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A stellar rise in India’s exports may have helped the pandemic-battered economy look up recently, but it is barely enough to suggest a turnaround for the long run. Exports as a share of gross domestic product (GDP) are still not high enough and, with the tides of the global economy now turning for the worse, further growth has become more challenging.

Indian exports are highly sensitive to global growth shocks, analysts at Crisil had said in a report in December 2021. This already seems to be playing out. In July, exports growth was the slowest since February 2021, having grown 47% in between, shows trade data released last week. The high growth had been driven by the global pent-up demand and base effect.

However, many peers saw an even faster rise in exports. More worryingly, exports of goods and services improved marginally to 21.5% of GDP in 2021-22 from 18.8% the previous year but trailed an average of 24.6% seen between 2011-12 and 2014-15.

While India touted the $400 billion worth of merchandise exports in 2021-22 as a milestone, relative to GDP, the figure was behind the trend seen before 2014-15. Even the targeted $1 trillion in exports by 2030 will not be much of an improvement, assuming that the economy would have grown to $5 trillion by then.

Not only will India have to show resilience amid a global slowdown, but it will also have to make an effort to diversify its exports basket, experts said.

Lost intensity

India's exports basket is dominated by engineering goods (25%), petroleum products (16%), and labour-intensive industries such as leather, textiles, and gems and jewellery (32%). The first two are capital-intensive, but the real push to growth comes from the labour-intensive sectors, which create more jobs. However, their share in India’s exports has been on a decline, which could take a toll on jobs-led growth.

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The growth in exports of labour-intensive items has been lagging overall exports growth, according to a Mint analysis. The rise in labour-intensive items was only 36% against a growth of 45% in overall exports in 2021-22.

The labour-intensive industry has consistently fallen behind after 2016-17, which economists say is because of the hardship faced by the industry following demonetization, the implementation of the goods and services tax, and lockdowns aimed at containing the spread of covid-19.

Recession bells

The GDP of the US has contracted for two consecutive quarters, sparking a debate whether the country has already slipped into a recession.

This could be bad news for India, which relies heavily on the world’s biggest economy for exports. Not only is the US India’s top export destination, it is also way ahead of the other countries such as China and the UAE.

“We believe the export downturn has already started and will accelerate in the second half of 2022," said Nomura in a report on 3 August.

India’s exports growth is likely to be hurt in the coming months with a recession also likely in the euro area, the UK, Australia, and Canada, among others, the report said.

The persistent supply-chain issues, shortage of raw materials, and high inflation are also headwinds for exports as efforts to push free trade agreements are yet to show results.

Moving up?

In 2021, India ranked 18th globally on outbound shipments, its best standing in several years, shows World Trade Organization data. This, however, is only a marginal improvement, with India always ranking 19 or 20 over the last decade. India could very well have been in the top 15 if its exports were higher by at least $50-60 billion.

India's export ranking
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India's export ranking

However, global headwinds, smaller countries exhibiting faster exports growth, and the slowing trend in India are major challenges. India took around five to six years to jump from $00 billion to $200 billion in exports and from $200 billion to $300 billion. However, adding another $100 billion took nearly a decade. At the current pace, India risks losing out to Spain, Switzerland, and Australia, among others, and will need a policy shift away from subsidy-based promotion of exports and towards faster adoption of the environmental, social, and governance (ESG) regulations.

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