India is on track to meet the ambitious export target of $400 billion in 2021-22, the highest ever level to be attained by the country, owing to a sharp recovery in key markets, increased consumer spending due to pent up savings and fiscal stimulus announcement by major economies, global commodity price rise and an aggressive export push by the government.

The latest Economic Survey released by the government on Monday, while upbeat on the prospects of external trade this fiscal, cautioned that the global environment still remained uncertain as the Omicron wave was continuing to cast its shadow on most economies leading to inflation.

Macroeconomic stability

“This is why it is especially important to look at India’s macroeconomic stability indicators and their ability to provide a buffer against the above stresses,” the survey, brought out by the Department of Economic Affairs, Ministry of Finance, pointed out.

While India’s exports of both goods and services recovered from the pandemic-induced collapse and demonstrated exceptionally strong performance so far in 2021-22 helping drive economic growth, imports also bounced back strongly with recovery in domestic demand as well as higher international petroleum and commodity prices.

Exports turn negative

Owing to a sharper rise in imports, India’s net exports turned negative in the first half of 2021-22, compared to a surplus in the corresponding period of 2020-21, with current account recording a deficit of 0.2 per cent of GDP in the first half .However, on the positive side, the current account deficit could be sufficiently financed by robust capital flows in the form of continued inflow of foreign investment.

India needs to watch out for a widening of the current account deficit in the second half of the on-going fiscal due to continued rise in global commodity prices and revival in real economic activity in the country leading to increased domestic demand, the Survey pointed out. Increased uncertainty around capital inflows may also contribute to widening of the current account deficit. The Survey is, however, optimistic that it would stay within manageable limits.

Exporters need to draw strength from the fact that goods exports have been above $ 30 billion for eight consecutive months in 2021-22. This is despite a rise in trade costs due to global supply constraints such as shortage of shipping vessels and irritants such as blockage of Suez Canal and Covid-19 outbreak in port city of China, the Survey said.

Net services exports have also risen sharply, driven by professional and management consulting services, audio visual and related services, freight transport services, telecommunications, computer and information services.

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