It’s an Eeee moment for the Indian economy, which depends substantially on exports for its growth and development. Historically, on an average exports contributed approximately 20.0% to the India’s GDP. Moreover, GDP and exports have a very strong positive correlation of 0.986 (based on the GDP and export date from 1960 to 2019). This essentially reflects that for Indian economy to prosper, its exports need to perform.
The Covid-19 pandemic has bought domestic consumption to its knees. Therefore, the dependence on exports to propel the economy has increased multi-fold. The US, China and the Europe, key markets for Indian exports have witnessed sharp economy recovery, thanks to the unprecedented fiscal stimulus and mass vaccination drive. As a result, Indian exports have sky rocketed in the recent months. India’s merchandise exports grew 67% in May’21 (YoY), it was also 8% higher than the pre pandemic level (May’19). While, service exports which has largely remain resilient grew by 6% in May’21. The tentative data for the first week of June, reflected that merchandise exports jumped by 52.4% between June 1-7. India’s merchandise exports have consistently been above $30.0 billion per month since Mar’21, and may achieve the ambitious target of $400.0 billion in FY22.
The government too, has realised the importance of exports and has not drifted away from providing full policy support to the exporters. By boosting exports, government could also revive the MSME sector, as MSME contributes 40% to the overall merchandise exports. Further, if exporters are bullish about foreign markets, then they could undertake higher investments and this may create a virtuous cycle of private investment led demand in the economy. This can partially compensate for the sluggish domestic demand.
In the recent monetary policy meeting, RBI also emphasised for liberal export policies, and urged government to take advantage of the rising external demand for Indian goods and services. The PLI scheme launched by the government is yet to show its results. Large number of companies have signed up for the scheme and we may see its effect during second half of the year. The Aatmanirbhar Bharat policy has slowly started to show it’s results, as their has been a significant surge in the export of machinery and IT equipment lately.
We believe that the Indian economy may throw a positive surprise, if it is able to sustain the current export growth trajectory, and a double digit GDP growth for FY22 may be a reality. The world may refrain from travelling to India, but they cannot abstain from using Indian goods and services.
See you next time!!!