Exports have hit a speedbreaker this fiscal, after an impressive show in FY22, when it crossed the $400 billion mark set by the government to record a 43 per cent growth over FY21 (an abnormal year) and a 33 per cent rise over FY20. The declining trend this fiscal set in since June, with October reporting an absolute decline (over 15 per cent) in merchandise exports. Second quarter export growth was down to 3 per cent, against a 25 per cent growth in Q1. The performance looks worse when petroleum exports (which accounts for over 20 per cent of total exports this fiscal, as prices are high) are excluded. While total merchandise exports were up 12.3 per cent to $263 billion in the first seven months of this fiscal, this increase falls to just 3 per cent when petroleum is left out (from $200 billion to $206 billion).
If the increase in FY22 was led by petroleum, but well supported by cotton and man-made yarn, engineering goods, leather, chemicals and handicraft items, this year the slump is quite broad-based, with petroleum bucking the trend — capitalising on the supply crunch and high prices as a result of the Ukraine war. Leading the decline this fiscal are cotton yarn, fabrics, made-ups and handlooms (minus 24.6 per cent to $6.5 billion), iron ore (minus 72 per cent to $0.7 billion from $2.4 billion), handicrafts (minus 33.4 per cent to $0.8 billion), carpets and plastics.
While the exports slump in a number of products can be attributed to a drop in global demand, some specific factors too have been at work. For instance, finished steel exports are down 55 per cent so far this fiscal in volume terms, owing to the imposition of export duty in May. Iron and steel export have the potential to earn over $10 billion annually. Sugar exports, which have quadrupled since FY14 to touch $4.6 billion in FY22, are likely to take a hit, owing to physical export curbs. It is just as well that the Centre recently lifted export duty on steel and on low-grade iron ore. This coincides with the fall in global prices. India’s finished steel exports are likely to pick up with improved competitiveness. This will increase capacity utilisation, and reduce costs for India’s capex drive. Export curbs can be counterproductive as they can suppress domestic output.
Physical curbs on sugar exports, now extended till October 2023, are likely to hurt the sector at a time when the global market is opportune. There can be no case for export curbs when domestic sugar prices are stable. At prevailing levels of sugarcane production, India is well placed to export nine million tonnes of sugar, with the global market looking attractive and supplies from Brazil likely to hit the market only in May 2023. More generally speaking, India needs to fix its ‘ease of doing business’, by improving logistics in the form of transport, and port turnaround time. A foreign trade policy that takes a holistic view of India’s export potential should have been brought out by now.