In 2022, trade continued to be at the vanguard of economic resilience, both globally and in India. According to the Unctad, despite the multitude of global headwinds during the year, global trade in goods is expected to reach record levels of $25 trillion in 2022, registering an increase of 10 per cent as compared 2021.

Along the same lines, the momentum in India’s merchandise exports also continued in 2022, recording a double-digit y-o-y growth of 13.7 per cent to reach an estimated $449.7 billion during the year.

The negatives

Quarterly analysis of the data indicates that the y-o-y growth in global trade has moderated in each of the quarters in 2022. However, per Unctad, the global trade volumes have continued to increase during the year, indicative of resilient global demand.

As against the global trend, India’s merchandise exports have witnessed sharper moderation in the recent period. After two quarters of strong growth in 2022, India’s merchandise exports in dollar terms recorded marked deceleration in the third quarter, followed by a decline in the fourth quarter of the year. In rupee terms, growth in India’s merchandise exports was stronger than in dollar terms and remained positive in fourth quarter; but this was on account of the consistent depreciation during the year.

The slowdown in the latter half of 2022 can be partly attributed to the decline in commodity prices, both fuel and non-fuel. The impact of declining commodity prices is evident from the fact that nearly half of India’s exports in value terms recorded a growth during Q3-2022, but a remarkable two-third of India’s exports witnessed positive volume growth during the same period.

Most commodity prices have eased since June 2022, owing to the decelerating global growth. International prices of metals including steel, copper, aluminium, zinc, lead and tin also dropped steadily in the second half of 2022, though they continue to remain above the pre-Covid levels.

Likewise, agricultural prices have also dipped with the FAO Food Prices Index witnessing nine consecutive months of decline in 2022. Prices of petroleum products have also eased in the second half of 2022 due to falling crude oil prices. As a large share of India’s merchandise exports are from the resource-intensive sectors, the declining commodity prices had a dampening effect on India’s exports.

The slowdown can also be attributed to the subpar performance in some traditional sectors and markets. In several traditional areas of competence such as drug formulations, gems and jewellery and engineering goods, growth in exports remained rather modest.

Further, India’s exports to some of its top partner countries like the US, the UK and China recorded a relatively tepid growth when compared to the growth in the overall imports by these countries.

The positives

The growth in India’s merchandise exports has been broad-based as more than 90 per cent of India’s merchandise exports basket in value terms witnessed a y-o-y rise in exports in 2022. In the non-petroleum segment, several products such as electronics, agricultural products, processed foods, leather and leather manufactures, select chemicals, and readymade garments, among others, have posted robust double-digit growth during the year.

Electronic goods, in particular, registered a remarkable y-o-y export growth of 45.3 per cent, fuelled by the enabling environment engendered by government initiatives such as the Phased Manufacturing Programme and the Production Linked Incentive scheme. Exports of electronic goods in 2022 were nearly 3.5 times their levels in 2017.

India has also been able to expand its footprint in non-traditional markets like the regions of Latin America and Caribbean, and Africa, recording impressive double-digit growth rates during Q1-Q3 2022, which were substantially higher when compared to the growth in import demand by these regions during the same period.

Trends also indicate that India has been able to capitalise on China+1 strategy in some regions, particularly the EU. India’s merchandise exports to the EU registered remarkable y-o-y growth rate of 31.3 per cent, much higher than the overall growth in the EU’s imports during Q1-Q3 2022 at 19.6 per cent. Alongside, the EU’s imports from China declined by (-) 26.3 per cent, indicative of the growing diversification of import sources for the EU, away from China, and towards India.

Forging new partnerships for enhancing trade resilience has also been a key theme for India in 2022. Substantial opportunities have opened up for Indian companies with the India-UAE CEPA and the India-Australia ECTA. It is noteworthy that during May-November 2022, India’s exports to UAE recorded a growth of 14.6 per cent, greater than the growth in India’s overall merchandise exports during this period.

The salience of trade agreements is likely to continue for India’s trade during 2023 as well, with concerted efforts underway for negotiation of FTAs with partners like the Gulf Cooperation Council, the UK, the EU, and Canada, among others.

The Way Ahead

Going forward, maintaining resilience in exports despite weakening global demand sentiments and easing commodity prices would hinge on reorienting India’s exports basket towards higher value added and high technology sectors, which are less prone to cyclical downturns.

The government’s Foreign Trade Policy needs to focus on these sectors, and complement other key initiatives like the PLI scheme, to infuse a new vitality to India’s export growth story.

The writers are economists with India Exim Bank. Views expressed are personal

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