India’s Foreign Trade: Will Exports Be Able To Overcome Global Headwinds?

After eight months of hard-sell by marketers between April and November this year, India’s merchandise exports including gems and jewellery, commodities like tea and iron ore, engineered goods such as automobiles, has fetched a tad less than US$ 279 billion, nearly 7 per cent less than the country’s exports during the same period last year.

The trade balance narrowed to US$ 61 billion during April-November 2023 as compared to US$ 100 billion during the same period last year on the back of lower imports and higher services exports at US$ 220 billion against US$ 208 billion for April-November 2022.

However, the fact remained that India’s overall exports which include manufactures and services stood at US$ 499 billion in April-November 2023, lower by nearly 1.5 per cent compared to the same period last year.

A foreign trade policy was announced earlier this year on March 31 aimed at boosting the country’ exports to US$ 2 trillion by 2030 (China exported US$ 3.59 trillion in 2022 to place the target in context), however that seems to have barely scratched the surface and India’s attempts to ship manufactures to the rest of the world have been wallowing in shallow waters.

“Exports especially merchandise exports are expected to continue to face headwinds from volatile geopolitical situation and slowdown or even stagnation in GDP growth in advanced economies especially European countries’’ said Sunil Sinha, Principal Economist, India Ratings.

India’s top trading partners are almost in the west – US, European Union and UK. UAE and China are the other big partners for the country. These economies have all been affected by the current inflationary spiral and high interest rate cycle and demand growth there has been has been muted at best.

India's top partners 'losing momentum'

For instance, the European Union has “lost momentum this year against the background of a high cost of living, weak external demand and monetary tightening,” according to a paper produced by the EU Commission this Autumn and is likely to end the year with a near flat GDP growth of 0.6 per cent.

“Global headwinds are of course affecting the country’s export efforts. We have also been trying to enter new markets with our products but then many competitors are trying the same stratagem including China, which means the competition is severe. The fact that our labour productivity is not too high is not helping us much,” pointed out Prof Biswajit Dhar, former Director General of RIS and a foreign trade analyst.

According to an ILO data sheet, India labour productivity or GDP per hour worked is a lowly US$ 8.47 compared to South Korea’s US$ 41.46, Malaysia’s US$ 25.59, South Africa’s US$ 23.74, China’s US$ 13.53 and Indonesia’s US$ 10.96.

Inability to move up the value chain and lack of significant attempts to improve merchandise quality, build global brands, besides streamlining or removing logistical and trade bottlenecks need urgent attention.

“The sequential flat behaviour of our exports is contrary to the trend seen in the rest of Asia, where exports have fared relatively well in October. Most key Asian nations are tech-led and typically helped by upturn in the tech cycle. Indian exports, on the other hand, are commodity-oriented (gems & Jewellery, petroleum products, tea etc) and have not enjoyed the same gains as other Asian export hubs’’ said Madhavi Arora, Lead Economist, Emkay.

Added Dhar who has been member of Indian delegations to the WTO Ministerial meets, “Our attempts at building strong global brands out of India have been few and far between. Brands, we all know command a higher price in any market compared to mere commodities.”

Sanctions take their toll on trade

US sanctions against Russia and Iran have also hit Indian exports and raised shipping and insurance costs as has the war in Gaza and Ukraine, all of it affecting global commerce.

The latest WTO bulletin in October 2023 forecast, ‘’for 2023 we are downgrading our forecast for world merchandise trade volume growth to 0.8 per cent, less than half the 1.7 per cent growth we forecast in last April’’

Said EEPC India Chairman Mr Arun Kumar Garodia “geo-political tensions and demand slowdown in major advanced economies continue to be a matter of concern for the exporting community’’.

India which is among the top exporters of tea to the world is likely to sell 10 per cent less tea on account of the sanctions against Iran alone.

“Tea exports have been hit and prices of orthodox tea have fallen across the board mainly because of the Iran factor;” said Sanjay Mukherjee, Kolkata-based tea export consultant for several multi-nationals, adding “hopefully the sanction imbroglio will be solved in the coming year”.

FTP : Hope for the future

However belated steps to operationalise the Foreign Trade Policy which wants to move away from an earlier incentives-based trade policy to one which allows remissions of charges and which encourages new areas such as e-commerce, high tech exports, speciality chemicals and equipments besides streamlining processes and increasing ease of doing business, could spell better days for those who want to ship ‘made in India’ products to the world.

Commerce Ministry officials pointed out that a notification extending Interest Equalization Scheme on export credit, a new Trade Infrastructure for Export Scheme (TIES) and Market Access Initiatives (MAI) Scheme, besides remissions on duties on certain sectors like pharma, iron and steel etc., “will go a long way in giving a push to the FTP announced 8 months back”.

Trade efforts have started bearing green shoots point out officials - the top 10 high growth export destinations include the Netherlands (36 per cent), Brazil (28 per cent), Israel (27 per cent), Indonesia (24 per cent), Türkiye (22 per cent), Australia (20 per cent), South Africa (19 per cent), Saudi Arabia (16 per cent), and Belgium (13 per cent).

“These lend us confidence that the FTP can script a new success story,” officials said.

Indian industry is also hopeful that free trade pacts with the UK and the EU would be concluded sooner than later, providing impetus to value-added exports from the country.

“These can give an impetus to value added exports, especially high value garments, automobiles and engineering goods,” officials said.

However, the war in Gaza and a possible step up to sanctions against Russia can be expected to continue to play out, while recovery of western economies need not necessarily be at the pace being forecasted. These and higher commodity prices remain among the imponderables which may continue to bedevil India’s reach out to the global market.