India's exports growth momentum will have to come from its states

They can utilise opportunities for greater market access generated by free trade agreements

Over the years, international trade has played an important role in making a resilient external sector for India. Exports have demonstrated praiseworthy performance in FY22 and reached an all-time highest level. One major factor in the achievement of these targets is a result of the culmination of the government's efforts. Lately, there has been a shift in the strategies to promote exports by setting up targets and monitoring them. As a result, in FY22 the merchandise exports touched $422.0 billion to exceed the target of $400 billion. Sectors like pharmaceuticals, drugs, electronic goods, engineering goods, and organic and inorganic chemicals, gems and jewellery have displayed substantial progress in FY22 exports.

Compared to FY22, the global economy has in FY 23 witnessed growth decline and recessionary impacts. Consequently, these headwinds have impacted global trade. Merchandise exports were $32.91 billion in January 2023, against $35.23 billion in January 2022. Compared to merchandise, services exports exhibited a positive growth of $32.24 billion in January 2023. Services exports have impacted the overall trade positively and made a lower trade balance in January 2023 compared with January 2022. In terms of market diversification, India’s export destinations are diversifying. Among the top three export partners, the Netherlands has taken China’s spot. The share of Brazil, South Africa, and Tanzania has improved.

To make India a $5 trillion economy, the government has set up a $1 trillion merchandise exports target in 2027-28. To achieve these targets, the government is embarking on a multi-pronged pathway. Various initiatives in the direction of export promotion are being undertaken. These initiatives aim to promote the medium to the long-term resilience of Indian exports. For enhancing the export ecosystem and competitiveness, there are measures like the National Logistics Policy (NLP), Remission of Duties and Taxes on Exported Products (RoDTEP) scheme, Trade Infrastructure for Export Scheme (TIES), and PM Gati Shakti. The initiatives’ purpose is to cut down the cost of internal logistics and give Indian exports an advantage in global markets. To overcome the lag in demand, India has commenced free trade agreements (FTA) with economies like UAE, Australia, UK, Canada, EU, Israel, and GCC. Through these FTAs, India can gain higher access to the global market and create opportunities for cost-competitive exports.

Momentum in Indian exports amid global headwinds needs sustainability. For this, the upcoming Foreign Trade Policy (FTP) vision will be of utmost importance. Traditionally, the FTP was formulated for five years. However, the last FTP for 2015-2020 was extended till March 2023. The policy was extended with the aim to provide stability to Indian exports during the pandemic and global volatility. As the focus of the FTP has been to chalk out rules and procedures for trade incentives, the expectations are higher for the upcoming FTP amid the global demand drop. It is expected that the FTP will provide chapters on District as Export Hub (DEH) initiative. The DEH aims to promote the exports from grass-root levels nationwide. The emphasis is on making each district a potential export hub. Through DEH, states will have a major role in implementation. Another significant objective of DEH is to promote balanced regional growth across the country. As per the Export Preparedness Index 2022, Maharashtra, Gujarat, Karnataka, Tamil Nadu, and Telangana contribute 75 per cent of India's overall exports. Therefore, to make India a manufacturing powerhouse, policymakers need to focus on states for India’s growth. Hence, initiatives like DEH need proper implementation plans to build export capacities across districts of the country.

In addition to initiatives by the central government to improve exports, the role of states needs attention. State-level export policies need to be upgraded and aligned with the central government’s long-term vision. At the state level, it is imperative to continuously track the progress of parameters such as growth trends, logistics and infrastructure facilities, the progress of export action plans, progress against the gaps in indices of trades, etc. For this, meticulous policies should be developed for rigorous trade monitoring. By crafting target-defined policies, the states can better utilise the opportunities for greater market access generated by the FTAs.

On February 32, the WTO information note released that global trade remained resilient and performed better than pessimistic predictions for 2022. Going forward, the focus of India should be on maintaining the momentum of exports. For this, the upcoming FTP’s framework will be the lookout.