoyed by these positive signals, the ministry has set the merchandise export target of $419 billion in FY22. It has also prepared a roadmap to the overall exports target of $2 trillion by 2030 (contributed equally by the merchandise and services side).
India’s Export Basket
Historically, Agri and petroleum-based products have been the major components of India’s export basket. But, that basket has expanded over a period of time, led by engineering goods, petroleum products, gems and jewellery, textiles and garments, chemicals and pharmaceuticals.
The total share of petrochemicals in exports has declined to 9 percent in FY21 from 21 percent in FY14. It recovered to 14 percent in the current fiscal in correlation with a spike in crude prices. However, it is again expected to cool off, with global crude prices expected to moderate. Agri based and labour-intensive products like coffee, tea, mate and spices, carpets and footwear are no longer on the list of top exports. Aluminium and floating structures like ships and boats are now part of the top exports.
Electrical and mechanical machinery, vehicles, articles of iron and steel, plastics have also all improved on their base and increased their share in the overall exports. Certain other products like fur skins and artificial fur, arms and ammunition, furniture, aircraft and spacecraft and zinc and their articles are at a primary stage, but they are growing rapidly and showing great promise.
The Policy Support
India has recently launched the Production Linked Incentive Scheme (PLI) intending to promote competition and bring private investment in those sectors showing potential.
It includes sectors like advance chemistry cell (ACC) battery, electronic/technology products, automobiles and auto components, pharmaceuticals drugs, telecom and networking products, textile products (MMF segment and technical textiles), food products, high-efficiency solar PV modules, white goods (ACs & LED) and specialty steel.
The recently announced RoDTEP (Remission of Duties and Taxes on Export Products) scheme in place of the existing MEIS (Merchandise Exports from India Scheme) is also expected to make exports more attractive by offering refunds on the embedded taxes and duties to exporters. It was previously non-recoverable.
The Macro Environment
The environment appears in favour of India’s exports as the countries are looking to rebuild their economies. India’s growing stature as China’s alternative and rapidly expanding foreign investment are the factors in India’s favour.
While there has been a wide debate about India opting out of RCEP, it is a sign of a country growing in confidence in its own capabilities. With its large workforce behind it, India has rejected the second class treatment that it has been receiving across global forums. Instead, the stress is on signing independent free trade agreements which treat the country on an equal footing.
The Commerce Ministry suggested that it has been working on independent FTAs wins deals with several countries like Australia, UK, European Union, UAE, and other middle eastern countries are in the pipeline.