- July 5, 2022
- Posted by: Anish
- Category: Feed
When the coronavirus pandemic (‘Act of God’) hit Indian shores in early 2020, the Indian economy was already in a downward spiral, with growth rate slumping to an 11-year low of 3.1 percent in the March quarter of Financial Year 2020. However, two years post-Covid there has been a turnaround and optimism, India could emerge as a $30-trillion economy in the next 30 years, Indian commerce and industry minister Piyush Goyal said, highlighting that the country remains the world’s fastest-growing major economy.
The Indian economy has grown at a rapid pace after the pandemic (‘Act of God’) and is expected to do well despite the ongoing war. Though pandemic and war have impacted global supply chains and caused a spike in commodity prices, especially oil, the Indian government has managed to keep inflation at a reasonable level, the minister said.
Based on a (conservative) compounded annual growth rate of 8%, the country’s economy will double in about nine years. India’s nominal GDP stood at $3.3 trillion in Financial Year (FY) 2022.
At the same time, India’s merchandise exports touched a record $418 billion in FY22, the mood among the stakeholders was euphoric, given the quantum jump from $292 billion in FY21. Another reason for celebration was that after the pandemic lull that started in March 2020, India’s exports had moved to historic highs and were moving beyond the $300 billion-$350 billion range for a decade or so.
It is worth pointing out that the country surpassed the export target of $400 billion for FY22 despite global macroeconomic headwinds. India has the potential to reach a target of $1 trillion exports in goods and services each by 2030. A look at economies such as Vietnam and Malaysia drives home this point further. India’s exports of goods and services as a percentage of GDP is 18.43%; while Vietnam’s is 106.80% and Malaysia’s is 65.22%, according to World Integrated Trade Solution (WITS). This means India still has a long way to go.
The Production Linked Incentive (PLI) scheme — for instance, which first came up in 2020 and has 15 sectors under its ambit — will play a significant role in enhancing manufacturing and boosting exports. The experts suggest that the scheme be bolstered with more supportive policies — directly and indirectly — covering a wider area of activity to make sure the output rises faster and more efficiently.
One way to grow India’s exports faster and cover more area is free trade agreements (FTAs). India is fast-tracking negotiations for proposed FTAs with the UK, Canada and the EU. “The FTA with the UAE has already been operationalised. The Comprehensive Economic Partnership Agreement (CEPA) between India and the UAE, which came into effect from May 1, is expected to increase two-way trade to over $100 billion in five years from $60 billion now. India and Australia had signed the Economic Cooperation and Trade Agreement (ECTA), which aims to increase the trade between the two sides to $45-50 billion over five years from the current $27 billion.
The services sector is one area where we have a lot of advantages. First is the cost advantage as labour in India is cheaper and services exports will always be beneficial to India because we have a good labour arbitrage. A lot of sectors such as transportation, legal services and accounting services can be opened up.
Exporters are bullish about what lies ahead. Puran Dawar, President, Agra Footwear Manufacturers and Exporters Chamber (AFMEC), has seen a 15-20% growth in businesses compared with the pre-Covid time. Dawar expects the good run to continue. “There is definitely a big shift from China. People have realised that they should not put all eggs in one basket.
With the pandemic and the supply chain crisis not causing as much havoc as earlier, India should tweak its trade strategy to tap into newer geographies and product categories. The main focus should be on becoming more competitive in global trade.
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