The employment dividend from exports

The surge in some export sectors has the potential to address India’s urban jobs challenge with necessary policy intervention

India’s exports of merchandise goods are booming. In the first five months of 2021-22, exports at $164 billion were 67 per cent higher than the same period of 2020-21. Of course, this growth rate was helped by the low base effect. Last year, in Aprilaugust 2020, exports fell by 26 per cent to $98 billion. The recovery, therefore, was huge. More importantly, exports of $164 billion in April-august 2021 were 23 per cent more than those in the same months of 2019. Such healthy growth rates in India’s exports have not been seen for more than a decade.

One might still argue that prices of petroleum products, which account for over 14 per cent of India’s merchandise exports, have gone up by about 50 per cent in the last one year. Hence, India’s exports have benefited from the global price increase for petroleum products. This is indeed true for a year-on-year comparison.

Excluding petroleum, oil and lubricants (POL), India’s exports for April-august 2021 were estimated at $141 billion, up 57 per cent over the same months of 2020. But compared with April-august 2019, the increase for non-pol exports was almost at the same level of 22 per cent. In other words, there has been a broad-based recovery in exports of India’s merchandise goods exports.

While celebrations over India’s robust exports performance should be in order, it is equally important to analyse both the composition and direction of such overseas shipment of goods. Conclusions from such an analysis should provide a better understanding of the nature of the exports pick-up and help frame the required policy actions, if any, to ensure the sustainability of exports growth.

Remember that India’s annual exports story has been rather dismal for about a decade. Between 201112 and 2020-21, they remained range bound within $262 billion and $330 billion a year, with the annual export number falling below $300 billion on as many as three occasions. Worse, from a high of 17 per cent, the share of exports in India’s gross domestic product has seen a steady decline to about 11 per cent during the last ten years.

So, considering significant improvements in the current year, what lessons does one draw from the disaggregated exports data for the April-june 2021 period, for which the latest numbers are available?

Three takeaways are too obvious to be ignored.

One, the growing footprint of China in India’s exports basket has many policy implications. Even as imports from China have come under scrutiny, India’s exports to China have been rising at a healthy pace. They jumped by 26 per cent in 2020-21, even as India’s overall exports fell by 7 per cent. Significantly, exports to China continue to rise. In April-june 2021, they were estimated at $6.75 billion, up from $5.5 billion in the same months of 2020.

Of course, China’s share in India’s rising exports has declined from over 10 per cent in April-june 2020 to 7 per cent in April-june 2021. But, in a postpandemic world, China has pushed out United Arab Emirates to become India’s second biggest export destination, after the United States. This development will play an important role in India’s strategic policy making about its neighbours in the days to come.

Two, the Indian automobile industry’s exports recovery so far has been tepid. Exports of motor vehicles and cars had almost collapsed to $0.58 billion in April-june 2020, but they recovered to just about $1.51 billion in the same months of 2021. In 2019-20, vehicle and car exports were estimated at $7.8 billion, before dropping to $5.1 billion in 202021. The big question is whether the export engine for the automobile industry (which accounts for a good chunk of manufacturing) would rev up in the coming days. Remember that investments in India’s automobile industry are dependent on a sustainable revival of car exports.

Three, a few employment-intensive sectors have made smart recoveries. For instance, pearls and precious stones have made a comeback. At $27 billion, they were the second biggest item in India’s exports basket, accounting for about 9 per cent of total exports in 2013-14. That share has been falling and by 201920, they were down to $21 billion with a share of about 7 per cent in total exports. The pandemic months of April-june 2020 had given this sector a further jolt, with its share falling to 3.5 per cent. But April-june 2021 has seen a smart recovery with exports of pearls and precious stones rising to $6.6 billion and its share in total exports inching up to 7 per cent.

Thousands of workers are engaged in the pearls and precious stones sector and the pick-up in its exports should signal the return of jobs for them. Its recovery should augur well for the economy in general and the sector. Equally important has been the noticeable recovery in the gold jewellery segment, which had been badly affected in 2020. Its exports in those months of the economic lockdown in 2020 had dropped to $0.65 billion and the share in total exports had fallen to 1.26 per cent. In the April-june 2021 period, exports of gold jewellery have recovered, though it is yet to recover its prepandemic share of 4 per cent in India’s total merchandise exports. A lot more attention needs to be paid to this sector, as this one too employs thousands of employees in small towns.

Exports of readymade cotton garments, fabrics, made-ups and accessories have also done well in 2021. In the first quarter of 2020-21, their exports were adversely affected. But now in the April-june 2021 period, they have already acquired a share of 3.7 per cent in total exports and it appears that if the trend continues, they could increase their share in India’s larger export basket.

Once again, this is a sector that has huge employment potential. All the sectors benefiting from an exports surge can create jobs, particularly in urban India, which bore the brunt of job losses during the pandemic. Policy makers, therefore, cannot afford to let the current exports boom peter out, whose impact on employment would be far more adverse than on the country’s foreign exchange earnings.