Economy
Growth pangs: Why are India's goods exports plateauing?
Summary
In 2021-22, India’s goods exports had shifted to a higher trajectory as trade normalized and the world saw pent-up demand. But building on those gains into 2022-23 proved to be a challenge.With a post-covid global surge in demand subsiding, many pockets of goods exports from India are facing growth challenges. Even as total goods exports from India rose 6% to about $447 billion in 2022-23, export of goods other than petroleum products and gems and jewellery have effectively remained flat at $315 billion, an analysis of trade data shows. Petroleum products saw a 40% jump in exports as Indian refiners imported Russian crude, processed it and sent it to the West.
As the global economy recovered from covid-19, and goods began to move more freely, exports of goods made in India had surged. In 2021-22, exports of goods other than petroleum and gems and jewellery increased about 30% compared with 2020-21. A year later, it appears, the post-covid surge that lifted many boats seems to have tapered off.
The growth question hung uncomfortably at the top end of the Indian export basket. Of the top 10 goods categories (out of 30), which together accounted for about 82% of India’s exports in 2022-23, four endured a drop in revenues. In three categories, revenues grew less than 5%. Sharp declines were seen in cotton yarn and handloom products (down 28%), and plastic and linoleum products (down 15%). Besides petroleum products, only two categories saw a sizeable jump: rice (up 15%) and electronic goods (up 51%), though the latter was mainly due to the promotion of exports of mobile phones under the performance-linked incentive (PLI) scheme.
Broad-based Decline
Drilling down further confirms the story of growth pangs facing sections of Indian exports, but it also shows that the decline is less broad-based than in 2019-20.
At the first level of categorization, Indian exports are classified into 30 groups as mentioned above. At the second level, they can be classified into 99 commodity groups. In 2022-23, 26 of these 99 commodity groups saw a year-on-year decline in value of above 10%.
Overall, in 2022-23, 45 of 99 commodity groups saw a decline in exports of any extent. This is in stark contrast to 2021-22, which was a blockbuster year for exports, and saw 80 of 99 commodity groups register an increase in exports of above 10%.
However, compared with 2019-20, which saw a decline in overall exports of 5%, the 2022-23 decline was less broad-based. In that year, 63 of the 99 commodity groups had seen a decline in exports.
Chinese Closures
China-number three in India’s exports in 2021-22, with a 5% share—was a major reason for the lacklustre performance of Indian exports in 2022-23. Recurring lockdowns in China in 2022-23 meant that India’s overall exports to it fell by 28% compared with 2021-22, and exports other than of jewellery and petroleum products slumped 30%. Major categories of exports to China that suffered in 2022-23 include organic chemicals (down 36% to $1.5 billion), seafood (down 20% to $1.3 billion) and electrical machinery (down 18% to $679 million). Elsewhere, exports to other major trading partners—Asean, Europe, North America and the Gulf—remained in positive growth territory. These four groups of countries and China account for around 70% of India’s total exports. Excluding China, however, still makes Indian export performance only slightly less lacklustre. Non-oil and non-jewellery exports, without taking China into account, rose by only 1.5% over 2021-22.
Manufacturing Dilemma
Besides oil, another bright spot was electronic goods, whose exports surged 51% in 2022-23 to $23.5 billion. Of this, $11.1 billion came from mobile phone shipments, against $4.8 billion in 2021-22, mainly due to government incentives under the PLI scheme. However, a recent paper by Rahul Chauhan, Rohit Lamba and Raghuram Rajan points to the flip side—a sharp jump in imports of components used in the assembly of mobile phones. This is borne out by trade data for 2022-23.
Thus, the authors say, India is currently an assembler of mobile phones, rather than a manufacturing powerhouse in its own right. This is because PLI incentives are given for “finishing the phone in India, not on how much value is added by manufacturing in India". If the weakness in export demand persists, this notion will be challenged further, across sectors.
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