Is India's export growth 'sticky' enough to hit $400-bn mark this year?

It is less than necessary, an analysis of the composition of the export basket suggests

Data released by the commerce ministry last month showed that for the first five months of fiscal 2021-22, India exported $164.4 billion worth of goods. Last year, the country had exported $98.1 billion worth of goods in this period. The April-August exports in FY22 are 23.5 per cent higher than the pre-Covid normal and the highest in a decade (see chart).

India, thus, is on track to hit the $400-billion export mark this year. But is this growth sustainable?

A Business Standard analysis of export data for the April to August period starting FY13 shows that for 55 commodities, India’s exports are at a decadal high. Moreover, the share of these 55 commodities in India’s exports has increased for over a decade. While these commodities accounted for 42.8 per cent of India’s total export in dollar terms in FY13, their share increased to 48.7 per cent in FY17. Today, they account for 59.6 per cent of total exports. Even among these commodities, however, the growth is asymmetrical.

Considering only commodities where exports are over $1 billion, 21 commodities account for nearly half of India’s total exports. Further analysis of data shows that three commodities had witnessed a contraction from FY13 to FY20. Sugar and sugar confectionery exports were worth $1.3 billion in FY13 and had reduced to $0.8 billion by FY20. Similarly, cotton exports had witnessed a compounded annual decline of 4.4 per cent, and articles of iron and steel had declined 1.0 per cent in the eight years between FY13 and FY20.

All these categories have witnessed a phenomenal increase between FY20 and FY22. Between FY20 and FY22, sugar and sugar confectionery has grown at a CAGR of 29.8 per cent. The increase in cotton exports has been 24.6 per cent, whereas articles of iron and steel have risen only 3.2 per cent during this period.

While India witnessed a 1.2 per cent CAGR for the eight years between FY13 and FY20, for the last three years, the CAGR has been 7.3 per cent. Not all products have increased at this rate, however. Thirteen of the 21 commodities have grown at a lower rate than India’s exports.

So are Indian exports in these 21 commodities sticky? For this part of the analysis, a comparison is drawn between FY13-20 and the CAGR between FY20 and FY22. For seven commodities, the growth in exports has been in line with the long-term CAGR. For instance, pharmaceutical products increased 6.7 per cent year-on-year between FY20 and FY22, whereas their growth between FY13 and FY20 was 6.4 per cent. Some of the categories covering manufactured goods, such as vehicles other than railways, and optical, photographic medical and surgical equipment grew slower than the FY13-20 period.

But these account for only a small proportion of India’s total exports. The pandemic effect has primarily been on industries that process primary goods. Iron and iron articles, which only had a CAGR of 2.3 per cent bet­ween FY13 and FY20, has grown 39.9 per cent y-o-y since 2019. Sim­ilarly, aluminium has witnessed a 21.3 per cent increase. Rubber and paper are also rising, showing double-digit growth in exports between FY20 and FY22.

An analysis of exports in terms of quantity makes the picture clearer. The increase in sugar, cotton, and iron and steel are on account of India exporting a higher quantity of these products. In the plastics and rubber category, the increase has been mainly due to a rise in prices. Similar has been the case for organic chemicals and articles of iron and steel, which comprise finished products.

Even the increase in primary products may not be due to a shift in supply chains but a disruption caused by the pandemic. For any country to take advantage of its exports, the share of manufactured goods needs to increase. India may hit the $400-billion target, but its exports are still not as “sticky” as it would want.