India met its $400 billion merchandise export target for FY22, supported by strong performance in petroleum products, precious and semi-precious stones, engineered goods, medicines and pharmaceuticals. Mint examines what this step means for the economy.
What policy measures led to this boost in exports?
India’s updated foreign trade policy, launched on April 1, 2015, streamlined old export promotion programs and introduced new ones. The government opened a division dedicated to the unified development of the logistics sector, launched an interest equalization program to facilitate cheaper credit for exporters, unveiled an agricultural export policy, classified districts as export hubs by identifying products with export potential and addressing bottlenecks, and reached out to potential exporters, especially from the MSME sector, and mentored them.
How does the PLI scheme help exports?
The Production Linked Incentives (PLI) scheme was introduced to boost domestic manufacturing and exports by encouraging incremental sales to make India competitive in global markets. The program is open to sectors such as textile products, automotive and automotive components, pharmaceuticals, mobile phone manufacturing and certain electronic components. It aims to build manufacturing capacity and encourage export-oriented production. For example, India has tried to increase its share in world textile exports. The PLI program is expected to boost mobile phone exports to $5.5 billion in FY22 from $3.16 billion in FY21.
What has been the trend in merchandise exports?
Prior to the $400 billion milestone this year, the previous record was in 2018-19, when merchandise exports hit $331.02 billion. From April to February 2022, merchandise exports amounted to $374.81 billion, up 46.09% from April-February 2020-21. Services exports for April-February 2021-2022 also showed an increase of 22.49% compared to April-February 2020-21.
How does greater export help?
India’s exports of goods and services as a percentage of GDP were around 21.7% in April-December 2021-22 and 19% in FY21. Higher export demand creates access to diversified market opportunities, increases the availability of foreign exchange and increases employment opportunities, especially in labor-intensive export sectors, which stimulates economic growth. Exports, a key driver of demand growth for the Indian economy, quickly surpassed pre-covid levels and performed well in FY22.
Will the war in Ukraine affect foreign trade?
The war has caused supply chain disruptions and container shortages, driving up freight rates and prices for crude oil, raw materials and various key raw materials. This could lead to cost inflation, reducing India’s export commodity price advantage. While the war has also increased the cost of importing edible oils, more expensive imported fertilizers will also increase input costs for farmers.
Jagadish Shettigar and Pooja Misra are faculty members of BIMTECH.
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