Exports offer sole cushion to GDP numbers, imports reach almost pre-covid levels

a view of a city: Exports offer sole cushion to GDP numbers, imports reach almost pre-covid levels

© Yaruqhullah Khan
Exports offer sole cushion to GDP numbers, imports reach almost pre-covid levels

Exports and imports were the only two sectors which had a higher economic footprint in the first quarter (April-June) of FY22 (2021-22) than the preceding quarters in FY21(2020-21), latest government estimates have shown. The robust nature of both shows that policymakers can breathe easy at least on this front for some time, experts say.

Latest data by the National Statistics Office (NSO) on August 31 showed that India’s economy grew 20.1 percent in Q1FY22. This strengthens the Commerce Department’s forecast that exports are firmly on the rise and the government’s ambitious $400 billion annual merchandise export target can be met in FY22, officials said.

While the latest headline GDP numbers have risen by record levels, experts have warned that the latest growth does not paint a true picture of the economy as it is based on an extremely low base.

They pointed out that, a year back, Q1FY21 had seen the nationwide and subsequent regional lockdowns, with a complete stopping of all factories, businesses and transportation.

A case in point is that most key indicators, including private consumption, government expenditure and capital formation, have all recorded a lower number in the latest quarter than the preceding quarters of the previous financial year.

However, India’s external sectors have beat that trend, with both exports and imports rising considerably on an annual basis as well as sequentially (quarter-on-quarter).

Exports rising fast

Buoyed by strong global demand, a glut in manufactured items waiting to be shipped, and strong commodity prices, exports have been on a continuous upswing since early this year. Even without considering the base effect, they have surpassed the 2019 levels.

In fact, the GDP data showed that Q1FY22 exports worth Rs 7.68 lakh crore were the highest in the previous nine quarters. They were higher than the exports worth Rs 5.5 lakh crore in Q1FY21. But experts point out that, more importantly, they were higher than the exports worth Rs 7.06 lakh crore in Q1FY20, indicating that exports have breached the pre-COVID levels.

“Services are the largest component of our economy and they are still struggling. Despite the base effect, unlike industry, it grew only 11.4 percent in Q1FY22. However, its largest components — trade, hotels, transport and communication — did better than others and grew at 34.3 percent in Q1FY22, despite a majority of its activities being contact-intensive in nature,” Sunil Kumar Sinha, Principal Economist at India Ratings said.

Exports also made up 23.7 percent of India’s GDP, up from 20.5 percent a year back. “The pickup in exports, as reflected by the GDP breakup, is a positive signal and is in line with the pickup in global economic growth,” Rajani Sinha, Chief Economist and National Director, Research, Knight Frank India, said.

She added that another comforting factor is that the investment to GDP ratio has remained above 30 percent against a low of 24 percent in Q1FY21.

India attracted Foreign Direct Investment (FDI) inflow of $22.53 billion during the first three months of 2021-22, which was 90 percent higher as compared to the same quarter a year back. A large part of these investments have made their way into sectors which have significant export footprint, a senior Department for Promotion of Industry and Internal Trade official said.

As much as 27 percent share of the total FDI equity inflow reached the automobile sector while 17 percent reached computer hardware, both of which have made merchandise exports grow fast. The government does not give out company or individual deal-specific FDI figures.

Imports catch up

On the other hand, imports have also maintained high numbers. “While imports were just one-quarter high, they have also covered a significant distance and were slightly lower than the pre-COVID levels in Q1FY22,” a functionary of the Federation of Indian Export Organisations (FIEO) said.

Imports constituted Rs 8.3 lakh crore of India’s GDP, up from a relatively low number of Rs 5.8 lakh crore a year back. However, Q1FY21 import figures also suffered from a low base as most international ports across the country were shut to container traffic during the lockdown.

On the other hand, imports crossed an important level when it came in at 25.7 percent of the GDP, up from 19.2 percent a year back.