India’s single-minded focus on export growth yielded record dividends. It now needs to move away from China and take advantage of it to grow into a credible alternative to the global value chain
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Economists speak of the need to activate the four engines of the economy—private investment, public expenditure, consumption and export—to drive rapid economic growth. The COVID pandemic saw a major slowdown in three of India’s four growth engines – consumption, private investment and exports. Only one engine—the massive dose of public expenditure by the Modi government—pulled the Indian economy back from the brink. In FY22, something unprecedented happened in Indian exports, which contribute 15-20 per cent of the demand in the Indian economy. The country’s goods exports, which had been stuck at an average of $300 billion for more than a decade and fell to $291 billion during the peak of the Covid wave, began to rise rapidly. As of March 2022, exports had registered a growth of 43 percent, with total merchandise exports crossing $400 billion for the first time. Even service sector exports have boomed, while India has grown from an average of $200 billion to $250 billion this year, despite a slowdown in the tourism sector. Commerce and Industry Minister Piyush Goyal attributed this huge leap to “the approach of the entire government and the entire country, working together with the Centre, State, Local Bodies, Public Sector Undertakings and Autonomous Bodies to achieve this feat. A message to the world that New India delivers quality, credibility and scale.
Economists speak of the need to activate the four engines of the economy—private investment, public expenditure, consumption and export—to drive rapid economic growth. The COVID pandemic saw a major slowdown in three of India’s four growth engines – consumption, private investment and exports. Only one engine—the massive dose of public expenditure by the Modi government—pulled the Indian economy back from the brink. In FY22, something unprecedented happened in Indian exports, which contribute 15-20 per cent of the demand in the Indian economy. The country’s goods exports, which had been stuck at an average of $300 billion for more than a decade and fell to $291 billion during the peak of the Covid wave, began to rise rapidly. As of March 2022, exports had registered a growth of 43 percent, with total merchandise exports crossing $400 billion for the first time. Even service sector exports have boomed, while India has grown from an average of $200 billion to $250 billion this year, despite a slowdown in the tourism sector. Commerce and Industry Minister Piyush Goyal attributed this huge leap to “the approach of the entire government and the entire country, working together with the Centre, State, Local Bodies, Public Sector Undertakings and Autonomous Bodies to achieve this feat. A message to the world that New India delivers quality, credibility and scale.
The remarkable change was not an accident but the result of a set of enabling factors. These included the Modi government’s decision to post dynamic BVR Subrahmanyam, the then chief secretary of Jammu and Kashmir, as commerce secretary. Subrahmanyam had successfully implemented the government’s decision to abrogate Article 370 and make Jammu and Kashmir a union territory. Goyal entrusted him with the task of commissioning India’s exports. After much discussion within the ministry and in consultation with exporters, Goyal and Subrahmanyam nailed the $400 billion target. Tech-savvy Goyal loves creating dashboards and tracking the progress of all major activities, something he did when he was the railway minister where he personally monitored train delays. Subramaniam broke down the goals and divided them into regions and countries, product and commodity groups, and export promotion councils. He then focused on both existing and new markets and products, including recapturing lost market shares and sourcing from new territories.
Prime Minister Modi engaged all key stakeholders in August 2021, addressed nearly 200 Indian missions abroad, 38 export promotion councils and key government departments both at the Center and in the states. He indicated that exports would be a top priority for his government, which encouraged the sector. The commerce ministry then prepared export targets for all missions, export councils and states. Daily, weekly and monthly follow-up was done to ensure there was no slippage. Wherever possible, paperwork was reduced or simplified for exporters to expedite processing and tax concessions. The finance ministry played its part by clearing export arrears of over Rs 55,000 crore and approving an interest equalization scheme. These actions boosted cash flow and encouraged exporters. Result? Made the impossible possible. The target of $400 billion was more than achieved.
cover story , challenges ahead
However, what came as a fall was that imports rose due to higher global prices of petroleum, coal, cooking oil, gold and electronic goods. For example, petroleum prices increased by up to 94 percent. Therefore, the total trade deficit widened to $192 billion in FY22. It would have been higher, but for a phenomenal growth of exports. The challenge for FY23 is to boost exports even further by focusing on developing new markets and signing new trade deals, as was the case with the UAE and Australia recently. The commerce ministry is now in talks with the UK, Canada, Europe and the US and expect them to be successful in the current financial year. Goyal is confident of significantly raising the FY 2013 target and is pushing for merchandise exports to reach $1 trillion by 2030. It’s a tall order, but as Subrahmanyam says, “we’re excited about fulfilling it.” n