The fine print in India’s record exports performance

By 21 March, India had exported goods worth $400 billion this financial year, reaching the landmark for the first time, and clocking 37% growth over exports of $291 billion in FY21. mint
By 21 March, India had exported goods worth $400 billion this financial year, reaching the landmark for the first time, and clocking 37% growth over exports of $291 billion in FY21. mint

Summary

  • While a surge in exports is good news for the pandemic-ravaged economy, it is important that policymakers not lose sight of the fact this is not India’s best performance

Booming global demand, especially on the back of big fiscal spending in advanced economies, has given a boost to Indian exports. By 21 March, India had exported goods worth $400 billion this financial year, reaching the landmark for the first time, and clocking 37% growth over exports of $291 billion in FY21. The government is understandably thrilled at the development. Prime Minister Narendra Modi has tweeted, “India set an ambitious target of $400 Billion of goods exports & achieved this target for the first time ever. I congratulate our farmers, weavers, MSMEs (micro, small and medium enterprises), manufacturers, exporters for this success. This is a key milestone in our Aatmanirbhar Bharat journey".

While a surge in exports is good news for the pandemic-ravaged economy, it is important that policymakers not lose sight of the fact this is not India’s best performance. India’s exports performance had peaked in the last year of the UPA government’s ten-year tenure, FY14, when the exports-to-GDP ratio had shot up to 25.4%. In other words, more than a quarter of the GDP was coming out of the exports sector. In fact, during the boom years of the UPA government, exports were one of the growth engines of the economy, driving both jobs creation and GDP growth.

In contrast, despite making the $400-billion mark for the first time this year the export-to-GDP ratio will barely cross 20%. For all the protection offered by the Modi government to domestic manufacturing in the form of sharp tariff increases and the fiscal subsidies from the budget by way of the productivity linked incentives under the ‘Atmanirbhar Bharat’ and ‘Make In India’ policy approaches, exports are yet to match the exports-to-GDP level of FY14, the year that marked the height of the UPA government’s ignoble ‘policy paralysis’ phase. That should be a sobering thought for policymakers in the incumbent government. Especially since GDP was in a severe slow down even before the covid outbreak.

The exports-to-GDP ratio started declining after peaking in FY14, and was down to 23% in FY15, the first year in the Modi government’s tenure. It further declined to 18.8% in FY18. It started recovering thereafter and improved to 19.9% in FY19. But slipped back to 18.7% in FY20, where it remained also in FY21.

India’s performance in merchandise trade is in fact languishing behind that of competing economies. India’s share in global merchandise exports increased from 0.66% to 1.57% in the two decades from 2000 to 2020. At the same time, China’s share shot up from 3.86 % to 14.7% and Vietnam’s from 0.22% to 1.6%. With other economies, including much smaller ones, doing so well and racing past ahead, India is struggling to hold on to its position in the global pecking order. In 2020, Vietnam’s share of global exports surpassed India’s for the first time.

Poor policymaking hurt India’s export competitiveness when the economy, especially small and labour-intensive firms, was hobbled by demonetization and a poorly conceptualized and implemented goods & services tax (GST). These shocks dealt with the economy during the Modi government’s tenure came over and above the legacy bottleneck of the banking crisis. It’s clear that moving from policy paralysis into policy chaos is hardly progress.

 

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