By K R Sudhaman
The recessionary trends in some of the advanced economies and the prolonged Ukraine-Russian war notwithstanding, India’s foreign trade continues to be on the upswing. After clocking over $400 billion merchandise exports for the first time in 2021-22, the new financial year has begun well with exports recording 24 per cent growth in the first quarter 2022-23 at $118.96 billion. This is a welcome development as FIEO President A Sakthivel says it has come amidst challenging geo-political and rising global uncertainties.
Goods Exports in June clocked $40.13 billion — a growth of 23.52 per cent. The top sectors, which led the exports growth during the month were petroleum products, gems and jewellery, electronic goods, textiles, rice, engineering goods and organic and inorganic chemicals. Labour intensive sectors also contributed to the exports basket, which itself is a good sign, further helping job creation in the country. Shaktivel said the benefits of the newly signed free trade agreements and PLI scheme will further help us in building exports as we continue to move ahead during the fiscal.
Though government has announced a slew of measures to support exports, there is a need to further push value added exports, augment container manufacturing, developing Indian shipping line of global repute and logistics support for exports in view of high freight cost.
UNCTAD feels though global trade hits record $ 7.7 trillion in the first quarter of 2022, the positive trend for international trade may soon come to an end amid tightening policies and geopolitical frictions. The war in Ukraine is starting to influence global trade largely through increase in prices. Besides rising interest rates and the winding down of economic stimulus packages will likely have a negative impact on trade volumes for the rest of 2022. Volatility in commodity prices will make trade developments uncertain.
Despite all these positive trends, there is one area of concern is the difficulties in getting clearances and corruption in the country that makes the investors in western countries wary of setting up units in India. The multinationals still are comfortable in setting up units in China, South Korea and South East Asian economies even though many are keen to move out of China especially due to supply chain constraints and worsening Sino-US relations including economic. So, some hard work is required to change this perception if India is keen on attracting large investments from advanced economies.
There is also infrastructure bottlenecks particularly ports. It is important to fix it on a priority basis as 90 per cent of India’s exports in volume and 70 per cent in value are by sea. Port facilities and turnaround time for ships need to improve substantially to achieve global standards. Countries like China, South Korea and Japan have very well developed and sophisticated deep sea ports. The government might have improved road connectivity considerably but port development is still lagging behind. The visible improvement in post facilities is yet to be achieved.
One thing that augurs well for India in recent months is that United States has overtaken China to emerge as largest trading partner at a time when Covid has slowed down Chinese economy. Also geopolitical considerations has tilted in favour of India after Sino-US trade stand-off and Sino-Indian stand-off over border issue. In financial year 2021-22, bilateral trade between the US and India stood at $119.42 billion (9.25 lakh crore rupees), as against $80.51 billion in the previous year, according to the commerce ministry data. Bilateral trade with China stood at $115.42 billion in the financial year.
From the figure it may look that US is ahead of China marginally in the FY ending March 22 because the difference is just $4 billion. But what is significant is that India’s exports to United States jumped substantially. Exports to the US rose to $76.11 billion, while imports increased to $43.31 billion. The US is among the few countries with which India has a trade surplus, meaning exports exceed imports. Also expectations are India’s exports, which had started looking up after near stagnation for a few years, will grow further in view of Washington looking at alternative hub to China for sourcing products.
Many Indian trade bodies including FIEO believe that India joining the recent US led initiative of Indo-Pacific Economic Framework can only push the bilateral trade further, so also trade with other member countries like Japan South Korea and Australia. Brunie, Indonesia, Malaysia, the Philippines, Singapore, New Zealand, Vietnam and Thailand are other member countries. These countries account for 40 per cent of global GDP. The collective aim of the grouping is to prepare their economies for future after series of disruptions.
There are also reports to suggest that India could add upto $20 billion to GDP if it halves its reliance on Chinese imports. This one step alone could push up India’s GDP significantly. India after the Galwan Valley stand-off with Chinese troops, has been making efforts to reduce dependence on China for imports.
US president Joe Biden launched IPEF initiative in May this year in Tokyo with 13 founding members in the Asian continent including India but excluding China. The IPEF initiative is US attempt to challenge China’s attractiveness as a trade and investment partner in this region so as to deal with issues of digital economy, supply chain bottlenecks, and green infrastructure.
During 2021-22, the data showed India’s exports to China marginally increased to $21.25 billion last fiscal year from $21.18 billion in 2020-21, while imports jumped to $94.16 billion from about $65.21 billion in 2020-21. The trade gap rose to $72.91 billion in 2021-22 from $44 billion in the previous fiscal year. This indicated that the efforts to contain imports from China has not worked yet as the PLI scheme to various sectors during Covid as part of the Atma Nirbhar initiative of Prime Minister Narendra Modi is yet to yield results.
Manufacturing takes some time particularly in sectors like electric automotive, IT hardware, garments, green energy and so on but in the coming years the initiative is expected pay-off. One good sign is that there is about 40 per cent jump in exports to US in the last financial year. India too is keen to reduce imports from China besides attracting foreign investments. Another important aspect of Chinese imports is that the increase was mainly due to increase in import of capital goods and intermediaries. This meant that the pick up of industrial activity in India.
In 2021-22, the UAE is India’s third-largest trading partner with USD 72.9 billion. It is followed by Saudi Arabia (USD 42.85 billion) as 4th, Iraq (USD 34.33 billion) as 5th, & Singapore (USD 30 billion) as its 6th largest trading partner. Though India’s exports to these countries are increasing year after year, India’s main imports from gulf countries are oil and hence balance of trade is tilted towards those gulf countries.
There are definitely some positive signs to make India’s exports as engine of growth and Commerce Minister Piyush Goyal is already talking of achieving $ one trillion goods exports annually in the next few years. Only time will tell if this is achievable as India’s port and shipping developments need to have commensurate development to meet the logistics requirement.
Also there is need to create the much needed ambience to enable foreign investors feel confident of making large scale investments in the country. We may be improving in the ease of doing business index but investors from advanced economies still not that comfortable and the feel good factor is still missing despite being a democracy unlike China. The global investors are still happier to invest in countries like China and other East Asian economies. India has not yet become a favoured destination and Indian government need to work hard on this aspect. (IPA Service)