On boosting exports: Beyond $400 billion

News: Recently, there has been an export boom in the international market. Therefore, India has fixed a goal of attaining the $400 billion target for the current fiscal year.  

What are the factors driving India’s exports?

All-around performance of the engineering goods, petroleum products, and chemicals have played a significant part in boosting the merchandise trade of India. Factors responsible are:

– Higher global commodity prices have pushed up the value of Indian export. For example, Petroleum products contribute about 15% to total exports and have grown significantly in the current year.  

– The global economy’s recovery from the pandemic-induced disruption has revived the merchandise exports. 

– Major share in India’s export basket includes engineering goods, chemicals, petroleum products, and gems and jewellery. These products have higher elasticity to global growth.   

Thus, India’s export performance significantly depends on the pace of global growth. 

Why global economy is expected to slow down? 

– Global growth is going to be impacted by ongoing geo-political uncertainty. At present, the commodity prices have been pushed up due to this. For example, India’s imports have reached a record high of $589 billion. It has resulted in a trade deficit of $189 billion. 

– Global growth is going to be impacted by the increase in interest rates by the US Federal Reserve and other large central banks. This could tighten financial conditions in the coming months.  

– The Covid cases have been surging in China and other countries. Such a surge would affect supply chains. It would result in lower output and higher inflation.  

How India’s policies may obstruct its export growth?

– On the policy front, the government has been raising tariffs. It may obstruct India’s participation in the global value chain, which is essential for attaining sustained exports growth. 

– India also decided against joining the Regional Comprehensive Economic Partnership (RCEP). India is negotiating bilateral trade deals with a number of counties, which might take time, and will not compensate for its decision to not join the RCEP.  

– Higher current account deficit and capital outflow over the coming quarters will put pressure on the rupee. 

What is the way forward?

RBI should manage the rupee and allow it to depreciate in a non-disruptive manner.  

The RBI should not defend the Indian rupee to contain inflation caused by expensive imports. It would affect exports and create longer-term macroeconomic imbalances.

Source: The post is based on an article “Beyond $400billion” published in the Business Standard on 24th March 2022.