India's attainment of $400 bn exports target and its significance

• The value of India’s outbound shipments in the financial year 2021-22 hit $400 billion which is the highest ever.
• By the time this year closes another $10 billion worth of goods is expected to be shipped out.
• It would translate into a growth of about 41% from the pandemic-hit year of 2020-21, making it India’s fastest exports growth rate since 2009-10.

Significance of this attainment

• India has managed to achieve its export target despite supply disruptions due to the pandemic, the challenging shortages of shipping containers and surging freight rates after several years.

Reasons

• Part of this could also be explained by the world shifting its global procurement preferences to diversify their dependence on China following the outbreak of the COVID-19 virus.
• Australia, which is in the midst of a shrill trade battle with China, has made way for India, taking exports up 94% so far this year.
• Shipments to the U.S. are also up 47%.

Status of imports and the trade deficit

• India’s imports have shot up to record levels and could end up nearly $200 billion over 2020-21’s import figure of $393.6 billion.
• The trade deficit for the year could be around $190 billion, sharply higher than the $102 billion recorded in the pandemic year.

Risk factors for Indian exports in the coming year

• The Ukraine-Russia conflict may create some more opportunities for Indian farm produce exports, especially for crops like wheat and maize.
• But this would be offset by a sharp rise in India’s energy import bill as well as an uptick in costs of importing edible oils like sunflower oil, whose production is dominated by the two nations at war.
• India imports 80% of its oil and demand is likely to grow as the economic recovery picks up pace, provided the pandemic doesn’t resurface.
• This could translate into a ’term-of-trade’ shock, with elevated trade and current account deficits
• Sustained pressure on the rupee even as monetary tightening in the developed world may suck out dollars from emerging markets.

Suggestions to overcome challenges

• While high shipping rates, container shortages and re-alignment of trade routes around the Black Sea will pose a challenge, timely actions on the policy front could help create more export opportunities.
• Swift conclusion of Free Trade Agreement pacts: negotiated with countries like the U.K., Australia and Canada
• It could create easier market access in these large markets.
• Revision of FTP: exporters await a long-overdue revision of the Foreign Trade Policy for 2015-20, that has now been extended into the first few months of 2022-23 as well.
• Inclusion of SEZs and some sectors in RoDTEP: a parliamentary committee has urged the government to include Special Economic Zones and sectors such as pharma, steel, and chemicals under the Remission of Duties and Taxes on Export Products (RoDTEP) Scheme.

Way Forward

• The significant steps taken during this time could help balance out some of the bigger tectonic shifts in trading patterns from the European crisis, including a firming up of the COVID-induced inward-looking shift in nations’ stance on globalisation.