400 billion dollars of exports: good, but not enough

The jubilation of Indian exports hitting the $400 billion mark is well deserved. It marks a 37% jump from last year’s $291 billion, but compared to the $330 billion in exports made in fiscal year 2018-19, it marks a compound annual growth of 6% over three years, which is not really exciting.

The 37% jump in exports was also made possible because global trade rose sharply in calendar year 2021. UNCTAD (United Nations Conference on Trade and Development) figures released last month show that world trade grew by 25% in CY 2021 to reach a record level of $28.5 trillion. This marked a 13% increase from 2019, before the COVID-19 pandemic hit.

Certainly, India has grown faster than world trade; Yet it is clear that global growth has been a tailwind. Global GDP, which had averaged 3.25-3.3% in the five years since 2015, contracted 3.1% in 2020 due to COVID, then jumped 5.9% in 2021. Smart growth in global GDP and global trade has helped Indian exports. Another factor that should bring some realism to our celebrations of export growth is the surge in Indian imports. While exports increased 37% in FY22, imports from April to February jumped 59%. The jump in imports from April to March could be worse given the rise in prices of several raw materials in March. And that’s the other angle we need to remember: global inflation. Global inflation jumped to 4.35% in 2021, the highest in 10 years.

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Citibank Economist Samiran Chakraborty, analyzing the price impact on India’s import growth of 69% in April-December 2021, wrote the following: to the higher nominal import bill as well. If we also apply double-digit import inflation to our export figures, the 37% rise in Indian exports in FY22 may seem more restrained.

In short, the rise in exports is commendable, but the overall $400 billion figure and strong 37% growth has three major tailwinds: a weak base, strong global trade growth, and high inflation. Stripped of these, exports have still performed well, but concerns remain for FY23.

First, stronger growth in imports relative to exports drove the trade deficit to a worrying monthly average of $20 billion, even before crude, coal and cooking oils hit stratospheric highs in March. The higher trade deficit led to a current account deficit of around 3.4% of GDP in the October-December quarter, analysts said (the Reserve Bank of India has yet to announce official figures for the third trimester). The current account deficit in the fourth quarter should even exceed 3.5% of GDP.

RBI stalwarts have traditionally argued that a current account deficit of 2.5% of GDP is the plimsoll mark for India. The CAD may deteriorate in the first quarter of FY23. So, if export growth is good, now is not the time to rejoice, because it is far from sufficient to cover the increase. future trade and current account deficits.


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