India’s stellar export performance in 2021-22, with merchandise exports totaling over $400 billion, compared to a five-year average of $300 billion before the pandemic, has attracted its fair share of cheerleaders and skeptics. The former see this not only as a push from a US-led global economic recovery, but also find elements of structural change. This shift could respond to India’s “China+1” aspiration, in which global companies are turning away from China for sourcing inputs and relying more on India instead.

Skeptics, however, see the boom as largely due to global commodity inflation. In other words, India sells the same or even lower volumes of a commodity, but higher international prices earn exporters much larger dollar amounts.

For something as heterogeneous as exports of goods, broad generalizations are misleading. The assessment should be granular. The drivers of each category of goods sold overseas should be analyzed objectively, without being tarnished by the agenda or proving a point or choosing a side. On the one hand, export growth in 2021-22 has been broad-based. About 89% of the export basket has already broken through pre-pandemic levels.

However, according to HDFC Bank estimates, perhaps most importantly, India’s share of global exports has increased to over 1.8% in 2021-22, or around 15 basis points (bps). higher than pre-pandemic levels. One basis point is one hundredth of a percentage point, and while 15 seems like a small number, given the scale of global trade, it shouldn’t be overlooked.

A few trends are worth noting. There was a noticeable shift in the composition of exports during the pre-pandemic years that continued throughout the pandemic. The decline in the share of gemstones and jewelry (G&J), traditionally an export heavyweight, in the overall basket is a good example. A large part of this category includes diamond cutting and polishing, where rough stones are imported and polished stones re-exported. The net gain of these exports for the economy is simply the added value in the transformation of “raw”.

The decline in its share was the gain of more “authentic” exports such as engineering goods and electronics. In 2016-2017, G&J’s share was 15% of total exports. In 2021-2022, it was 9.5%. During this period, the share of engineering goods increased from 23% to 26% and that of electronics from about 2% to 3.5%.

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Second, the rise in commodity-related exports was not driven solely by prices. Take the example of “base metals and their products”, a key component of engineered goods. While rising metal prices have certainly contributed to the value of exports, volume growth has been double digits for 2020-21 and 2021-22. Textiles are the only category where both anecdotal evidence and data support the “China+1” theory. Manufacturers are reporting a noticeable shift in demand from Western producers from China to India.

Between 2020 and 2022, China’s share of US apparel exports decreased by 8 percentage points. India, along with Malaysia, was the big winner from this shift, with India’s market share increasing by 1.7 percentage points. Yarn and cotton exports have both significantly exceeded pre-pandemic levels and Indian manufacturers are looking to build new capacity.

However, this is not to deny the fact that soaring global commodity inflation has played a key role in driving up the value of exports. Petroleum products, for example, contribute $65 billion to the total of $418 billion. The 73% increase in average oil prices between 2021 and 2022 certainly played a role. The same goes for metal products.

Commodity inflation, alas, also affects imports. So while exports hit a record high, so did imports, resulting in a massive trade deficit of $192 billion. However, it is important to point out that as a percentage of GDP (the right measure for making comparisons), the deficit remained at 6.2%, about the same as the two years before the pandemic. It may be interesting here to think about the counterfactual – what would have happened to India’s external balances and the rupee if exports had not exploded?

The problem with the current discussion of India’s exports is the fixation on both the record figure of $418 billion for 2021-22 and the assertion that $500 billion for next year is a fact. accomplished. If, indeed, global trade contracts with the global economy this year, the value of exports could be lower. Exports, both in value and in volume, are cyclical. It’s just the nature of the beast.

Rather, the focus should be on the gains made in recent years in terms of diversification into higher value items and market share gains. How can this be propelled? Here, fundamental political questions must be re-examined. For example, is the protectionist position implicit in the increase in import tariffs for a certain number of products in line with our export ambitions?

Do you have import?

How quickly can logistics and other infrastructure be put in place? Will this effort work best through export enclaves such as Special Economic Zones (SEZs)? Should they be further intensified? Should our somewhat unsavory experience with free trade agreements (FTAs) prevent us from signing more deals? Instead, should the recently signed Comprehensive Trade Agreement with Australia be the new playbook?

There is still a lot to think about and changes to implement when it comes to India’s export model. We just hope that the high score of 2021-22 does not lead to a feeling of complacency.