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India’s export sector has achieved the highest level in its history by earning $770.18 billion in the last fiscal. It was beyond the government’s target of $750 billion. This figure is higher by $94 billion as compared to FY 22. This has been a praiseworthy success achieved by India at a time when most of the countries have been facing a slowdown in their growth performances. The main success of this record performance can be mainly attributed to the export of services. Sunil Barthwal, Commerce Secretary, Government of India, told the press, “Despite the global headwinds, we have surpassed our 2022-23 target of $750 billion to hit $770.18 billion, which is $94 billion higher than last year’s record exports.”

Total foreign trade sector in FY23

India’s foreign trade is expected to cross the $1.6 trillion mark in FY 23. The thinktank Global Trade Research Initiatives (GTRI) reportedly said that India’s foreign trade, that was all kinds of exports and imports combined, would touch 48% of India’s nominal GDP of $3.4 trillion for FY23. According to Ajay Srivastav, co-founder, GTRI. “The higher foreign trade is also due to higher trade openness that India had been undertaking as policy.”

The merchandise export has been a concern

There are two types of trade, one is trade of goods and second, trade of service exports. In FY 23, the export figure that has been achieved is due to its record performance of service exports. Service exports means export of insurance services, payments services, consultancy for different projects, banking, earning from tourism of the foreigners, transports for the foreigners, software services, etc. On the other hand, exports of tangible items include items that can be sent to foreign countries by ships, trains or on roads. This includes food, chemicals, engineering goods, metals, mines products, precious metals, ornaments and handicrafts, drugs, and pharmaceuticals and petroleum products. In this case, it should be clear that a deeper analysis of the export performance of the individual items will reveal the areas of weakness of the merchandise exports.

An estimation of current account deficit or CAD for FY 2023

The CAD refers to the difference between the value of exports and value of imports in a particular financial year. India has been perennially incurring higher imports than exports. Growth of total goods exports rose by 6.03% to $447.46 billion in 2022-23. At the same time, import of goods increased by 16.5% to $714 billion in the same fiscal year. It is reported that the Ministry of Commerce and Industry estimated the total trade deficit for the FY 2022-23 to be around $ 122 billion. This has been 46% higher than the $83.5 billion gap that existed in 2021-12. But the exact figure of export up to March 31, 2023 will be available in May. So as per the estimate, the CAD for FY 2023 is to be $122 billion, the highest ever in India.

Oil and electronics lead the merchandise exports

 In merchandise exports or exports of goods, oil and electronics items came to the forefront. Petroleum export was up by 27% to reach $ 94.5 billion. This is followed by the electronics goods sector that rose to 7.9% to reach $23.6 billion. None of the other sectors performed notably in the last FY. For example, rice rose by 1.5%, chemicals by only 1% and pharmaceuticals, which has been a prominent export goods item for long, grew by as little as 0.8%. In other way, it is known that the petroleum sector contributed 21.1% in total exports of goods from India. It was just 16% in the previous period of 2021-22.

The biggest concern

The most serious concern is the goods export sector which has contracted by 0.5% in FY 23. Moreover, if both oil and electronics sectors are excluded from total exports, the rest of the exports of goods shrank by 2.8%. The most crucial has been the exports of engineering goods or other goods under the MSMEs. Unless exports of goods produced under MSME are increased, India cannot have a strong base of exports of goods and a strong industrial sector. This sector has been chronically an employment intensive sector. The ‘Make in India’ initiative cannot be fruitful unless the MSME sector emerges as a prominent export sector. In this regard Aditi Nayar, Chief Economist at ICRA, reportedly said, “Slackening external demand amid the global slowdown in the second half last year, along with the moderation of global commodity prices hurt non-oil exports and these concerns are set to exacerbate this year.” She also predicted that this could lead to a deeper contraction in merchandise exports in 2023-24, affecting manufacturing output and dragging down the country’s GDP growth.