In today's Finshots we see what India's record breaking export figures truly represent

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Alright, on with the story now.

The Story

The big headline last week was this — India exported a whopping $400 billion worth of merchandise. And by merchandise, we mean tangible goods — Wheat, Diamonds, that sort of stuff. It doesn’t include IT exports — something that we ship in bulk. So if you look at this from a holistic perspective, $400 billion is a really big deal. In fact, it’s the first time we’ve hit the milestone and you can see why everybody’s overjoyed.

Exports are the lifeblood of any country. Every time we export stuff, we get paid in foreign currencies (mostly dollars). More dollars help us beef up our reserves and we won’t have as much trouble importing stuff if we have to. It even helps stabilize economies during tumultuous times.

So you can see why India wants to crank up its exports. The government has implemented incentive schemes like RoDTEP to get Indian manufacturers to push exports. They’re trying to revamp Special Economic Zones (SEZs) to get the states involved in the process. And they’re getting foreign companies to set up shop in India by wooing them with the PLI scheme. The goal is to “Make in India” for the world.

However, not everything is hunky-dory.

For starters let’s look at the $400 billion figure and see how we managed to break this milestone. Last year, we exported goods worth $291 billion — A decent sum if you ask most people. But this year, we’re projected to hit $410 billion and that’s a massive jump of about 41%. It’s the fastest our exports have grown since 2009–10 and ideally, this should be considered amazing news.

The problem however is that 2020–2021 was a pandemic year. The global economy came to a standstill. Export programs were scrapped/delayed and most countries (including India) simply couldn’t ship goods abroad like they used to. So the $291 billion figure is an anomaly. In a good year without a pandemic disrupting matters, India would have exported a lot more than this figure would have you believe. So the 41% jump must be taken with a pinch of salt.

In fact, we get a more nuanced picture if we track the growth of exports over the past decade. In 2011–12, we exported goods worth $300 billion for the first time ever. Now if you try and see how exports have grown since then, you’ll get a growth rate of 3% each year. Not extraordinary by any stretch of the imagination.

Another way to look at this is to compare export growth to India’s GDP. It’s like this — “If exports begin to dominate, then we should ideally see it aid economic growth. Meaning as India’s GDP keeps rising each year, we must see the export engine contributing more to this figure on an incremental basis.”

But what do we actually see? Well, when we hit the $300 billion mark, exports contributed 17% to India’s GDP. But right now, it’s pegged at 14% of the GDP. Meaning exports aren’t contributing as much to our economic growth as they used to.

Also, exports alone won’t help us gain those precious foreign reserves. If we must build our buffers, we need to export more and import less. This also flows into the whole Atmanirbhar argument. We can’t be truly self-sufficient if we keep importing more stuff each year. And the problem here is that imports reached record levels too during this period. In fact, we will most likely breach the $600 billion mark for the first time ever.

Finally, there is one other thing.  The total value of all exports has breached the $400 billion mark. Great stuff. However, it tells us precious little about the actual volumes involved. Let us explain — Imagine we export a sack of rice for $10 this year. And let’s suppose grain prices rally next year — from $10 to $15. In such an event, the total value of exports will grow from $10 to $15 even if we import the same quantity of rice.

And we know the rice example is exaggerated. But think about crude prices. India imported a lot of crude oil this year, processed it and then exported the finished products elsewhere. However, since the price of crude has gone on a spectacular rise in the past few months, the value of petroleum products have also soared alongside it, without a commensurate increase in volume.

So while the $400 billion is definitely a step in the right direction, there’s a lot more nuance involved. And hopefully this story sets the record straight.

Until next time…

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