India has recently made changes to its export goals due to ongoing global uncertainties. The nation’s Ministry of Commerce and Industry has decided to adopt a Target Range Approach for its export goals for the fiscal year 2023-24 rather than relying on a single number. This decision was brought about despite the country achieving a record USD 450 billion in merchandise exports in the financial year 2022-23. There have, however, been significant challenges faced by India’s outbound shipments in the first quarter of 2023-2024.
Understanding the Target Range Approach
This approach involves targets that are based on four main parameters. Firstly, there is an overall target of USD 2 trillion by 2030 as per India’s new Foreign Trade Policy (FTP) 2023. This target sets out to achieve a total export of USD 2 trillion where exports of goods and services will account for a trillion dollars each. Secondly, the import to GDP ratio of countries that are major importers of Indian goods will be considered. Thirdly, India’s export to GDP ratio will also be evaluated. Finally, past growth trends in exports will be analysed.
A specific target range for exports has been proposed. Experts suggest a lower end of the range at USD 451 billion and an upper end at USD 495 billion. To accurately monitor this, the Department of Commerce will use a specific number every month, either a mid-value or an average, to track progress and make necessary adjustments.
Current State of Indian Exports
There has been a marked slowdown in the export of goods with a 22% drop being recorded in June 2023, which is the most significant fall in 37 months. Forex earnings from intangible exports have also seen a decrease, growing by only 5.2% to USD 80 billion in the first quarter of 2023-24. Several factors have influenced this downturn, including a decrease in global oil prices and the World Trade Organisation’s forecast of slower global trade growth in 2023.
Status of The Export Sector in India
The merchandise trade deficit increased by over 39% in 2022-23. In comparison, merchandise exports only rose by 6.03%. Agricultural, engineering goods, textiles, pharmaceuticals and drug products are the key contributors to India’s major export arenas. Foreign Trade Policy aims to achieve an export target of USD 2 trillion by 2030.
Challenges in Indian Export Sector
There are several challenges in the Indian export sector. Access to finance is a significant barrier for many exporters. The limited diversification of India’s exports also poses a risk as it can limit its resilience to changing global trade dynamics. Rising protectionism due to disrupted global political order and weaponization of supply chain also pose significant challenges in expanding India’s export capacities.
Government Initiatives to Boost Exports
Several government initiatives have been implemented to promote export growth. These include Trade Infrastructure for Export Scheme (TIES), PM Gati Shakti National Master Plan (NMP), Duty Drawback Scheme, Remission of Duties or Taxes on Export Product (RoDTEP) and Rebate of State and Central Taxes and Levies.
Way Forward for India’s Export Sector
Improving infrastructure and logistics are critical to enhance export competitiveness. Prioritising investments in transportation networks, ports, custom clearance processes, and export-oriented infrastructure can greatly impact the performance of the export sector. Skill development programs to enhance the availability of skilled labour in export-oriented industries and incentivizing technology adoption can also boost productivity, competitiveness, and innovation in the sector.
