As India is poised to hit $410 billion in merchandise exports in the just-ended 2021-2022 financial year, exporters are likely to continue to benefit from the momentum of the new financial year as well, it said. said the economists. The ongoing war between Russia and Ukraine is hitting global supply and value chains and could pose downside risks to Indian exports. However, the momentum built in FY22, high commodity prices and changing global dynamics could help cushion the downside, Yuvika Singhal, an economist at QuantEco Research told FinancialExpress.com.
Will the conflict in Europe slow down India’s trade dynamics?
“There are both downside and upside risks of war. However, overall India will be advantaged,” NR Bhanumurthy, Economist and Vice-Chancellor, Dr BR Ambedkar School of Economics University told FinancialExpress.com. “The magnitude of the downside risks, in terms of impact on growth, is in my view not substantial. Inflation will have an impact, for example. I don’t think there will be a significant impact on the However, the advantage is in sectors such as agriculture India had a bumper crop this year which I believe would have lowered prices but with the war and scarcity of agricultural products, India stands to benefit,” Bhanumurthy said.
With no domestic demand, external demand for Indian goods has been robust. India’s services exports, especially exports from IT companies, also performed very well. “This is a great opportunity for India and these figures indicate that the Indian economy can relive the strong growth that India experienced between 2003 and 2008, before the global downturn in 2008,” Bhanumurthy said.
Can India be an export-driven economy?
India has undoubtedly performed phenomenally in terms of exports this year, and can do better in the coming years given its comparative advantage in several sectors, but we would skip the step if we said that the economy India can become an export-oriented economy, says Singhal.
“Over the past two years, with the coronavirus pandemic, global trade has changed dramatically, some countries have been opposed to China and are considering a China + 1 strategy, supply disruptions have become persistent in some markets, exacerbated by the ongoing Russia-Ukraine crisis. Many global economies, just like India, are seeking to be self-sufficient. So to say that exports can become the sole driver of the Indian economy in the coming years, it may not be,” she added.
What is driving India’s export growth?
Russia is one of the largest exporters of oil and gas and commodities such as wheat, grain, aluminum, steel and nickel. The conflict in the Black Sea region has created gaps in the global supply chain. Moreover, due to the sanctions imposed on Russia by countries like the United States, other countries are looking elsewhere to meet their demands.
India, for example, is taking advantage of this opportunity and increasing its surplus exports of wheat and other commodities. “India had a surplus season in terms of agricultural products this season, and the markets expected prices to fall, until the Russian-Ukrainian war happened. This will help farmers get better returns on their produce,” Bhanumurthy said.
“India’s exports are also expected to benefit from supportive policies such as the Production Linked Incentive Scheme, for which FY 2022 was the first year of production. Some of the biggest global names such as Apple and Samsung have already got the ball rolling by contributing to domestic production and exports in FY22,” Singhal said.
Over $400 billion in exports this year, what does the future hold?
From Prime Minister Narendra Modi to Trade and Industry Minister Piyush Goyal, leaders hailed exporters, manufacturers, micro-small and medium-sized enterprises (MSMEs), weavers, as well as farmers, as the India exported goods worth $400 billion for the first time this year. year, up 20% from FY19. Economists said the figures are a significant indicator of India’s economic recovery, especially post covid. “Historically, India’s export growth is considered to exhibit a strong correlation of around 70% with global GDP growth, and FY22 was no exception on this front,” Singhal said of QuantEco.
Major ratings agencies such as Fitch and S&P have cut their global growth prospects citing the war in Eastern Europe. And so, India, like much of the world, should be hurt. “We expect import growth to slow in FY23, although it is expected to remain above export growth at around 17%. In addition to high global commodity prices, the unlocking of the national economy after the Omicron wave as well as improved vaccination coverage should support both pent-up demand and organic demand,” Singhal said.