India’s merchandise exports surpassed the $400 billion level for the first time in 2021-22, the Commerce Ministry said in a statement released on March 23. The previous record for this category was $330 billion in 2018-2019. What exactly does this mean for the Indian economy? Here are four charts that explain this in detail.

Which commodities have driven the increase in exports?

While the Department of Commerce’s press release (https://bit.ly/3ixYYtKbit.ly) gives snippets of information on the factors that led to strong export growth, it did not release data. complete for the year. This is understandable given that the exercise is still not over. What we have in terms of data for 2021-22 are flash estimates of exports through February 2022 and preliminary estimates through January 2022.

Flash estimates only allow comparison of 2021-22 export figures with 2020-21. Given the disruption of the pandemic in 2020-21, this is unlikely to offer much information. What it shows is that just three major product groups: engineering goods, petroleum products, and gems and jewelry account for more than two-thirds of the increase in exports over the past year. .

See Graph 1: Distribution of export growth between 2021-22 and 2020-21 (flash estimates)

A comparison of provisional estimates gives a better idea of ​​the type of goods that led to a jump in exports compared to the pre-pandemic period (April 2019 to January 2020). It shows that base metals and petroleum products contributed the most to the increase in exports. These two categories account for almost 45% of the increase in exports between 2019-20 and 2021-22.

See Chart 2: Breakdown of export growth between 2019-20 and 2021-22 (provisional estimates)

Will this export growth continue?

Unlike GDP figures, export figures should be read with two important caveats. First, they are expressed in nominal terms and can therefore rise or fall depending on world commodity prices. Second, an individual country’s exports also depend on the evolution of world trade growth as a whole. India’s export earnings benefited from tailwinds on both counts.

Global commodity prices rose during the year, which certainly boosted the value of Indian exports, especially for commodity categories such as petroleum products and metals.

The exact impact of global inflation on India’s increased exports will only be known when disaggregated data on export value and volumes become available. However, a comparison of past trends in export value, volume and unit value indices for India from the United Nations Council on Trade and Development (UNCTAD) database is helpful in understanding what could have happened this year. India’s exports have been growing in unit value for a decade from the early 2000s. This has led to faster growth in the value of exports (this is what the figure of $400 billion represents of this year) than export volumes. With the fall in global inflation in the second half of the last decade, growth in the value of exports also slowed.

If global inflation continues to rise, Indian exports are likely to maintain their upward trajectory solely due to the price effect. Admittedly, whether or not a country benefits from the rise in world prices also depends on the evolution of its external terms of trade, i.e. the relative prices of the export and export baskets. import (more on this later).

See Chart 3: Value, Volume and Unit Value Index of India’s Exports

While prices may continue to boost India’s exports, global trade growth may falter going forward.

“Overall, the value of global trade reached an all-time high of around US$28.5 trillion in 2021, an increase of around 25% from 2020 and an increase of around 13% from report at the pre-pandemic level of 2019”, UNCTAD’s world trade update published in February. Some of the export growth in 2021-22 will also likely be due to pent-up demand.

However, UNCTAD does not expect this type of growth to continue. “The positive trend in international trade in 2021 was largely the result of higher commodity prices, the easing of pandemic restrictions and a strong recovery in demand thanks to economic stimulus packages. Like these trends should subside, international trade trends are expected to normalize in 2022,” the UNCTAD report says. This is also expected to have an impact on India’s export performance.

What about the broader macroeconomic impact of exports hitting an all-time high?

From a GDP perspective, the net impact of foreign trade is determined by the difference between exports and imports rather than by exports alone. According to the second advance estimates of GDP in 2021-22, exports of goods and services are expected to represent 20.9% of overall GDP at constant prices in 2021-22. This number was 18.8% in 2020-21. The rebound in the import content of the economy has been even more significant. Imports accounted for 21.1% of GDP in 2020-21 and are expected to increase to 25.2% in 2021-22. Rising oil prices played a big role in this. This actually caused the net content of exports (as a share of GDP) to decline from -2.3% in 2020-21 to -4.2% in 2021-22. Admittedly, the share of exports and imports in GDP has been higher in the past.

See Chart 4: Share of exports and imports in GDP