India’s single-minded focus on export growth fetched record dividends. It now needs to capitalise on the shift away from China and develop as a reliable alternative to the global value chain
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Economists talk of the need for the four engines of the economy—private investment, public expenditure, consumption and exports—to be firing at full throttle to trigger rapid economic growth. The Covid pandemic saw a major slowdown in three of India’s four growth engines— consumption, private investment and exports. Only one engine—the massive doses of public expenditure injected by the Modi government—pulled the Indian economy back from the brink. In FY22, something phenomenal happened in Indian exports, which contribute 15-20 per cent of the demand in the Indian economy. The country’s merchandise exports, which were stuck at an average of $300 billion for over a decade and had declined during the peak of the Covid wave to $291 billion, started surging rapidly. By March 2022, exports had registered a 43 per cent growth, with total merchandise exports crossing $400 billion for the first time ever. Even service sector exports boomed, with India touching $250 billion this year up from an average of $200 billion despite the tourism sector being in the doldrums. Commerce and industry minister Piyush Goyal attributed this big leap to “the whole of government and the whole of nation approach, with the Centre, state, local bodies, public sector undertakings and autonomous bodies working together to achieve this feat. It is a message to the rest of the world that the New India offers quality, reliability and scale.”
Economists talk of the need for the four engines of the economy—private investment, public expenditure, consumption and exports—to be firing at full throttle to trigger rapid economic growth. The Covid pandemic saw a major slowdown in three of India’s four growth engines— consumption, private investment and exports. Only one engine—the massive doses of public expenditure injected by the Modi government—pulled the Indian economy back from the brink. In FY22, something phenomenal happened in Indian exports, which contribute 15-20 per cent of the demand in the Indian economy. The country’s merchandise exports, which were stuck at an average of $300 billion for over a decade and had declined during the peak of the Covid wave to $291 billion, started surging rapidly. By March 2022, exports had registered a 43 per cent growth, with total merchandise exports crossing $400 billion for the first time ever. Even service sector exports boomed, with India touching $250 billion this year up from an average of $200 billion despite the tourism sector being in the doldrums. Commerce and industry minister Piyush Goyal attributed this big leap to “the whole of government and the whole of nation approach, with the Centre, state, local bodies, public sector undertakings and autonomous bodies working together to achieve this feat. It is a message to the rest of the world that the New India offers quality, reliability and scale.”
The remarkable turnaround was no accident but the result of a constellation of enabling factors. Among them was the Modi government’s decision to post the dynamic B.V.R. Subrahmanyam, then the chief secretary of Jammu and Kashmir, as commerce secretary. Subrahmanyam had successfully executed the government’s decision to abrogate Article 370 and make J&K a Union Territory. Goyal entrusted him with the task to turn around India’s exports. After much discussion within the ministry and in consultation with exporters, Goyal and Subrahmanyam homed in on a target of $400 billion. The tech-savvy Goyal loves to create dashboards and track the progress of all major activities, something he did when he was the railways minister where he personally monitored train delays. Subrahmanyam broke up the targets and disaggregated them to regions and countries, products and commodity groups and export promotion councils. He then focused on both existing and new markets and products, including looking to regain lost market shares and sourcing from new areas.
Prime Minister Modi involved all the key stakeholders in August 2021, addressing some 200 Indian missions abroad, 38 export promotion councils and key government departments, both at the Centre and in the states. He signalled that export would be a top priority for his government, which galvanised the sector. The commerce ministry then drew up exports targets for all missions, export councils and states. Daily, weekly and monthly follow-ups were done to ensure there was no slippage. The paperwork for exporters was reduced or simplified to expedite processing and tax concessions made wherever possible. The finance ministry played its part by clearing export arrears of over Rs 55,000 crore and approving an interest equalisation scheme. These actions boosted cash flow and energised exporters. The result? The impossible was made possible. The target of $400 billion was more than achieved.
COVER STORY | The challenges ahead
What came as a downer though was that imports had ballooned because of the higher global prices of petroleum, coal, cooking oil, gold and electronic goods. Petroleum prices, for instance, went up by as much as 94 per cent. So, the overall trade deficit widened to $192 billion in FY22. It would have been higher, but for the phenomenal growth of exports. The challenge for FY23 is to boost exports even further by concentrating on developing new markets and signing new trade deals, similar to the ones inked with the UAE and Australia recently. The commerce ministry is now negotiating with the UK, Canada, Europe and the US and hopes that they will fructify in the current financial year. Goyal is confident of significantly raising the FY23 target and is pushing for merchandise exports to touch $1 trillion by 2030. That’s a tall order but, as Subrahmanyam says, “We are bullish about accomplishing it.” n