New Delhi: The latest analysis of the industrial output and merchandise exports data by India Ratings and Research (Ind-Ra) represents that the uptick witnessed in merchandise exports in FY22 provided a helping hand to several manufacturing segments amid the weak domestic demand. However, the surge was not broad-based and confined to a handful of sectors.
As per the rating agency’s findings, the export trend of FY22 might not sustain in FY23 due to several factors. These include the adverse impact of the Russia-Ukraine war leading to recessionary concerns in the advanced economies, stringent Covid-19 control strategy in China with implications for production in various subsectors in India — and continued disruptions in global supply chain/trading sanctions imposed on Russia.
India’s average annual merchandise exports during FY16-FY20 was $297.02 billion, having peaked at $330.08 billion in FY19. However, it jumped to the highest-ever $421.89 billion in FY22. Since the pickup in merchandise exports has primarily been driven by the higher exports of manufactured goods, its spill over effect was expected to be visible in the higher capacity utilisation and an improvement in the industrial growth numbers in FY22.
To analyse this, Ind-Ra looked at the matching category of goods exports and industry data. More precisely, the merchandise trade data were mapped to two-digit Index of Industrial Production data. The mapping of the disaggregated goods exports data with the Index of Industrial Production at two-digit is representative and not exact/accurate due to data limitations.
“With the exception of a few, most manufacturing segments recorded double-digit YoY export volume growth in FY22. Since FY21 was an exceptional year due to the COVID-19 pandemic, Ind-Ra also looked at the FY22 exports volume growth over the FY20 base. Even on the FY20 base, with the exception of a few, most manufacturing segments recorded double-digit export volume growth. The export volume growth pattern across the different manufacturing segments was broadly similar both on the FY21 and FY20 base” said Paras Jasrai, Analyst, Ind-Ra.
Four sectors – basic metals, textiles, pharmaceuticals and food products witnessed a robust rebound in export volumes in FY22 when compared with FY20 volume levels. This suggests the production in these segments benefited from the buoyant export demand. Interestingly, the textiles sector witnessed a sharp recovery both in exports and import volumes along with production. These sectors have a share of 26.4% in the overall industrial sector and formed 24.1% of the merchandise exports in FY22.
Notably, the sectors which not only witnessed low growth in production levels, but also low-to-moderate export volumes growth in FY22 were other transport equipment (which include railways locomotives, ships and aircraft), wearing apparel, leather products, etc. This suggests labour-intensive sectors such as wearing apparel and leather products have benefited from neither domestic nor external demand. This does not augur well from the perspective of employment generation in the country. Moreover, wearing apparel and leather sectors are under pressure due to high inflation.
Inflation in clothing & footwear was at a 35-quarter high of 9.41% in 1QFY23. Overall, the sectors in this group have a lower share of 9.8% in the industrial sector, nonetheless, formed 14.3% of the merchandise exports in FY22.
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