The uneven nature of India’s export growth
International trade saw a strong recovery in 2021 thanks to the easing of restrictions associated with the pandemic, economic incentives from governments and rising commodity prices.
Globally, merchandise trade is expected to reach record highs of $ 22 trillion in 2021, an increase of 23% from 2020 levels and 11% from pre-Covid levels in 2019 Sustained global demand also bodes well for India’s exports. India’s merchandise exports rebounded strongly in 2021, reaching nearly $ 354.4 billion from January to November 2021. This is an increase of 104.5% from the corresponding period from 2020.
The increase was not simply due to a small base effect, as merchandise exports were also 19.3% above pre-Covid levels during the corresponding period of 2019.
In the first three quarters of 2021, merchandise exports have significantly exceeded pre-Covid levels, and the trend is expected to continue in the fourth quarter of 2021. Exim Bank’s Export Leading Index forecasts indicate likely growth of 39.6% in the fourth quarter of 2021.
Diversified growth models
Despite encouraging trends in world exports, growth has remained largely uneven across sectors. While sectors such as petroleum products and industrial raw materials have been supported by increasing global demand and rising commodity prices, trade in sectors such as automobiles and electronics has been disrupted. by the global semiconductor shortage.
The growth of India’s merchandise exports has also mirrored this trend, with exports increasing in several traditional skill areas such as petroleum products, engineered products, drug formulations, gemstones and jewelry, as well as textiles and clothing, but remaining well below pre-Covid levels in affected sectors. by the shortage of semiconductors such as cars and some electronic components and electronic instruments.
Growing food security concerns in regions such as the Middle East and North Africa have also led India to become a reliable supplier of food products. Technology-intensive exports such as two- and three-wheelers, automotive components and telecommunications instruments also saw remarkable double-digit growth during the year.
Unresolved trade tensions
Several long-standing issues for India, such as the negotiations on fisheries subsidies, the highly ambiguous future of the Doha Round, and continuing disagreements over reforming the multilateral trading system continued to pose challenges for the trade regime. rules-based.
In addition, several of India’s trade disputes, both as complainant and respondent, have not been resolved due to a lack of a decision on WTO Appellate Body appointments for the second. consecutive year. The delay in obtaining an effective result constitutes a potential threat of reaction against globalization.
Promoting trade resilience through regional integration has been a notable trend in 2021. The African Continental Free Trade Area entered into force from January 2021, and the RCEP also enters into force from January 2022.
While these are likely to boost intra-regional trade, experts have repeatedly pointed out that the benefits of diversion and trade creation will most likely remain skewed in favor of a few rather powerful member countries.
India finds itself in a dichotomy between the urgent need to foster trade relations in an era of growing regionalism and caution due to its past experiences with trade agreements. Driven by these two considerations, India is entering into negotiations with partner countries to improve market access. India recently struck a deal with Mauritius, which is its first trade deal with an African economy.
In addition, negotiations are also underway for an India-EU trade agreement and an India-GCC trade agreement, as well as bilateral trade agreements with Israel and Thailand, among others. Going forward, trade deals with major markets such as the UK and UAE among others are also expected to materialize. Trade agreements are therefore expected to gain more and more importance in India’s trade relations.
Logistics and export infra
Despite the remarkable recovery in global demand, logistics costs and container shortages have severely compromised the ability to meet demand and resulted in backlogs. While several short-term measures have been taken by the government to alleviate the challenges associated with the container shortage, a long-term priority would be to boost container manufacturing in the country.
Currently, container manufacturing is dominated by Chinese and Korean suppliers and national capacity building in this area would be crucial to achieve self-sufficiency.
The long-awaited logistics policy could also be a game-changer for Indian exporters, as lower logistics costs could improve their export competitiveness. The policy must be complemented by the efforts of state governments to strengthen export infrastructure. States should increase the use of support provided under the Centre’s Export Trade Infrastructure (TIES) program to strengthen export infrastructure.
As of March 12, 2021, only 18 States / TUs had projects approved under the TIES. States / TUs that have not received support under the scheme represent more than a third of India’s merchandise exports. With improved export infrastructure, these states / TUs can further increase their exports.
The path to follow
With production likely to exceed consumption growth, commodity prices are expected to gradually decline during 2022. Therefore, exports of petroleum products, metals and agricultural products are expected to moderate, if the volume scale export rate does not increase significantly to compensate for the decrease. in the prices.
The growth dynamic of exports from technology-intensive sectors should be strengthened through the implementation of programs such as the production-related incentive program. The likely extension of the interest equalization system for export credits would be a further boost for exporters.
In the future, strengthening export infrastructure through state participation, concluding mutually beneficial trade agreements and diversifying the export basket to technology-intensive sectors would be the main motives for the shift. India’s export growth strategy.
The authors are economists from the Export-Import Bank of India. Opinions expressed are personal