The fiscal year 2021–22 ended with a somewhat mixed picture on the trade front. There was plenty to cheer about merchandise exports, which reached the record level of $422 billion, the first time it had crossed the $400 billion mark. But, merchandise imports, too, experienced a record surge, scaling $612 billion. The trade deficit touched $191 billion, expanding by over $86 billion in a year. How are these numbers behaving in the current fiscal year?
Data for the first four months of 2022–23 allow us to make initial assessments about India’s merchandise trade patterns. At first sight, the numbers for April to July 2022 do not look promising as exports have expanded by 20%, but imports have grown by over 48%.
Consequently, the trade deficit has already reached nearly $100 billion, increasing by over 135% compared to the previous fiscal. Though exports have clearly underperformed in overall terms, technology-intensive electronic products and labour-intensive readymade garments have registered substantial export growth, giving rise to some optimism.
However, gems and jewellery and pharmaceuticals, the two other product groups that have provided thrust to India’s exports in recent decades, have lost their growth momentum.
The imports present the familiar picture of an import-dependent economy on a path toward recovery. Imports of crude oil, petroleum products and coal have expanded, and their import values are also increasing due to the firming of international prices because of political uncertainties.
The past few weeks have seen a moderation of global energy prices owing to the weaknesses in major economies, principally the United States. This trend should help restrict the surge in import bills.
But more alarming for the Indian economy is the increase in imports of electronics products and machinery, both electrical and non-electrical, since it is India’s northern neighbour that is the overwhelmingly large supplier in both these product groups. The sharp increase in textile yarn and raw cotton imports is equally concerning, as this could have serious implications for domestic producers.
In recent months, the Government of India has taken two sets of decisions that have resulted in significant changes regarding the export destinations and sources of imports. First, the government reversed its 2019 decision to disengage from the global integration processes and initiated negotiations to forge Comprehensive Economic Partnership Agreement (CEPAs) with eight partners. While the CEPA with the United Arab Emirates (UAE) is being implemented and an early harvest agreement with Australia is waiting to be executed, agreements with several others, including with the European Union (EU) and the United Kingdom (UK), are being negotiated.
Data on the destinations of exports are available for the first quarter (April–June), and these provide some clues as to what these actual and potential agreements could offer by way of incremental market access. This is an important issue as India’s major failing in the existing agreements with ASEAN, Korea, and Japan has been its inability to utilise the market access opportunities offered by the partner countries.
The first quarter numbers show that India’s exports to the UAE have expanded by over 26% compared to the corresponding period in 2021–22. This is a positive development given that exports to the erstwhile top export destination had consistently declined during the previous decade.
Although the increase in exports during April–June 2022–23 is not broad-based, with petroleum products accounting for most of the incremental gains, higher vehicles and electronic goods exports provide encouraging signs. Imports from the UAE have expanded by nearly 58%, 87% of which is due to the increase in the oil import bill.
While this is not surprising given the increased demand for energy resources in India, the government will do well to closely monitor imports from this CEPA partner to ensure that third parties are not able to take advantage of the preferential access being extended to the UAE.
Exports to the EU and the UK, the two potential CEPA partners, have been expanded during this fiscal, with the latter witnessing a 46% increase. However, the challenge for India would be to maintain its current level of market access in the face of severe headwinds these countries face.
The most remarkable development during the first quarter is India’s substantially increased dependence on Russia. Compared to the previous year, imports from Russia have increased by nearly 370%, making it India’s sixth largest import source compared to 19th in April–June 2021–22. More importantly, Russia is now India’s third largest source of crude oil, with a 13% share, just behind Saudi Arabia, which has a 17% share. Russia is also the largest source of fertilisers, with a 19% share.
These trends in merchandise trade have sent out one clear message: more than ever before, India’s trade engagements are dependent on strategic choices that the government makes during these challenging times.
Professor, Centre for Economic Studies and Planning, School of Social Sciences, JNU