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India's goods exports in May 2021 stood at $32.27 billion, up 69.3% with respect to May 2020. Of course, given that the country spent much of May 2020 under a lockdown, this is not a fair comparison. Nevertheless, exports were up 8.1% in comparison to May 2019, when they had stood at $29.85 billion. And that’s some good news on a weak economic front.

The question is: Will this growth in exports sustain itself during the course of 2021-22. And will that help in providing some relief to weak economic growth? In absolute terms, the total exports in May 2021 were the third highest ever, with only March 2021 and March 2019 reporting better figures of $34.45 billion and $32.71 billion, respectively.

Of course, this statement doesn’t take the size of the Indian economy into account. In March 2013 and March 2011, total exports had stood at $30.54 billion and $30.42 billion, respectively. This was when the size of the Indian economy was much smaller, hence, in proportion, the exports were significantly more than they are now. In fact, if we look at annual goods exports, they peaked in 2013-14 at 16.96% of the GDP. They fell to 10.91% of the GDP and 10.90% of the GDP in 2019-20 and 2020-21, respectively.

Keeping these factors in mind, let’s look at whether strong goods exports will provide some fillip to economic growth this year.

1) The goods exports for the last three months have been more than $30 billion. They were at $34.45 billion and $30.63 billion, in March and April, respectively. This has never happened before, when monthly goods exports have clocked more than $30 billion, for three consecutive months.

2) The goods exports numbers also include petroleum exports. India has refineries which import crude oil, refine and then export it. With oil prices in May 2021 being considerably higher than May 2020, this dynamic has added to the overall exports number. How are things when we look at only non-oil exports? Take a look at the following chart, which plots monthly non-oil exports from April 2010 onwards, or for a little over the last 11 years.

Source: Centre for Monitoring Indian Economy
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Source: Centre for Monitoring Indian Economy

The chart makes for very interesting reading. Every month from January to May, non-oil exports have been higher than $25 billion. This is something that has never happened before, where goods exports were more than $25 billion for five consecutive months. Even in December 2020, they were at $24.88 billion.

Clearly, a revival in the global economy, as more people get vaccinated and economic activity picks up, seems to be helping goods exports. Data from the Financial Times vaccine tracker tells us that India’s major export destinations like the US, the UK and the European Union have managed to vaccinate 44.2%, 45.2% and 24.3% of their respective populations.

3) Take the case of engineering goods, which are India’s number one goods export to the world and made up for close to one-fourth of the goods exports during the last financial year. They have been doing very well. In April and May, the total exports of engineering goods stood at $16.61 billion, which was 23.9% more than the exports during April-May 2019. Clearly, global growth has helped on this front.

The other thing that seems to have helped push up exports numbers is the global rise in commodity prices. The total exports of ores and minerals from January to March 2021 (the numbers for April and May are not available) stood at $2.22 billion, more than double than that during January to March 2019. Agriculture exports between January and March this year stood at $12.72 billion, which was around 21.1% more than during the same period in 2019.

4) Will the growth in goods exports sustain through this year? Inflation can play spoilsport. Inflation as measured by the consumer price index (CPI) in the US in May 2021 stood at 5%. This is the highest it has ever been since August 2008. Inflation as measured by the wholesale price index in China stood at 9% in May 2021, the highest in over 12 years.

This is happening because as people get vaccinated and step out of their homes, economic activity has picked up, with demand outstripping supply of goods and services and driving up prices. The pent-up demand of the last 18 months is kicking in. What has not helped is the fact that the income support provided to citizens by the western governments in the aftermath of the covid pandemic, has led to many people not looking for work. This has pushed up wage inflation. Of course, the same economic activity that is causing inflation has also managed to create some economic growth in the process.

The question is whether central banks around the world will choose to rein in inflation and increase interest rates, or will they let inflation flare up and keep interest rates low, as they currently are. This is a tricky question, with equally convincing arguments on both sides.

If central banks continue to keep interest rates low, they will continue to fuel stock market and other bubbles all over the world. These bubbles as and when they blow up, will cause their own share of problems. If the central banks raise rates, then they can cut short the economic growth that the world is currently seeing. Of course, this will also help deflate the bubbles.

India’s goods exports growth depends on this dynamic. The question is which way central banks will go. On that, your guess is as good as mine. But until we have a clear answer on this question, India's goods exports will continue to shine. And that’s some good news in the midst of all the gloom and doom on the economic front.

Vivek Kaul is the author of Bad Money.

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