Explained in 12 charts: How merchandise trade, PLI scheme can spur India’s growth, exports – Times of India

Explained in 12 charts: How merchandise trade, PLI scheme can spur India’s growth, exports - Times of India


NEW DELHI: India’s growth outlook is one of the best in a long time driven by multiple factors.
After a sharp contraction in financial year (FY) 2020-21 due to the slump caused by Covid-induced lockdowns and restrictions, the economy is on course to witness a V-shaped recovery in FY22.
The recently released first advanced estimates of gross domestic product (GDP) showed that the Centre expects a growth of 9.2 per cent in FY22, as compared to the -6.6 per cent contraction in FY21.
While presenting the Union Budget 2022-23 on February 1, finance minister Nirmala Sitharaman had also pointed out that India is poised to become the fastest growing economy in current fiscal as well as in the next one.
One of the key factors driving this economic recovery is exports, which is at an all-time high.
India has been experiencing robust export performance with cumulative exports during April 2021-January 2022 being $335.9 billion — higher than the maximum amount achieved in any year, a report by SBI economists showed.
For the fiscal year 2022, India aims to achieve an ambitious target of $400 billion exports and is well on its path to achieve it.

In terms of monthly exports, December saw 38.91 per cent year-on-year (y-o-y) rise to $37.81 billion, the highest-ever figure. The trend continued in 2022 as well with January’s exports amounting to $34.6 billion — a jump of 23.4 per cent compared to same period last year.
This was mainly on the back of healthy performance by sectors like engineering, textiles and chemicals.
For January, the trade deficit came in at $17.3 billion. The reason for this widening trade deficit is the high amount of dependency on imports which too rose by 30.54 per cent to $67.76 billion last month.

Among the total imports, China’s share has been steadily rising and comprises 16.5 per cent at present, the report showed.
To reduce this dependency and boost exports, Centre plans to ramp up domestic manufacturing by providing various incentives to stakeholders. A key role in this will be the production-linked incentive (PLI) scheme.
The report said that PLI schemes can help reduce India’s dependence on China by 50 per cent and thereby, add $20 billion to its GDP.
Export boom despite Covid slump
India’s merchandise exports have reverted to pre-pandemic levels and comprise 12.9 per cent of the gross domestic product (GDP).
In spite of the devastating second wave of Covid-19 in April-May 2021, exports showed a positive sign.
It has remained over the $30 billion-mark since March last year.

Interestingly, India’s merchandise exports had never crossed $30 billion-mark, except for once in March 2019.
In fact, merchandise exports for 10 months of FY22 have witnessed a 37.68 per cent jump as compared to a year ago.

In the initial stages of the pandemic in April 2020, exports declined to as low as $10.2 billion. But, jumped 88.23 per cent the very next month to $19.2 billion.
In terms of year-on-year growth, it witnessed a whopping 196 per cent to $30.63 billion in April 2021, when the severe second wave of Covid-19 wrecked havoc across the country.
Even though state-wise lockdowns and restrictions were imposed for the next 2 months, exports continued to witness steady growth.
Sector-wise gains
The SBI report showed top 15 commodity exports accounted for over 72 per cent of total exports during the April-December 2021 period.
In the 3 years, export of iron and steel showed robust growth of more than 100 per cent.
Electrical machinery is another component whose exports increased close to 50 per cent. Aluminum also grew strongly in the past 3 years.
The report further showed that cotton is another component whose exports grew abundantly over 2020 as well as 2019. Exports of cereals too grew during April-December, especially when compared to the same period in 2019 and 2018.
Total agriculture exports have increased significantly around 18 per cent to $41.9 billion in FY21 from $35.6 billion in FY20.
Export of gems and jewellery, apparel & clothing (knitted or crocheted), vehicles (other than railway or tramway) and nuclear reactor, boiler and machinery also grew strongly.
Surge in exports in above mentioned components indicate that the PLI scheme has benefitted many of the top 15 commodity exports, especially mobile and electronic goods, drugs and pharma.

Why exports are important for an economy
Exports are one of the fundamental drivers of growth for any economy. It can influence a country’s GDP, exchange rate, level of inflation as well as interest rates.
A robust export data is beneficial as it leads to increase in job opportunities, enhances foreign currency reserves, boosts manufacturing and also increases government’s revenue collection.
It is also a good means by which a country can bring itself out of the recession phase. Exporting to countries with a favourable economic climate helps in increasing the GDP levels as well as helps in reducing unemployment.

