Exporting its way to economic growth will not be easy in the current times for the country because of persisting geopolitical tensions, including recent events in the Red Sea, that further aggravated slower growth in global trade in 2023, per the Department of Economic Affairs’ review of the Indian economy. “This reinforces the need to lower logistics costs and invest in product quality to hold on to and expand market share in areas where India has an advantage”, the review proposed. 

In the first advanced estimates of national income for financial year 2023-24, the share of exports in GDP is estimated to moderate from FY 2022-23 to FY 2023-24 24, as a slowdown in global demand has led to a decline in the demand for India’s exports, the report cautioned. “Potential risks are expected to emanate from ongoing geopolitical tensions and the recent surge in shipping costs due to rerouting to avoid security risks in international waters, which contains the potential for triggering inflation, especially in terms of energy costs,” it noted.

The report was referring to the Iran-backed militant group Houthis’ attack on shipments in the Red Sea that had forced many nations, including India, to divert their cargo away from the troubled routes to longer and costlier ones (through the Cape of Good Hope in South Africa). According to some estimates, India’s exports could be lower by $30 billion in the ongoing fiscal due to the crisis in the Red Sea.

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Russia’s war on Ukraine and the more recent Israel-Hamas war in Gaza disrupted supply chains across the world affecting movement of goods, including food and inputs, affecting global economic growth. The recent events may have brought back concerns over reliance on global supply chains, further aggravating the slower growth in global trade in 2023, the review stated. “In other words, exporting one’s way to growth will not be easy,” it said, adding that lowering logistics costs and improving quality of goods would be crucial to help Indian exporters retain their existing market and also expand in areas where they had an advantage over their competitors.

Positive side

On the positive side, the review pointed out that in FY 2022-23, the country achieved the highest-ever merchandise export of $451.1 billion while imports grew by 16.8 per cent, the report pointed out. However, the pace of growth moderated due to persisting geopolitical tensions. Moderation in merchandise exports continued during FY 2023-24 (till November 2023) mainly on account of weaker global demand, it added. 

“Despite global shocks, India’s merchandise trade balance improved markedly from a deficit of $189.2 billion in April-November 2022 to $166.4 billion in April-November 2023 as a result of the decline in imports,” it said.

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The review observed that the export mix, in terms of the principal commodity classification, had not changed much over the years. But there has been progressive diversification in India’s export basket, and there is scope for adding more quality and complexity to exports, given the existing capabilities, it added.

An alternative to the globalisation of supply chains will take much longer to emerge if it ever does, the review added. “However, that will not deter governments from pursuing onshoring and friend-shoring of production with a consequent impact on transportation, logistics costs, and, hence, the final prices of products,” it said.