Merchandise exports in July saw the highest-ever monthly haul, registering a 48% rise over last year at $35.2 billion. The positive streak started in January led by higher global demand and if the rally continues, it will help India’s economy rebound faster.
At first blush, growth appears broad-based, but a closer look shows cracks that are yet to heal. Traditionally, petroleum products are the biggest contributor to total exports, but their share collapsed from 21% in 2014 to 9% in FY21 as global crude oil prices declined. This should be noted and as countries switch to alternate fuels, India needs a compositional shift to reduce its over-reliance on petroleum exports. Similarly, engineering goods hogged the highest share of total exports between April and July, but whether they can break away from negative territory remains to be seen. Gems and jewellery exports, the third biggest component, too recovered, but when pitted against pre-pandemic periods, there is a lot of ground to cover.
If during the pandemic months, agri and allied exports were the sole components with positive growth supporting overall merchandise exports, their share reduced just as other categories started packing a wallop. The focus must be on increasing exports of primary agri, animal and other natural products vis-a-vis manufactured products. A healthy export cycle yields better revenue and national output, helps firms’ maximise profits, which in turn leads to additional investment and job creation. It boosts per capita income, and thereby the standard of living. In sum, our export-import mix influences exchange rate, inflation and interest rates, but currently there’s a heavy imbalance.
As per SBI Research, for the five-year period ending FY08, the weighted contribution of exports stood at 39%, while domestic consumption was 63%, implying that both exports and domestic consumption propelled India’s growth. In contrast, for the seven-year period ending FY21, it was 7% and 71% respectively, as exports fell into the negative zone. The bottomline is, while domestic consumption remains our primary growth engine, unless our export performance improves, it is difficult to achieve a meaningful growth.