A Resilient International Trade Year Despite The Pandemic Headwinds 

The last three decades have very clearly been the decades of globalisation. The fall of the Berlin Wall and the collapse of the Soviet Union ushered in a new world order where movement of capital, ideas, people and goods became much less restrictive.

The proliferation of consumer internet catalysed this process, adding services trade to the mix of things taken for granted with an interconnected cross-border footprint.

The glorious run which looked like fulfilling the ‘end of history’ prophecy for a while had begun to frail at the edges.

The economics, propelled by technology advancement, was changing far too rapidly for the socio-political changes to keep step. In fact, with the threat of irreversible socio-political changes beginning to collapse, culture, practices beliefs, and voices of localism had been gaining traction last few years around the world.

And then, the Covid-19 pandemic hit the global superstructure hard.

Even if Indian exports as a percentage of gross domestic product (GDP) hovered in around 12 per cent in recent years, the expectation in policy circles has been that this ratio can not only be improved, it could become a prominent lever in the next decadal economic growth.

With this context, the pandemic struck India a dual blow — it collapsed the domestic economy as well as severely impeded movement of goods to the target export markets.

The rise of the pandemic in India almost totally overlapped with the financial year (FY) 2020-21. India’s case count rose starting March 2020, forcing the central government to announce a hard lockdown.

With the first quarter of the FY totally lost and localised lockdowns continuing late into the second quarter, Indian GDP is expected to shrink in FY 2020-21 by 7 per cent as per an estimate of Moody’s, a global ratings agency.

In this backdrop, a severe exports fall would not have been incongruous.

However, the FY 2020-21 trade numbers released by the Ministry of Commerce earlier last week were better than expected. Indian yearly exports shrank by 7 per cent over FY 2019-20.

Given the prohibited movement of goods and people through the FY, especially Q1, this is a much less severe outcome relative to the doomsday fears this time last year.

One category of exports which grew strongly in FY 2020-21 was pharmaceuticals.

This is, of course, not surprising given some situational demand. In a difficult year for the world, the Indian pharmaceutical industry exported $24.4 billion worth of medicines and supplies, clocking a rise of 18 per cent over the previous FY.

While North America remains the key market for the Indian pharmaceutical industry, what was encouraging was that relatively untapped markets like the CIS countries, Latin America and Middle East also witnessed big jumps for the sector.

The March 2021 figures were encouraging with exports touching $34 billion, the highest ever monthly number. In fact, Indian exports have seldom gone past $30 billion a month mark — so this was an encouraging development.

For the month of March, which was the fourth consecutive month of export growth over the same month last year, 28 of the 30 export categories grew in dollar value terms.

Engineering goods (70 per cent), Gems and Jewellery (75 per cent) and Pharmaceuticals (47 per cent) were the top three categories clocking higher exports over March 2020.

The export growth in March was especially encouraging because Indian exporters faced two externalities. Firstly, there has been a global shortage of shipping containers through the last few months.

Secondly, the Suez Canal was blocked for a week in the last week of March and Indian trade has a significant dependency on this shipping route.

Another encouraging trend in March 2021 was the export growth in non-petroleum products, and non-gems and jewellery segments.

Of the $34 billion, non-petroleum exports were $30.8 billion and non-petroleum, non-gems and jewellery exports were $27.2 billion, a 61 per cent growth over the March 2020 figures.

Globally, several firms are looking at a diversification of their supply chains. This is a good time for India to get some of the diversification investment from major manufacturers.

The near term data shows that India can provide the necessary resilience and dependability for manufacturers. But long term supply chain shifts to India will require specific facilitating interventions especially on the regulatory front.

India is currently working with the Production Linked Incentives (PLI) programme, which encourages chosen firms in specific export-intensive sectors to Make in India.

The programme has seen good initial response from mobile phone manufacturers. It is however important that all the chosen sectors are notified and participants for incentivisation chosen over the Q1 of FY 2021-22.

This will ensure higher private capital expenditure at a time economic revival is expected after a GDP contraction last year.

India should create a specific ambition — like $400 billion in annual exports, scaling to $500 billion over the next three to four years.

This formulation can be used to deploy trade as a lever for foreign policy and geopolitics, which is getting increasingly complex.

As the world strives for multipolarity, where alliances and friendships are utilitarian as well as equitable, India has a key role to play.