$400 Billion In Exports: What's Leading The Boom?

Engineering goods remained India's largest export item, contributing 26.9% of all merchandise exports in the first 11 months of FY22. Exports of engineering goods rose 32% upto February 2022 on an annual basis. Compared to the pre-pandemic year of FY20, exports in this category are up 28%.

Exports of petroleum products saw the sharpest rise at 114% from FY21, led by a rise in crude oil prices. Compared to FY20, they registered a rise of 30%.

Electronic goods, organic and inorganic chemicals also saw a rise in exports, even though their share in total exports remained the same as in FY20.

Gems and jewellery exports and readymade garment shipments lost share compared to the pre-pandemic year, while rice — India's single largest agricultural export — made up for 2.3% of all merchandise exports.

Arun Garodia, vice chairman of the Engineering Export Promotion Council, said that engineering goods exports are likely to account for 27-28% of all merchandise exports by the close of the financial year. The industry has benefited from a need felt by developed nations to diversify their supply chains beyond China. India was able to take advantage of the opportunity, Garodia said. Strong global demand has also helped boost engineering goods exports, he added.

The rise in petroleum products was led by demand and higher prices towards the second half of the year, said Iyer. Agricultural goods exports continued to benefit from strong domestic production and a surplus in key commodities like rice and wheat. This was not the case in other parts of the world, he said.

According to A Sakthivel, president of the Federation of Indian Export Organisation, the rise in exports is across sectors with growth seen by both the traditional employment-intensive and sunrise sectors. The addition of $110 billion in exports is despite logistics challenges, including container shortage, sky-rocketing freight rates and liquidity constraints, he added.

With an expected $40-45 billion likely to be added by services exports this year, over 50% of the incremental growth in GDP this fiscal will be contributed by the exports sector, Sakthivel said.

While exports have risen, imports are also likely to exceed the $600 billion level in FY22, a research note by Acuite Ratings and Research said. This means that India's current account deficit is likely to widen to 2.5-3% of GDP in the current year.

We need to be cognizant of the significant tailwinds to merchandise trade from elevated global commodity prices, the note said. "However, high commodity prices also turn out to be a headwind for trade and current account deficits since India is a net importing economy."