After a dip in exports in July, and amid growing uncertainties over global orders as developed economies slow, the government is still sanguine India will hit the $500 billion export target in the current financial year.
Two major free trade agreements signed with the United Arab Emirates and Australia, the beginning of rupee-based international trade, and positive forecasts by specific sectors is expected to help India reach the target.
In FY22, India met the government's annual export target for the first time since 2014. The country crossed the crucial threshold of $400-billion annual merchandise export target.
Marked by lockdowns and trade restrictions owing to the pandemic, FY21 had been difficult for exports although outbound trade started rising at the end of the year. Afterwards, exports rose on an annual basis every month of FY22. All major categories of foreign currency earners rose consistently.
However, a continuing global super-cycle kept commodity prices high across the board throughout 2021 and contributed massively to the $400-billion target being reached. Commodity prices are cooling now and an entrenched slump in demand from key markets is becoming evident.
Data released by the commerce and industry ministry on August 2 showed exports in July fell for the first time in more than a year, albeit slightly.
Commerce secretary BVR Subrahmanyam argued that exports in July were "almost static" at $ 35.24 billion, compared to $ 35.51 billion in July 2021. He also blamed a high base effect cited by the commerce department for the fall. Exports had risen by 16.8 percent in June.
Other Commerce Department officials also confirmed that accelerating inflation and an economic slowdown in prime developed markets such as the United States and the European Union posed a challenge for India.
Confident of increase
In the first four months (April-July) of FY23, exports reached $156.41 billion compared to $131.06 billion a year ago, an increase of 19.35 percent. Officials remain confident that if this rate is sustained, $470-480 billion can be reached comfortably over the rest of the year.
"According to our modeling, out of the total exports in a year, about 23 percent takes place in the first quarter, 25 percent in the second, 25 percent in the third, and 27 percent in the fourth. Data for the last 10 years show export flows are not even and it picks up as the year progresses. So, we should comfortably sail through the $500 billion target," an official said.
The Commerce Department also cited export restrictions on wheat, iron and steel, and certain petroleum products from May onwards, to have also substantially pulled back the overall export figures.
Officials also cited findings by export promotion councils that show foreign buyers in the consumer goods space, such as textiles and leather, had stocked up significantly, and are currently sitting on unsold inventory.
"As a result, existing export orders are not being canceled, just postponed for the moment," the official mentioned above said.
Free trade deals, rupee trade
To tide over sudden drops in exports, the government has also pushed for more bilateral trade deals. Case in point, it expects an additional $10 billion in exports to the United Arab Emirates and an additional $ 6 billion to Australia from the two recent FTAs signed this year.
The Reserve Bank of India's recent decision to allow rupee-denominated trade is also expected to boost exports of tea, coffee, pharmaceuticals, textiles and leather.
Foreign trade partners who export to India can be paid in rupees, which can be reused by them to purchase more from India.
"This is going to boost exports to two nations, to which flows have taken a hit -- Russia and Sri Lanka," the official cited above said.
Exports to sanctions-hit Russia have collapsed to about half after its invasion of Ukraine while those to Sri Lanka has completely vanished since the island nation does not have enough dollars to pay for purchases.
Sectoral help
The government is also banking on the fact that export growth has been broad-based and that a greater number of sectors are showcasing resilience in exports. Near-term forecasts show that shocks from global demand slumps will also be evenly distributed between most sectors, officials said.
"If we subtract two key items which go both ways, from the $156 billion figure (processed petroleum and gems and jewelry), the total non-oil, non-gold exports in the first 4 months of FY23 comes to $110.39 billion. In a similar period last year, this was $99.69 billion. As a result, we have an increase of 10.7 percent," a second official said.
"The gems and jewelry sector has promised to deliver $45 billion worth of exports this year. The latest trends validate this projection. The engineering sector remains confident of exporting $130 billion worth of merchandise this year," an official said.
Other sectors such as agriculture are also expected to help. The Agricultural and Processed Food Products Export Development Authority is confident of delivering $60 billion this year. Exports of all 45 major commodities within the agri export basket rose to $16 billion in the first quarter, officials pointed out
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