India needs strategic policies to boost exports

India’s bid to become a serious player in global trade seems to be under threat as global headwinds have led to a slowdown in export growth. The buoyancy in world demand that had given an impetus to merchandise exports last fiscal has now moderated with the shift in geopolitical developments.

The Ukraine conflict not only pushed up inflation in western countries, but also led to aggressive rate hikes by central banks. It has now created the threat of a recession in 2023. Though experts in the International Monetary Fund (IMF) insist recession is still way off, the pent-up demand unleashed after the pandemic has not only subsided but also contracted all over the world. The impact is being felt on India’s exports which have hit a roadblock in the current fiscal after touching a record level of $420 billion in 2021-22.

The spurt in export growth in 2022 had led to hopes that India may achieve its target of cornering a three per cent share of world trade by 2027. The current flattening trend, however, indicates it may take a while to rise from the existing 2.1 per cent. This is a relatively low percentage given the fact that it is the world’s fifth-largest economy. One of the reasons that trade flows have not expanded more rapidly compared to its Asian neighbours has been the lure of the large domestic market. It has been easier for corporates to focus on meeting internal demand, especially since export procedures were cumbersome and complex in the past.

In recent years, more policy initiatives have been taken to give a push to this sector, including the plan to focus on export products on a district-wise basis. Incentives have also been redesigned in order to make them compliant with rules of the World Trade Organization (WTO). But the sharp rise in exports during the last fiscal had more to do with the resurgence in global demand which is now on a waning trend. Official data for December shows a 12.2 per cent decline in exports over the same month in 2021.

Total exports in the first nine months of the current fiscal (April to December 2022) are estimated $332.8 billion. It looks as if the fiscal may record flat growth with exports at about the same level as last fiscal. Imports, by contrast, rose by 25 per cent to reach $551 billion. This has led to pressure on the current account deficit (CAD) that could end the year at a worrying level of 3 per cent of GDP compared to only 1.8 per cent last year.

Despite the palpable slowdown in export growth, however, there are signals that the outlook for the next fiscal may be better than expected despite the continued geopolitical volatility. One such is the report that Apple has achieved a record $1 billion of mobile phone exports during December. This augurs well since this is a tech giant that had put all its apples, literally, in the Chinese basket until recently.

Export of agricultural products are also fast rising, but these have been impeded in the past by policy changes meant to protect the home market. This has prevented India from becoming a long-term player on the export front. For instance, the surge in wheat exports ended abruptly with the decision to stop supplying due to the spike in domestic prices. Internal compulsions have similarly affected rice and sugar exports in the past.

With global recessionary trends deepening, a more strategic policy is needed to push exports in the coming fiscal. The focus must be on resolving exporters’ specific problems, especially in relation to non-tariff barriers that have been affecting supplies to key markets. It is also essential to take a long-term approach by entering into free trade agreements (FTAs) that can give a competitive advantage.

On the plus side, the FTA with Australia and the United Arab Emirates, both key markets, should give an impetus to trade ties with these regions. The one with the United Kingdom may be in the doldrums, but talks on a FTA with the European Union (EU) have been revived recently. This kind of support will have to be continued in the coming year if India is to make a place for itself at the high table of world trade.

(Sushma Ramachandran is a senior journalist.)

(The views expressed are the author's own. They do not necessarily reflect the views of DH.)