Besides, it also plays a key role in strengthening the domestic manufacturing units by scaling up their quality to make India made products compete and stand out against global peers.
Thus, exports are largely dependent on what the conditions of global trade is. In times of a global slowdown, it is very natural for exports to have an adverse impact as well.
What led to the surge
Few factors are responsible for this. Firstly, it can be attributed to the low base effect. The export figures are much higher in 2021 as compared to the same period in 2020 when not just India but almost the entire world was under strict lockdown. This impacted global trade and with borders closed, the export figures remained at low level.
Secondly, with the gradual easing of lockdowns countries started showing positive signs of economic recovery. Advanced economies like the US, UK have shown good recovery from pandemic lows, thereby resulting in increased import demand.
Beside, boost in domestic manufacturing due to PLI schemes and implementation of some interim trade pacts have also led to surge in exports.
Apart from PLI, the Centre has implemented a series of steps to promote exports of both goods and services and that includes the introduction of RoDTEP and Rebate of State and Central Levies and Taxes (RoSCTL) Schemes, the launch of Common Digital Platform for Certificate of Origin to facilitate trade and increase FTA utilisation by exporters, promoting districts as export hubs by identifying products with export potential in each district and addressing bottlenecks, and promoting ease of doing business.
Imports have also remained high
Overall imports in January 2022 are estimated to be $67.76 billion, exhibiting a growth of 30.54 per cent over the same period last year.
For the April-January 2021-22 period, overall imports are estimated to be $616.91 billion, that is, a growth of 54.35 per cent as compared to last year.
Of the total imports, China’s share has been the maximum. India has been making an attempt to reduce dependency on other countries and produce more locally.
An interesting point to note here is that despite India’s efforts to reduce imports from China — one of its prime trade partners — its total merchandise imports from the country increased 16.5 per cent.
In financial year 2020, India imported $5 billion less from China. This may also be due to Covid-induced restrictions as countries opted for complete lockdowns.
Besides, Chinese aggression in Galwan Valley also prompted India to take several economic steps to convey a strong message to Beijing.
In FY21, India’s import from China was $48 million less as compared to that of FY19.
However, India’s trade deficit with China has continued to fall in FY21.
India v/s China
China has been one of India’s top trading partners for a long time.
The report shows China’s share in our total exports has been rising since 2017 and is at 7.3 per cent. In comparison, imports from China amount to 16.5 per cent.


Interestingly, the compound annual growth rate (CAGR) for India’s overall imports between FY97 and FY21 is 10.1 per cent, while that for imports from China is 20.4 per cent, almost double.
In terms of overall merchandise trade growth, CAGR for India is 9.6 per cent and that for China is 15.8 per cent.


Dependence on China continues to be high
Among the products that India imports from China, the maximum aggregate value of $9.7 billion comprises items on which our dependence is between 50-60 per cent. However, there are not many items as can be seen in the table below.

In comparison, number wise imports were highest in the category where India’s dependence was lowest at 0-10 per cent. The value is just $1,894 million.
The report further showed that a huge 48 per cent of total imports comprise products like personal computers and parts of telephonic and telegraphic equipment, electronic integrated circuits, solar cells urea and micro-assemblies’ lithium-ion and diammonium phosphate.
“If India wants to wean itself off its dependence on China, capabilities have to be developed in these areas, especially chemicals, textiles, footwear, so that both inputs and final consumer goods in these low value imports can be manufactured domestically,” it added.

‘PLI scheme can add $20 billion to GDP’
Interestingly, of the $65 billion imports from China in FY21, around $39.5 billion were commodities and goods where PLI scheme has been announced (textile, agri, electronics goods, pharmaceuticals & chemicals).
In FY22 April-December period, there were 6,367 products with a total value of $68 billion (or 15.3 per cent of the total imports) imported by India from China.

This dependence can be reduced to a large extent by ramping up domestic manufacturing facilities. For this, the government had announced PLI scheme for sunrise and strategic sectors in Union Budget 2021-22.
The report states that with PLI scheme in implementation India can reduce its huge dependence on China. Even if it can reduce dependence by 20 per cent, it has the potential to add $8 billion to the GDP. While, a 50 per cent reduction will add a whopping $20 billion to the economy.
How will PLI scheme benefit
The government introduced PLI scheme for certain strategic sectors with an aim to boost local manufacturing by attracting foreign companies to invest in India and provide incentives for the same.
With it, the Centre aims to boost manufacturing output by $520 billion in next 5 years.
The government provided an outlay of Rs 1.97 lakh crore for PLI schemes, wherein an average 5 per cent production has been given as incentive and covers 13 champion sectors like textile, telecom, and automobile.

It also expects PLI scheme to be a key driver behind an even greater surge in exports. It also aims to reduce dependence on imports by making India self-reliant.
The scheme is being used by the government to spur manufacturing. In other words, PLIs are incentives to companies to ramp up production. They may be in the form of tax rebates, import-export duty concessions and the likes. The more production happens in India, the higher incentives they will get.
It caters to both domestic and foreign companies. While firms abroad are encouraged to start their production in India, local companies are encouraged to expand their operations and exports.


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