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Exports have been an integral part of India’s economic growth, at times a key driver, too. So, the exuberance in the markets from the surge in exports in July should not be surprising. The fact that outbound shipments have continued to show high momentum even in the first week of August is good news.

The question is, can India export itself out of the pandemic’s scars?

In July, India’s exports grew by 9% on a sequential basis to $35 billion.

“This marks a continuation of the strong momentum seen in FY21-22, where the cumulative exports during the first quarters were measured at $95 billion—a record," said economists at Barclays Securities (India) Pvt. Ltd in a 2 August note.

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Of course, year-on-year growth of 50% was mainly due to a contraction in July 2020 and bears no relevance. A more comparable growth trajectory will be a two-year compounded annual growth rate (CAGR), which shows that exports clocked 16% in July.

Another comforting factor that analysts point out is the drivers of this export growth. Engineering goods, capital goods and machinery exports have shown a smart recovery, while the pick-up in labour-intensive gems and jewellery is a positive, too.

To some extent, exports are perhaps the only helping hand available to the Indian economy in the short term. Private consumption in the wake of the pandemic has been the last to show a recovery. In fact, the outlook for consumption is far from upbeat.

Economists said a potential third covid wave and the weak sentiment on income and employment prospects would keep a lid on consumption for some time.

Private investment, too, may not really show its animal spirits any time soon. With the outlook on demand uncertain, companies aren’t excited to set up factories and other infrastructure.

Capacity utilization is inching close to 70%, but far from the long-term average, according to the Reserve Bank of India (RBI). Underutilized capacities mean there is little reason to add to existing ones.

That leaves the economy with two important levers—government spending and exports. In all likelihood, government spending may continue, albeit the state’s capacity is constrained on this front.

The outlook on exports though is looking up with key destination economies such as the US showing a swift bounce back from the pandemic. The rupee has depreciated roughly 4% since the covid outbreak last year.

“Among the components of growth, yes exports are looking up because global growth is looking up and external factors are in favour. But we should keep in mind the optical relief of base effects in everything this year," said Madan Sabnavis, chief economist, Care Ratings Ltd.

Indeed, the first quarter gross domestic product (GDP) numbers, which the government will release later this month, may show sharp double-digit growth due to the massive contraction last year. Sans the base effect smoke, GDP growth in FY22 would be just 1.5-2% higher than FY20.

To be sure, even when its share to GDP growth was high, exports were just 20% of GDP. This was down to 11% in the fourth quarter of FY21. Domestic consumption makes up for more than half of GDP. It is clear that India needs its citizens to consume more to fire up growth, more than a jump in purchase orders from foreigners. However, a little foreign help won’t hurt.

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