Prime Minister Narendra Modi and Commerce minister Piyush Goyal are gung-ho about India’s merchandise exports which are goods exports touching the USD 400 billion mark for the first time this year. This certainly calls for rejoicing as India’s goods exports growth has been tepid in the last few years, even in years before the Covid pandemic. Over 25 percent growth this year is something noteworthy. Coupled with this, India’s services exports too, are looking up and it is expected to be around USD 250 billion in 2021-22. This calls for celebrations as India’s total goods and services exports are likely to exceed USD 650 billion this year. With foreign exchange reserves surging towards USD 650 billion, India’s balance of payments position is quite comfortable and has thrown enough indications that India is poised for an economic recovery that will take the country back to the high growth trajectory.
But the question to be asked is whether the road ahead is smooth or bumpy. It is quite evident that there are hiccups that could derail this smooth run in 2022-23. The first and foremost is the ongoing Russian-Ukraine war. The severe economic sanctions imposed by the western powers on Russia could derail the globalisation process that has already taken a back seat with the slowdown process starting after the 2008 global currency meltdown. It has worsened in recent years, particularly after the Sino-US economic stand-off. Globalisation gathered momentum after the GATT ministerial at Marrakesh in 1994 which led to the setting up of the World Trade Organisation in January 1995. Though globalisation was slow initially, it gathered momentum after China entered into WTO. The declaration at the Qatar WTO ministerial in 2001 led to the starting of Doha Development Round to make the entire world one global village. Many emerging economies in East Asia and South East Asia took advantage of globalisation to pursue exports that led to growth that helped them to become middle-income economies if not advanced economies. India, which too had a massive opportunity for economic development, somehow missed the opportunity to become a middle-income economy in these two decades.
Economist Raghuram Rajan is right in saying that compared to Russia’s indiscriminate bombing, economic weapons will not kill people as quickly, create as much visible destruction, or inspire as much fear. Nonetheless, the unprecedented economic weapons (sanctions) that have been deployed against Russia will be unquestionably painful. This means that globalisation will take a back seat, harming emerging economies more. India is no exception. If India depended only on the domestic market for GDP growth, India at best can grow up to 6 percent annually. The additional 2-3 percent GDP growth can come only through exports. In the past India’s GDP grew over 9 percent annually on a sustained basis from 2004-09 when exports clocked over 20-25 per percent annually. The Russian sanctions have come at a time when India is vigorously pursuing export-led growth in the post-covid period through PLI schemes in various sectors. This has come at a time when India was trying to become a global manufacturing hub taking advantage of some of the multinational companies exiting China. Attracting those companies would also help job creation, a must to put the economy back on rails after the Covid situation. One has therefore to be cautiously optimistic about India’s exports growth in the coming year. Ending the war and global trade returning to normal is critical.
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