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As India’s goods exports top $400 bln, momentum likely to continue in FY23; Ukraine crisis not to hit too hard.
Apr 01, 2022

As India marches to achieve $410 billion worth of goods export in the fiscal year 2021-22 that just ended, exporters will likely continue to benefit from the momentum in the new fiscal year too, economists said. The ongoing Russia-Ukraine war is hitting global supply and value chains, and could pose downside risks to India’s exports. However, the momentum achieved in FY22, elevated commodity prices, and changing global dynamics may help soften the downside, Yuvika Singhal, Economist at QuantEco Research told FinancialExpress.com.

Will the conflict in Europe impede India’s trade momentum?

'There are both downside and upside risks from the war. However, at a balance, India will be in advantage,' NR Bhanumurthy, economist and Vice Chancellor, Dr BR Ambedkar School of Economics University told FinancialExpress.com. 'The extent of downside risks, in terms of impact on growth, are in my view not substantial. Inflation will have an impact, for instance. I don’t think there will be a significant impact on trade. However, the upside is for sectors such as agriculture. India had a bumper crop this year, which in my assumption would have pushed down the prices, but with the war, and scarcity of agri produce, India is expected to benefit,' Bhanumurthy said.

In the absence of domestic demand, external demand for India’s goods has been robust. India’s services exports especially IT companies exports have also done really well. 'This is a great opportunity for India and these numbers indicate that the Indian economy can re-experience the high growth India saw between 2003-2008 period, before the global downturn of 2008,' Bhanumurthy said.

Can India be an export-led economy?

India has no doubt done phenomenally well in terms of exports this year, and can do better in coming years given its comparative advantage in several sectors, however we would be jumping the gun if we say the Indian economy can become an export-led economy, Singhal said.

'In the last two years, with the coronavirus pandemic, global trade has evolved dramatically, some countries have been averse to China and are looking at a China+1 strategy, supply disruptions have become persistent in some markets exacerbated by the ongoing Russia-Ukraine crisis. Many global economies, much like India, are looking to be self-sufficient. So in order to say that exports can become the sole driver of the Indian economy in the coming years, that may not be the case,' she added.

What is driving India’s exports growth?

Russia is one of the largest exporters of oil and gas, and commodities such as wheat, cereals, aluminum, and steel and nickel. The conflict in the Black sea region has created gaps in the global supply chain. In addition, due to sanctions put against Russia by countries such as the US, other countries are looking elsewhere to meet their demands.

India, for instance, is tapping this opportunity and increasing its surplus exports of wheat and other commodities. 'India had a surplus season in terms of agricultural produce this season, and markets were expecting the price to fall, until the Russia-Ukraine war happened. This will help farmers fetch better returns on their produce,' Bhanumurthy said.

'India’s exports are also expected to benefit from supportive policies such as the Production Linked Incentive Scheme, for which FY 2022 was the first year of production. Some of the bigger global names such as Apple and Samsung have already set the ball rolling on contributing to domestic production and exports in FY22,' Singhal said.

$400 billion+ exports this year, what lies ahead?

From Prime Minister Narendra Modi to Minister of Commerce & Industry Piyush Goyal, leaders lauded exporters, manufacturers, micro small and medium enterprises (MSMEs), weavers, as well as the farmers, as India exported merchandise goods worth $400 billion for the first time this year, up 20% from FY19. Economists said these numbers are a significant indicator of India’s economic recovery especially post covid. 'India’s export growth historically is seen to display a strong correlation of about 70% with global GDP growth, and FY22 was no exception on that front,' QuantEco’s Singhal said.

Major rating agencies such as Fitch and S&P have cut their outlook for global growth citing the war in Eastern Europe. And thus, India, like much of the world, is expected to be hurt. 'We expect import growth to slow down in FY23, though it is likely to remain higher than exports at ~17%. In addition to elevated global commodity prices, unlocking of the domestic economy post the Omicron wave along with improving vaccination cover are anticipated to support pent up and organic demand both,' Singhal said.

financialexpress

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