India’s exports have been resilient to the Covid impact but policies need to be tailored differently
India’s export sector may be a middling performer, but it has shown the capacity to weather great economic shocks, be it the Global Financial Crisis (2007-09) or the pandemic that crippled global supply and demand for nearly a year and a half. This is because its export basket and earnings are somewhat diversified, unlike commodity exporters in Africa and the Americas. The latest merchandise export numbers bear this out: at $197 billion, April-September exports are up 24 per cent over 2019-20, a pre-pandemic benchmark, and less surprisingly 57 per cent over 2020-21, a year in which growth and exports fell steeply. If India’s exports of goods and services cross $550 billion in 2021-22 (a target of $400 billion has been set for merchandise exports), it would be as good as any normal year if not better, given that India’s GDP would perhaps still be 2-3 per cent below pre-pandemic levels. Exports crossed 20 per cent of GDP in 2005, coinciding with the high growth years of 2003-08, touching 24-25 per cent in 2008 and 2013. The share of exports at present is about 20 per cent, its growth pattern being less volatile than that of the economy; this points to exports’ potential as a macro-economic stabiliser and growth driver domestically, making up for the absence of fiscal capacity.
The return of global demand has contributed to the increase in exports this fiscal. Liquidity measures announced for MSMEs, which contribute over 40 per cent of exports, are likely to have helped them deal with working capital bottlenecks. While the exports in the latter half of 2020-21 were driven by iron ore, pharma and agri-commodities, petroleum (which contributes 15 per cent of total exports), engineering goods (28 per cent), textiles and clothing (8 per cent) and gems and jewellery (10 per cent) have contributed to the kitty since April. Services too have held up, despite sectors such as tourism, travel and hospitality taking a hit. April-August services exports were up 4.5 per cent over 2019-20.
India faces challenges and opportunities, as the world explores alternatives to China. It needs to wean itself away from tax reimbursement schemes, as they could attract both WTO scrutiny as well as countervailing duties in the importing country. Instead of getting mired in the debate on whether RoDTEP (Remission of Duties or Taxes on Export Products) reimburses exports sufficiently or covers all exporters who benefited from the Merchandise Export Incentive Scheme, the focus should be on developing infrastructure and logistics. The benefits of export promotion schemes need to be assessed. India needs to revisit FTAs setting aside its RCEP experience; the RCEP is a group of suppliers with competing agendas. Finally, it needs to develop a product-specific export strategy, such as the PLI for man-made fibres. Creating an export basket of both low value and high value goods and services should be the goal, going forward.