This hinges on govt support and reining in Covid

As India recovers from an unprecedented second wave of the pandemic, the MPC of the RBI in June 2021 lowered its growth forecast for the economy to 9.5 per cent in FY22 from 10.5 per cent earlier. S&P Global Rankings also recently cut India’s growth forecast to 9.5 per cent from 11 per cent for FY22. World Bank, on the other hand, has been more conservative, projecting India to grow at 8.3 per cent in 2021.

Latest data show India’s merchandise exports in April-June 2021 was $95.36 billion, an increase of 85.36 per cent over the $51.44 billion in April-June 2020 and 17.85 per cent over the $80.91 billion in the same period of 2019.

Given the extreme uncertainty across the globe due to the pandemic, the continued positive impact of India’s exports on the overall economy would depend on multiple factors.

Firstly, Indian exports have not been amongst the best performers. In fiscal 2020, the ratio of India’s merchandise trade to GDP stood at 27.8 per cent, down from about 31.5 per cent in FY19, and from 38.2 per cent in FY15. This raises the question whether Indian exports will be able to bolster the Indian economy.

India’s goods exports in May 2021 touched $32.2 billion, a 69 per cent increase over the year-ago period. On the flip side however, this export growth has largely been driven by the traditional exporting sectors like engineering, petroleum, and gems and jewellery.

The recent increase in exports could possibly be due to a lag effect, when old pending orders got executed soon after the economy opened up. What is to be seen is whether this trend will continue given the second wave of the pandemic has hit India hard.

Secondly, given the limited possibility to improve exports overnight, the government should look to provide export-led incentives till March 2022. Earlier in the year, the MEIS (Merchandise Exports from India Scheme) was replaced with the Remission of Duties and Taxes on Exported Products (RoDTEP). This initiative would be good for the Indian economy as earnings from exports could possibly compensate partially the loss faced in domestic demand.

Thirdly, flattening of the Covid curve in India’s top export markets is also crucial for continued export demand. While vaccinations are progressing well in developed countries, the same is not the case with neighbouring economies like Bangladesh and Nepal which import significantly from India.

Global trade can reach its previous levels only when most of the nations complete vaccinations. National lockdowns or emergence of new variants of the virus will slow global trade.

Fourthly, if the recent depreciation of the rupee vis-à-vis the dollar continues, it will help exporters. However, this has its limitations as the inputs for leading export items like petroleum and gems/jewellery are imported. It is, therefore, better if the rupee remains largely stable.

Lastly, India may also look at possible export opportunities in countries which have not suffered from any de-growth in imports despite the pandemic. They include Vietnam, whose imports grew 10 per cent in 2020, Nigeria (12 per cent) and Turkey (4 per cent). Diversifying the export market could be of help in these uncertain times.

While green-shoots in exports were visible, possibly as a result of the economy opening up especially in the last quarter or so of FY21, the first quarter of FY22 was badly affected by the second wave. However, given that, unlike last year, there were only localised lockdowns, the impact would be minimal but definitely not nil. The possibility of a third wave, especially in the economically strong States, could also impact trade.

Hence, the government must continue to facilitate mass vaccinations and the public at large should follow Covid protocols, as both these would remain a major component of India’s economic revival

Source: The Hindu Business Line