India's Export Riding on Resurging Global Growth, Surpassed $400 Billion in FY22

By IndraStra Global Editorial Team

Cover Image Attribute: Mundra Port, Kutch, Gujarat. Source: JOC.com/Adani Group

India achieved $400 billion in exports in FY22, a record high for the nation and comfortably higher than the five-year average of $300 billion before the coronavirus outbreak. According to the government, exports totaled $417 billion, or around $48 million every hour.

The Indian export sector has seen a record-breaking season. Late in March, India's exports surpassed $400 billion by $20 billion, nine days before the conclusion of the fiscal year 2021-22. In 2018-19, outbound shipments reached a previous high of $330.07 billion. And despite rising commodity prices and the current Russia-Ukraine crisis, India's exports of goods increased by 24.2% in April to $38.2 billion, the third-highest level ever.

April export increase was influenced in part by commodity prices. India is the world's third-largest oil user, exported near-record volumes of gasoline and diesel in March to capitalize on the substantial profit margins associated with exporting these fuels. As a result, an increase of 113% compared to April 2021. Meanwhile, the increase in chemicals was 27%.

Refiners in India shipped 3.37 million tons of diesel in March, the most since April 2020, when offshore shipments reached a record 3.4 million tons when local demand plunged during the Covid-19 lockdown, according to statistics on the website of the Petroleum Planning and Analysis Cell. Exports of gasoline reached a five-year high of 1.6 million tons. Reliance Industries Limited, the nation's leading fuel exporter and operator of the world's largest oil refining complex capitalized on its flexibility by delaying maintenance to create extra diesel.

Let us also evaluate the important export performance determinants for FY22. In the first eleven months of FY22, engineering product exports increased by 32% compared to the previous fiscal year. However, exports of engineering items grew at a subpar rate of 15.4% in April. The primary reasons for such outcomes are high logistics costs and unprecedented increases in raw material costs which directly hurt the exports of engineering goods. Although, the growth momentum seen in FY22 is continuing. The recently concluded trade deals with Australia and UAE would boost this sector. And the proposed free trade agreements (FTAs) with Canada and the UK would further add to this positive momentum.

The future growth of India's exports depends on two aspects. First, how much of this growth can be attributable to the medium-term benefits of rising commodity prices, and how much to the long-term consequences of an export-focused finished products sector? Second is the influence of recent and future trade agreements.

Recent developments also foreshadow impending difficulties. The central banks of India, the United States, the United Kingdom, and Australia initiated anti-inflation measures within the past week. This has led to an increase in benchmark interest rates. In addition, the withdrawal of extra money supplied as a "liquidity" during the past two years to counteract the economic impact of COVID-19. These measures are likely to reduce global trade and economic growth. Besides that, the stringent lockdowns in China and the Russia-Ukraine conflict have also disrupted worldwide shipping and supply chain systems. Despite this, the government can take numerous steps to ensure export growth.

The first thing to ensure is to guarantee that exporting industry competitiveness grows, necessitating upgrading physical and soft trading infrastructure. Secondly, it must expedite new trade agreements that reduce tariffs globally and improve market access. In a similar vein, it must abandon the practice of hiking tariffs to safeguard domestic industries. Finally, the weakening of the rupee against the dollar will benefit exporters. The RBI should play a supporting role in this regard. 

Even though several production-linked incentive (PLI) programs were implemented in a variety of sectors, the ratio of India's merchandise exports to GDP has been falling. Even while this ratio will improve in FY22, it will be nowhere near the record set more than a decade ago. It remains to be seen if the government can reverse this trend.

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