Time to harvest the tailwind in exports

Context: India’s exports as a whole have sailed through the pandemic after rebounding to its pre-pandemic levels.

Recent developments in India’s export - import

• Rise in Merchandise exports: They have sprinted 55 per cent year-on-year in this fiscal till now, a good 26 per cent over the corresponding period in fiscal 2020.
• Thrust to exports: Impact of revving global growth, inventory restocking in early 2021 as economies opened, and a pandemic-induced shift towards consumption of goods - and away from services.
• Effects of second wave: It slowed the export momentum a bit, but exports were back with a bang in October growing 14 per cent month-on-month on a seasonally adjusted basis indicating -
• As long as global growth is strong, the principal commodities with high elasticity to global growth will continue to do well.
• Chemicals (elasticity of 3.8 to global GDP growth), Engineering goods (3.7), Petroleum products (2.9), and Gems and Jewellery (1.1) are the principle commodities with a high share of India’s exports basket.
• High global commodity prices have provided a disproportionate lift to the value of exports.
• A faster rise in import prices reduces the net earnings of exporters, especially in sectors with relatively higher import intensity, such as petrochemicals, pharmaceuticals, and gems, and jewellery.
• Merchandise imports: It has been rising rapidly slower (15%) rate, rebounding after domestic demand was hit during the second wave compared with the pre-pandemic levels.
• Consumption goods: Imports of these, excluding gold and oil have recovered faster than investment goods.
• Festive demand, pent-up buying in sectors less-hit by pandemic related restrictions, and the shift towards consumption of goods and away from services have provided support.
• Service Trade: It is recovering, but at a slower pace than goods trade and services exports are performing better than imports.
• Information technology and financial services has recovered faster.
• Export beneficial for short run: World GDP growth is expected to be strong at 5.8 per cent and 4.4 per cent this year and next year.
• Global trade is forecast to grow 28 per cent year-on-year in 2021, according to the United Nations Conference on Trade and Development (UNCTAD).

Challenges

• Material shortage: Risk arising from supply-chain disruptions and material shortages.
• Uncertainties around the impact of the delta variant: Sporadic flare-ups in Covid-19 caseloads even in largely vaccinated populations cannot be ruled out.
• Medium-term scarring of global potential output: September 2021 UNCTAD report cautions that the momentum in global trade in 2021 may be shortlived.
• It partially reflects inventory restocking cycle after very low inventory-to-sales in 2020.
• World Bank had said the pandemic has weakened the fundamental drivers of global growth.

Way Forward

• Production-Linked Incentive (PLI) schemes: It can be a crucial bridge between short-term opportunities and longer-lasting growth.
• PLI has come as a much-needed booster shot for industrial capital expenditure, with sectors such as pharmaceuticals, telecom equipment, mobile, and electronics expected to see more greenfield investments.
• Enhancing domestic production capacity: It would also open avenues for exports in import dependent sectors.
• Competitiveness through focused reduction in trade costs (tariff and non-tariff barriers, transportation, and other costs): It is critical for longer term consolidation of our trade trajectory.

Conclusion: India must not miss the boat yet again and cede greenbacks to nimbler nations such as Bangladesh and Vietnam in labour absorbing.

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