Exclusive | Highest-ever quarterly exports in Q1 FY22 were led by finished goods

Representational Image. A worker cuts metal inside a workshop manufacturing metal pipes in Mumbai.

High-value finished products are leading the fast-paced recovery in India’s exports, much to the surprise and delight of the government. An internal report of the commerce ministry, reviewed by Moneycontrol, has highlighted how India’s exports performed much better in the first quarter (April-June) of FY22.

Export of finished products across major segments such as engineering goods, plastics, chemicals and drugs have pushed up India’s outbound trade when many exporters had been suffering from a major liquidity crisis, almost one and a half years after the pandemic emerged.

As a result, exports grew 85 percent to $95 billion in Q1 over the previous year, which had been marred businesswise by a nationwide lockdown. More importantly, the latest quarterly exports are also 18 percent higher than the $81 billion of Q1 FY20, before the pandemic.

Initial estimates point to a resurgence in new orders, demand from new markets and overall higher global prices resulting from trade volatility since last year as major reasons for the latest uptick, senior officials said. Most of the items that showing large growth correspond with those that the government has been pushing hard for a few years, they added.

“We are studying the trade flows as there are lessons here for us. Our exports picked up from the moment global demand picked up. Exports stood at $90 billion in the immediately preceding quarter of January-March,” an official said.

Largest export categories in latest quarter are all finished goods

Across the board

Ten of the 30 product groups tracked by the government showed a rise in Q1 as compared to before the pandemic in FY20. This led to India’s export growth rate in April 2021 exceeding that of the US, the UK, the European Union, Japan and South Korea, said BVR Subrahmanyam, the new commerce secretary.

The bulk of this new growth came from engineering goods, which have been boosted by demand from the North American markets. The Engineering Export Promotion Council (EEPC) expects the current growth streak to continue.

“The growth is notable since the second wave of the pandemic had posed downside risks due to logistical and manpower issues. Not only have those risks subsided now, but the government has also come up with economic relief measures that would certainly boost economic growth,” EEPC India chairman Mahesh Desai said.

However, Desai stressed that the concerns faced by engineering goods exporters, especially small businesses, include high ocean freight rates and elevated prices of primary steel.

Engineering accounts for about a quarter of India’s total merchandise exports and is one of the largest foreign exchange earners. Being a labour-intensive sector, it also has a major footprint in employment, with almost 4 million skilled and semi-skilled workers on the payrolls.

Sustained growth in these sectors is expected to improve job numbers as most of them are labour-intensive, said A Sakthivel, president of the Federation of Indian Export Organisations.

“The need of the hour is to soon notify the RoDTEP (Remission of Duties and Taxes on Export Products) rates to remove uncertainty from the minds of the trade and industry, besides addressing some of the key issues including priority status to exports sector, release of the necessary funds for MEIS (Merchandise Exports from India Scheme) and clarity on SEIS (Service Exports from India Scheme) benefits and resolving risky exporters’ issues,” he added.

More than $3 billion worth of electronics exports and $2.6 billion worth of plastics & linoleum shipments also helped to boost the figures.

However, the first quarter of FY22 continued to see major growth in earnings from commodities, fuelled by the global commodity supercycle that has pushed up prices massively since last year. This had helped stem the slide of exports in pandemic-ridden FY21.

Even in the latest quarter, forex earnings from commodities including iron ore remained high. Double-digit growth in the export of spices and oil meals and large growth in rice (37 percent) and marine products (16 percent) were also seen.

Much-needed change

India’s exports are dominated by low-yielding commodities, the prices and flows of which fluctuate widely. But the government remains keen to substitute them with finished goods.

Official statistics reveal that labour-intensive sectors such as leather, apparel and gems may take longer to recover from the slowdown than others such as engineering goods. NITI Aayog has suggested that expanding the basket of products and targeting new export categories and markets are the need of the hour.

As global supply chains get redesigned in the aftermath of COVID-19, China is giving up more of its export share in low-skilled products such as apparel, footwear and furniture. While India is keen to corner an increasing share of this open market, it is also focusing on a new generation of high-value, growth-oriented exports such as electronics, machinery and e-vehicles in the upcoming foreign trade policy.