How a slowing global economy risks India’s $2 trillion export aim

Not only is the global economy slowing but the effects of de-globalisation and fragmentation of supply chains are also showing up.

India is poised to become the world’s fastest-growing major economy in the coming years and has outlined its plan to more than double annual exports to $2 trillion by 2030 from over $770 billion. However, a sluggish global economy is likely to act as an impediment to the export target.

The International Monetary Fund (IMF) this week slashed its global growth forecast for 2023 and 2024 by 10 basis points each — to 2.8 percent and 3 percent, respectively.

Moreover, over the medium term, the prospects for growth seem dimmer than in decades.

What IMF says about India

While global growth is going to be dragged by declines in the advanced economies as monetary tightening and the banking crisis hit home, India’s economy is expected to grow 5.4 percent in 2023 and 6.3 percent in 2024, according to the IMF.

However, a slowing global economy means that growth in the volume of world trade is expected to decline from 5.1 percent in 2022 to 2.4 percent in 2023, hurting shipments, it said.

Also read: India's trade policy weaknesses will undercut its economic rise

Latest World Economic Outlook

“The world economy is not expected to return to the rates of growth that prevailed before the pandemic over the medium term. Looking at 2028, global growth is forecast at 3 percent — the lowest medium-term growth forecast published in all World Economic Outlook (WEO) reports since 1990,” according to the IMF’s latest WEO.

Slowing growth, coupled with sticky inflation, financial instability and issues like climate change and global fragmentation are pushing the economy into a “perilous phase,” it said.

Fragmenting world

Not only is the global economy slowing but the effects of de-globalisation and fragmentation of supply chains are also showing up.

The retreat from cross-border economic integration began more than a decade ago after the global financial crisis and was hastened by Brexit and the US-China trade war. The pandemic and Russia’s invasion of Ukraine have reinforced fragmentation, splitting the world economy into geopolitical blocs. As such, barriers to trade are steadily increasing, according to the IMF.

Countries all over are turning inwards and are seeking to rely more on friendly nations.

Also read: Foreign Trade Policy 2023 fails to provide a blueprint to integrate India with the global markets

‘Geopolitics splitting the world into newer strategic blocs’

The US has launched unprecedented fiscal measures to boost the production of semiconductors, green energy and hydrocarbons. Europe is also not left behind. Asian giants like India have also made self-reliance a key policy aim with production-linked and other incentives.

Geopolitics is also splitting the world into newer strategic blocs, with the US trying to maintain its pole position and China aligning with Russia and others to create its own power centre.

A volatile Europe and Taiwan could lead to further global power tussles, heightening economic risks and uncertainties.

“A rise in political tensions could trigger large reallocation of capital flows at the global level, with effects particularly pronounced for emerging markets and developing economies,” according to the IMF.

Reason for optimism but tough target

India’s plan to boost overall exports to $2 trillion by 2030 is helped by the recent rise in services and electronics exports, which have more than doubled in the past two years.

Meanwhile, fresh steps in the foreign trade policy, like new export hubs and online approvals, would help bring in companies that are seeking to move manufacturing supply chains away from China.

Still, the export target looks very steep, according to Thamashi De Silva, Assistant India Economist at Capital Economics.

“The new target requires annual growth in exports of around 14 percent between FY22/23 and FY29/30, more than double the growth rate in the previous eight fiscal years. In all, we think it’s unlikely that this target will be achieved by 2030,” De Silva said in a report last week.