The jubilation over Indian exports hitting the $400 billion mark is well-deserved. It marks a 37 percent jump over the $291 billion notched up last year, but compared with the $330 billion of exports achieved in the 2018-19 fiscal, it marks a three-year compounded annual growth of 6 percent -- not exactly exhilarating.

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The 37 percent jump in exports was also made possible because global trade grew strongly in calendar year 2021. UNCTAD (United Nations Conference on Trade and Development) figures released last month show that global trade grew by a strong 25 percent in CY 2021 to a record level of $28.5 trillion. That marked an increase of 13 percent compared to 2019, before the COVID-19 pandemic struck.

To be sure, India has grown faster than global trade has; yet clearly, global growth has been a tailwind. Global GDP, which had been averaging 3.25-3.3 percent in the five years since 2015, contracted by 3.1 percent in 2020 due to COVID and then jumped 5.9 percent in 2021. The smart growth in global GDP and global trade helped Indian exports. Another factor that should bring some realism into our export growth celebrations is the sharp jump in Indian imports. While exports grew by 37 percent in FY22, imports for April-Feb have shot up by 59 percent. The April-March imports jump may be worse considering the rise in several commodity prices in March. And that’s the other angle we need to remember -- global inflation. Global inflation surged to 4.35% percentin 2021, the highest in 10 years.

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Citibank economist Samiran Chakraborty, analysing the price impact on India 69 percent import growth in April-December 2021, wrote as follows: “On the prices front, the overall import deflator is showing double-digit growth even on a 2Y CAGR basis and is contributing to the higher nominal import bill too." If one applies the double-digit inflation in imports to our export numbers as well, the 37 percent rise in Indian exports in FY22 may look more sober.

In short, the rise in exports is commendable, but the $400 billion aggregate number and the strong 37 percent growth has three big tailwinds: low base, strong global trade growth, and high inflation. Stripped of these, exports have still done well but worries remain for FY23.

Firstly the stronger growth in imports over exports has dragged the trade deficit to a worrying $20 billion monthly average and this, even before crude and coal and cooking oils touched stratospheric highs in March. The higher trade deficit has led to a current account deficit of about 3.4 percent of the GDP in the October-December quarter, according to analysts (Reserve Bank of India has yet to announce the official numbers for Q3). Current account deficit in Q4 is likely to cross even 3.5 percent of GDP.

RBI stalwarts have traditionally maintained that a current account deficit of 2.5 percent of GDP is the plimsoll mark for India. The CAD will perhaps worsen in Q1 of FY23. Thus, while the export growth is good, it is no time for celebration, since it is far from adequate to cover the coming rise in trade and current account deficits.

Also read: As wheat price surges, experts warn against excess export

First Published:Mar 24, 2022 6:11 PM IST