The uneven nature of India’s export growth – The Hindu BusinessLine

Clipped from: https://www.thehindubusinessline.com/opinion/the-uneven-nature-of-indias-export-growth/article38115762.ece

WIDE

Pain point There is an urgent need to address container shortage   –  PTI

Boosting export infra, striking beneficial trade deals, and focussing on tech-intensive exports is the way forward

International trade posted a strong recovery in 2021 on the back of relaxation in pandemic associated restrictions, economic stimulus from governments and rising commodity prices.

Globally, trade in goods is expected to reach record levels of $22 trillion in 2021, an increase of 23 per cent as compared to the levels in 2020, and 11 per cent as compared to the pre-Covid levels in 2019. The buoyant global demand also boded well for exports from India. Merchandise exports from India posted a strong recovery in 2021, reaching nearly $354.4 billion during January to November 2021. This was a 104.5 per cent increase over the corresponding period of 2020.

The increase was not simply due to a low base-effect as merchandise exports were also an impressive 19.3 per cent higher than the pre-Covid levels in the corresponding period of 2019.

During the first three quarters of 2021, merchandise exports far outpaced the pre-Covid levels, and the trend is likely to have continued in Q4 of 2021. Forecast by Exim Bank’s Export Leading Index indicates a likely growth of 39.6 per cent during Q4 2021.

Diverse growth patterns

Notwithstanding the encouraging trends in global exports, the growth remained largely uneven across sectors. While sectors such as petroleum products, and industrial commodities were buoyed by increasing global demand and rising commodity prices, trade in sectors like automotive and electronics were disrupted by global shortage of semiconductors.

Growth in India’s merchandise exports also mirrored this trend, with exports increasing in several traditional areas of competence like petroleum products, engineering goods, drug formulations, gems and jewellery, and textile and garments, but remaining far below pre-Covid levels in the sectors affected by semiconductor shortage such as cars and certain electronic components and electronic instruments.

The rising food security concerns in regions such as the Middle East and North Africa also led India to emerge as a reliable supplier of food products. Technology-intensive exports such as two- and three-wheelers, auto components and telecom instruments also recorded remarkable double-digit growth during the year.

Unresolved trade tensions

Several long-standing issues for India such as negotiations on fisheries subsidies, the highly ambiguous future of the Doha Round and persistent disagreements over reform of the multilateral trading system continued to pose challenges to rule-based trading regime.

Moreover, several of India’s trade disputes, both as a complainant and as respondent, remained unresolved due to the failure to reach a decision on appointments to the Appellate Body of WTO for the second consecutive year. Delay in reaching an effective outcome poses a potential threat of backlash against globalisation.

Growing regionalism

Promoting trade resilience through regional integration has been a noticeable trend in 2021. The African Continental Free Trade Area became effective from January 2021, and the RCEP also comes into effect from January 2022.

While these are likely to boost intra-regional trade, experts have time and again highlighted that the benefits of trade diversion and trade creation will most likely remain skewed in favour 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 treading cautiously on account of its prior experiences with trade agreements. Driven by both these considerations, India is engaging in negotiations with partner countries for enhancing market access. India has recently entered into an agreement with Mauritius, which is its first trade agreement with an African economy.

Besides, negotiations are also underway for an India-EU trade agreement and India-GCC trade agreement, as also for bilateral trade agreements with Israel and Thailand, among others. Going forward, trade deals with top markets such as the UK and the UAE, among others, are also expected to materialise. Trade agreements are therefore expected to increasingly gain salience in India’s trade relations.

Logistics and export infra

Notwithstanding the remarkable recovery in global demand, logistics cost and container shortages marked a severe dent on the ability to cater to the demand and led to backlogs in supply. While several short-term measures have been taken by the government to alleviate the challenges associated with container shortage, a long-term priority would be to boost the manufacturing of containers in the country.

Currently, container manufacturing is dominated by Chinese and Korean suppliers and building domestic capacities in this area would be crucial for achieving self-reliance.

The much-awaited logistics policy could also be a game-changer for Indian exporters, as reduced logistics cost could improve their export competitiveness. The policy needs to be complemented by efforts from State governments to strengthen export infrastructure. States need to enhance the utilisation of support provided under the Centre’s Trade Infrastructure for Export Scheme (TIES) for strengthening export infrastructure.

As on March 12, 2021, only 18 States/UTs had projects approved under TIES. The States/UTs that have not availed support under the scheme account for more than one-third of India’s merchandise exports. With improvement in export infrastructure, these States/UTs can further boost their exports.

The way ahead

With production likely to outpace consumption growth, commodity prices are expected to gradually ease during 2022. Consequently, exports of petroleum products, metals, and agri-products are likely to moderate, if the scale of exports volumes does not increase substantially to offset the decline in prices.

The growth momentum in exports from technology-intensive sectors is likely to be bolstered through the implementation of schemes such as the Production-linked incentive scheme. The likely extension of the Interest Equalisation Scheme for export credit would be a further boost to exporters.

Going forward, strengthening export infrastructure through State-level participation, striking mutually beneficial trade agreements, and diversification of exports basket towards technology-intensive sectors would be the core motifs of India’s export growth strategy.

The writers are economists with the Export-Import Bank of India. Views expressed are personal

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