The global economic slowdown could hit India’s plans for a higher export trajectory



Earlier this week, the Union ministry of commerce and industry decided to postpone the release of its much – anticipated Foreign Trade Policy, a set of five-yearly guidelines and instructions that focuses primarily on boosting exports. The latest version, 2015-20, expired two years ago and has since been on serial extensions, first due to the Covid-19 pandemic and now thanks to uncertain global economic conditions.
The document was almost ready when officials disagreed on the timing of its release, ET has learnt. Some insisted that these turbulent times called for a well laid-out policy to forge ahead, while others, who finally prevailed, contended that such a long-term policy should be launched only during a phase of economic tranquillity, if not buoyancy, and not when India’s key export markets, the US and Europe, were experiencing a massive economic downturn triggered by the Russia-Ukraine war, among others. The new policy, as of now, will be unveiled only after six months.
“Releasing a foreign trade policy is not enough. As the government is targeting a yearly export of $1 trillion (by 2030), it must also bring in a funding mechanism to incentivise exporters,” says Ajay Sahai, director-general, Federation of Indian Export Organisations (FIEO).

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“The global slowdown has started impacting us. One, the demand for highvalue products has started shrinking. Two, prices of raw materials and intermediates which India exports in huge quantities have drastically fallen in recent months.” The global economic slowdown, along with price rise and currency fluctuations, is bound to affect India’s bid for a higher export trajectory. The question is no longer about whether exports will be hit but to what extent.
At the beginning of the current fiscal year, there was a sense of optimism as India had clocked an all-time high export figure of $676 billion ($421 billion in goods and $255 billion in services) in FY22, well above the $527 billion of pre-Covid FY20 and the $497 billion of FY21.
RISE & FALLIndian exporters began with a bang this fiscal year — with a 19.7% jump in overall (merchandise and services) exports in April-August 2022 as compared with the same period last year. The first sign of trouble was spotted in August when the month’s merchandise export of $33.9 billion had merely grown by 1.6% year-on-year. The number for September is likely to be released mid-October but exporters whom ET has spoken to did not exude much confidence. Exports seem to have begun a turbulent path downhill.
The finance ministry’s monthly economic review for August also points to how the world’s growth and trade outlook have weakened. “Global composite PMI declined from 50.8 in July 2022 to 49.3 in August, as manufacturing and services output, mainly in advanced economies contracted. The US witnessed a massive slowdown with its rate of decline the steepest since May 2020. Japan, Germany, the UK and Italy faced similar contraction of output,” it says.

PMI (Purchasing Managers’ Index) above 50 means an expansion in business activity; if it falls below 50, it denotes contraction. From April to August this year, the US continued to be the top importer from India, buying goods worth $35 billion, a jump of 18% year-on-year. The US was far ahead of the United Arab Emirates (7%) and Netherlands (3.8%), which came second and third on the country-wise list of top exporters from India. If the US economy stumbles in the coming months, Indian exporters will pay a heavy price.
As far as exports to China are concerned, there has been a 36% fall in April-August year-on-year, mainly due to its stringent zero-Covid policy. During the same period, India’s imports from China surged by 29%. China accounts for 14% of India’s total imports, well ahead of the UAE and the US, each having a 7% share. “India must eschew the lure of low-value-added products and invest in deep manufacturing,” says Ajay Srivastava, a former Indian Trade Service officer, analysing the India China numbers (See column, “China’s Covid Sneeze”).
Some imports, for instance, solar cells and lithium-ion batteries surged over 100% in JanuaryAugust 2022 over the same period last year. “The adoption of electric vehicles will increase this value steeply,” he adds. Economist and former chief statistician of India, Pronab Sen, says India’s export to China may bounce back to the original level as the story of China’s slowdown is a bit different from that in the West. “Its slowdown is the result of very harsh Covid restrictions. Once the restrictions are lifted, the country will rebound,” says Sen, adding that the slowdown in advanced economies is, however, a grave concern. “After all, the slowdown affects both volume and value in exports. The impact could be huge.”
To add to their woes, exporters are facing yet another challenge — volatile currency fluctuations. Though a depreciated rupee should theoretically fetch more value in exports, in practice it’s not so simple. Exports with high import contents, for instance, petroleum, cut diamond, gold jewellery etc., don’t gain much due to the fall of rupee against the dollar.
Many other currencies, for example, the euro and the British pound, have depreciated more than the rupee, against the US dollar. According to an FIEO analysis, the pound fell by 16% and the euro by 15% while the rupee depreciated only by 7.2% as of September 14 compared with the same date last year. This means, Indian exporters settling their accounts in pounds or euros may end up losing some money. Meanwhile, the newly conceived mechanism of rupee trade is still at a nascent stage and requires more clarity.
CEREAL NUMBERAnother monster threatening to drag down export growth is inflation. One, it weakens household spending in advanced economies, thus exerting pressure on high-value export items. Two, inflation at home has already forced our policymakers to impose ban, partial restrictions and export duties on multiple items ranging from wheat and broken rice to steel.
“The ban on broken rice (used for poultry feed in some countries), effective from September 9, may lead to a loss of business worth `6,000 crore for the rest of the fiscal year,” says Vinod Kaul, executive director, All India Rice Exporters Association. He adds that once a customer is lost because of ban or restrictions, it becomes a herculean task to woo them back when the situation normalises and curbs are lifted. In the beginning of the financial year, India’s fast-growing agri-exports seemed to be leading the country to a healthy overall export growth figure. But agri-exports have faltered mid-way.
In FY22, India’s agricultural exports touched a historic high of $50 billion, with the momentum continuing this fiscal till the government imposed a ban on wheat exports in mid-May, a step necessitated by rising domestic food prices. Three staples which were fully or partially banned this year had a 32% share in last year’s exports in terms of value— rice ($9.65 billion), wheat ($2.19 billion) and sugar ($4.6 billion).
This is one reason questions are raised on whether India’s agri-exports will touch last year’s milestone, forget registering a spectacular growth this fiscal. Last year, agricultural exports saw a 20% rise y-o-y, with wheat witnessing a 273% jump, mainly due to low base effect.
M Angamuthu, chairman of the Agricultural and Processed Food Products Expor t Development Authority (APEDA), concedes that there are challenges due to multiple restrictions but says his team is concentrating on “value-added and processed food products” sourced from segments such as “horticulture, millets, coarse cereals and organics”. To compensate for possible losses from core items, APEDA has shifted its focus to some unique products this year. “Products with distinct identities such as those with a GI (geographical indication) tag are prioritised,” he says.
Sahai of FIEO anticipates that this year’s export growth will settle at about 10%, down from 17% till August, which means business will fall in the rest of the fiscal. “The situation is so volatile that we need to evaluate targets on a monthly basis,” he says.