India’s economy has been recovering steadily after the deadly second wave of Covid-19 dented the GDP growth outlook. One of the factors that played a key role in the recovery is the improvement in merchandise exports.

Merchandise exports from India hit a record high of $35.2 billion in July 2021 — the highest-ever monthly figure ever in the country’s history. It is an increase of 47.91 per cent over the $23.78 billion in July 2020 and an increase of over 34 per cent over the $26.23 billion in 2019.

The data released by the Ministry of Commerce indicates that Indian exports have gradually grown after the first wave of the Covid-19 disrupted world trade. In 2021, Indian exports seem to be rising faster than ever.

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DEFINITION OF EXPORTS AND IMPORTANCE

The amount of merchandise a country exports plays a crucial role in revenue generation and economic growth. Several economists have highlighted that higher exports help nations to grow rapidly in terms of GDP and domestic output.

In simple terms, exports are goods (services in some cases) produced in one country and sold to buyers in another country. The buyer could either be a private player or the government of a country.

Exports and imports form the basis of international trade — one of the major reasons why countries maintain good diplomatic relations.

Exports in a nutshell

* Exports are crucial for a nation’s economic growth as they help in creating domestic jobs, infrastructure, demand and GDP

* It is important for countries to maintain export-import balance in order to maintain growth momentum

* Higher imports and low exports could negatively impact the economy and lead to devaluation of the currency

* Exports offer millions of small business owners and corporate firms access to a wider global market

* Merchandise exports from India hit a record high of $35.2 billion in July 2021

ROLE OF EXPORTS IN ECONOMIC GROWTH

Exports are extremely important for the overall growth of a country’s economy and also for global trade. In this era of globalisation, most leading economies in the world are also major exporters.

For instance, China is the world’s leading exporter of goods, followed by the US, Germany and Japan. India, too, is rising up the ranks as it keeps expanding its global export footprint. At present, India is one of the top agricultural exporters in the world.

Exports offer millions of small business owners and corporate firms access to a wider global market, where they can sell their products.

Higher exports help companies and businesses located in one country to maximise sales and profits besides presenting an opportunity to capture a good chunk of global market share in a particular segment.

It is worth mentioning that exports not only help governments generate additional revenues but also help exporters — small businesses and major companies — expand operations due to higher profits.

Experts claim that exports significantly help a country to boost per capita income, which is essential for generating higher domestic income and demand. Higher experts also help create more employment opportunities, which ultimately translates into higher GDP growth.

Therefore, a healthy export cycle can significantly boost a country’s economic growth if imports do not exceed the outflow of goods.

EXPORT-IMPORT BALANCE

It is important for countries to maintain a healthy export-import balance as it is crucial for meeting domestic demand and generating profit from an outflow of goods.

A country’s export and import activity have a major influence on GDP, exchange rate, level of inflation and interest rates. If a country imports more than it exports, the flow of funds is often higher, but it also depends on the goods.

In a situation where a country’s imports exceed exports, there is a risk of a rising trade deficit which could have a negative effect on the country’s exchange rate.

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Simply put, where a country imports in large quantities, it can ultimately distort the balance of trade and lead to currency devaluation. This can have a major impact on the country’s economy.

Therefore, maintaining an appropriate balance of imports and exports is important for all countries.

On the other hand, when a country’s exports exceed imports (a rare occurrence), it leads to a trade surplus. This suggests that a country has high levels of domestic output (more factories, labour and industrial facilities), allowing it to export a high level of goods.

When a country exports more than it imports, high funds flow into the country and directly impact economic growth, consumer spending and domestic demand.

WHAT’S BEHIND RECORD RISE IN INDIA’S EXPORTS

India’s exports have been rising gradually for the past few months, signalling a sharp rise in demand for goods and services as global markets rebound. The country’s exports are likely to rise further as global trade activity gains momentum. Exports could rise further if the sector gets some incentives from the government.

The country’s exports crossed $35 billion in July and $34 billion in March 202 for the first time on the back of global recovery after the Covid-19 pandemic disrupted world trade. It may be noted that exports have remained above $30 billion for the fifth consecutive month in July.

In the first quarter of FY22, exports posted record shipments of $95 billion. The export growth was a direct result of higher demand for some goods. This is likely to help India’s economy rebound at a faster pace.

The top five commodity groups that Indian exported most during July 2021 were petroleum products (215 per cent), gems and jewellery (130 per cent), other cereals (70.25 per cent), man-made yarn and fabrics (58 per cent) and cotton yarn and fabrics (48.02 per cent).

The maximum increase in exports by value were to the United States ($6.7 billion), the United Arab Emirates ($2.4 billion) and Belgium ($826 million). However, exports to Malaysia, Iran and Tanzania declined substantially.

ICRA chief economist Aditi Nayar said non-oil exports were robust in July but remained below the March level.

“A spike in oil exports boosted the overall merchandise exports to a record high level in July. A sustenance of oil exports at this level would significantly boost the expansion in merchandise exports in FY22,” Nayar said.

Rising exports are a good sign for India as countries recover from the Covid-induced economic shock. In fact, the government has planned several measures to transform India into an export-led economy and become an exporter and manufacturing hub for the world — a position that China enjoys at the moment.

However, the government needs to take several more steps to boost the country’s export sector. Some measures it can take include tax-sops on specific exports, interest subvention schemes and signing free trade deals.