India's Export Growth Euphoria For FY22 Is Much Ado About Little

India’s exports are characterised by a high rate of volatility making the growth path episodic with discrete shifts from periods of low growth to periods of high growth and vice versa

The FY 2021-22 witnessed unprecedented growth in exports in India’s post-independence history when exports jumped by 44% year-on-year (YoY) from $291 billion to $422 billion, surpassing the pre-pandemic peak export level by 28% ( $330 billion in 2018-19). Elated by this achievement, the Minister of Commerce and Industry in various forums expressed his intent of achieving $1 trillion exports by 2030. Such positive emotions constitute a potent, pervasive, and powerful tool which generates collective optimism and confidence, and helps sustain momentum. However, what’s really needed is a systematic evaluative analysis of past trends to justify the optimistic expectations generated by this growth acceleration. 

Past trends show that the episodes of export growth accelerations are not new to India (Figure 1). India’s exports are characterised by a high rate of volatility making the growth path episodic with discrete shifts from periods of low growth to periods of high growth and vice versa. The switch between highs and lows is accompanied by dramatic changes in growth rates. In one such growth transition in 2010-11, the export growth rate peaked 40%, the highest ever achieved until then. The country’s exports crossed $300 billion in 2011-12 but subsequently the growth rate plunged into a deceleration phase for almost a decade. Between 2011-12 to 2020-21, exports fell below the $300 billion mark three times. Even if the pandemic years of 2019-20 and 2020-21 are not taken into account, the average annual growth rate turns out to be just 1.1% between 2011-12 and 2018-2019. From this perspective, the dramatic growth acceleration of 2021-22 is yet another episodic transition that follows an unusually long period of low growth. The growth rate of 44% which surpassed the previous peak of 40% is impressive indeed. But that is made possible by a strong recovery in global trade.

Figure 2 shows that in this globally integrated system where a country’s export growth is intertwined with that of global trade, India is no exception. However, variability in India’s export growth turns out to be greater than that of world exports. Just as the 2020-21 growth deceleration, the 2021-22 acceleration also exceeded the global trade growth which itself  scaled a new high.Bangladesh with one tenth of India’s exports and  a highly concentrated export basket which is dominated by just one sector- RMG accounting for 84% of total exports,  depicts greater resilience to global disturbances than India.

Exports of Bangladesh, India and World:

What makes India’s export growth fragile and vulnerable to global conditions? 

The answer is in the composition of the export basket. In 2018, India exported 1204 products (over 98% of total products) at HS 4-digit level. Of them 3 products alone accounted for 25.6% exports. These were: petroleum (2702), diamonds (7102), and jewellery (7113). During the pandemic, exports of these three products took a major hit. Their exports which stood at 84.4 billion in 2018-19 dropped by 35.4 billion to $49 billion in 2020-21. This accounted for 92.4% of the decline in total exports. During the transition, a sharp V-shaped recovery in the exports of these three products added over $54 billion and contributed 41.6% of $130 billion incremental exports. A massive increase in the exports of refined petroleum alone accounted for almost 32% of total export growth. Its exports surpassed the 2018-19 level by almost 21 billion. In addition to these three,13other products added$1 billion or more each, to incremental exports (Table 1).

Top 16 products at 4-digit HS code that contributed most to export growth

One notable feature of the 2020-21 growth acceleration is that out of 1204 products, only 226 products (roughly 19% of total products)witnessed a fall in exports which amounted to just $7.6billion as against the total incremental exports of 137.6 billion. These products themselves are a small part of the export basket and contributed just 9% to total exports in 2020-21. Their contribution to exports even in 2018-19 was a mere 11%. Only three of them, medicaments (3004), light vessels (8905) and iron ore and concentrates (2601) with respective shares of 4.0%,, 0.7%, and 0.8%are prominent. The share of the rest varies between 0.4% to around 0%. During the pandemic, exports of medicament and iron ore concentrates grew sharply but subsequently moved southwards. Here, a matter of concern is that despite witnessing substantial growth, engineering and chemicals sectors lost shares in total exports (Table 2), undermining the policy activism of past 8 years.

Share of selected sectors in total exports (%): 2018-19 to 2021-22

Several policy initiatives have been launched since 2015 for promoting high value-added manufacturing. These initiatives received a major thrust under the vision of ‘Atmanirbhar Bharat’. Some of the high-profile ones are: improvement in investment climate; promotion of industrial infrastructure; introduction of tax reforms and incentive schemes including the production linked incentive scheme; and active participation in free trade agreements. However, the outcomes have been marginal. Against that background, export acceleration has brought with it exhilaration, celebrations, and new ambitions. However, evidence presented here shows that the government must avoid generating overly optimistic expectations. Instead, the  focus should be on strengthening ‘dynamism resilience ‘in exports. This requires robust evidence-based policy designs, supported by robust implementation plans which include assessment of the policy and implementation risks, risk management planning, building capacity for  implementation, mechanisms to track the progress of implementation, and post implementation reviews to identify obstacles in delivery.

The author is professor at the Department of International Economics, Government and Business, Copenhagen Business School, Denmark. Views expressed here are personal.

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