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The robust growth in exports from India in the first half of FY22 will not be easy to sustain as stimulus-induced demand in developed economies might normalise in 2022 and could tilt back in favour of services, India Ratings said on Thursday. The rating agency said a mix of policy support and a carefully crafted strategy that continuously explores emerging opportunities of exports of manufactured products in developed and emerging markets can be a way forward.
“As the population in developed markets is aging, they need a different mix of goods and services than hitherto produced and exported by emerging economies to developed economies. Therefore, the way forward for India’s exports is to not only complement the existing export basket with a new product mix but also focus more on emerging market opportunities," India Ratings said in a report.
India’s merchandise exports grew 58% to $198 billion in the first half of FY22. The government has set a target of $400 billion in exports during FY22. The most encouraging feature was the exports of engineering goods which grew at 63.1%. It is the single largest item in India’s merchandise exports basket at $54.5 billion accounting for 27.5% of the exports in value terms. Some of the other items that registered a healthy export growth rate are petroleum products (138.2%), followed by other cereals (132.7%), gems and jewellery (122.1%), man-made yarn/fabrics/made-ups (86%) and cotton yarn/handloom products (81.3%).
Like exports, even imports staged a smart recovery in the first half of FY22 growing at 85.8%. India Ratings expects imports to grow at 43.8% and touch the $573 billion mark in FY22. Since India meets nearly 80% of its domestic petroleum & crude oil demand and 89% of its gold demand through imports, and this demand is fairly inelastic, India Ratings said a glance at the non-oil and non-gold imports is more reflective of the state of the economic activity and more specifically of the manufacturing sector.
“Non-oil and non-gold import in 1HFY22 grew at 57.3%. Within non-oil non-gold imports, items such as machine tools, machinery, electrical & non-electrical, transport equipment, electronic goods which are reflective of a recovery in investment demand, registered handsome growth ranging between 38% to 75% in 1HFY22, but in level terms their import is still lower than 1HFY20. Clearly, there is still a long way to go before we could see a meaningful recovery in the import demand of the investment goods," it added.
India Ratings expects the country’s trade deficit to come in at $183.9 billion in FY22, which is 6.2% of GDP, up from 3.8% of GDP in FY21. “Although much higher than FY21, it is in line with the trade deficit witnessed during FY15-FY20 which ranged between 4.9% to 6.8% of GDP," the rating agency said.
The rating agency expects the current account to turn deficit again in FY22 and come in at 1.5% of GDP compared with the current account surplus of 0.9% of GDP in FY21. “However, so long as the current account deficit of India remains close to about 2.5% of GDP, India Ratings believes it is unlikely to be destabilising for the economy, more so when the country had a forex reserve of $637 billion at end-September 2021," it added.
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