Exports to remain tepid amid global blues; domestic demand to propel growth: CEA

The contribution of exports to GDP growth will remain tepid amid global economic blues, growing tariff and non-tariff barriers, while domestic demand will push economic growth in the country, says Chief Economic Adviser V. Anantha Nageswaran, pointing out that the private sector has joined the investment party.

“The reality is that there are formidable challenges to boosting export share of growth. In the first decade, India's share of exports contributed a lot to GDP growth. It was of the order of 1%-1.5% every year between 2003 and 2008 when the economy grew at 8%-9% per annum. The global economy was booming. If you look at the global economic growth forecast, it is tepid and global trade volume growth has been declining on a trend basis,” Nageswaran said at Deloitte India's Arohan (Growth with Impact) summit in New Delhi on Thursday.

"More importantly trade restrictions, both tariff and non-tariff have proliferated since 2020. They have gone up by orders of magnitude. And countries are now pursuing active industrial policy. So, we need to be cognizant of all these things and not leave out common border adjustment tax, and EU deforestation rules all of which are barriers in multiple forms. Given these we feel much of the growth for India will come from the domestic demand sources, external demand will be the icing on the cake,” says Nageswaran.  

Amid the changing tariff order, Nageswaran said there could be some outlier years now and then and one may have to make most of them. “For example, in 2021-22, next exports contributed in a big way to India's GDP growth of 9.2%. There could be some opportunistic years in which we can advance the export share of the GDP. But by and large, on a trend basis or an ongoing basis export will be doubly harder for various reasons,” he adds.  

The way out, when the global economy and global trade are tepid, said Nageswaran is to continue with reforms in the domestic economy. “We need to continue to work on last mile cost, logistics, formalities and R&D in the private sector in which India lags behind and expanding our scope and reach of the global capability centres,” he adds.

“The Economic Survey therefore points out that the growth prospects for India is going to be based on the nuts and bolts and plumbing of the economic reforms,” he adds.  

Private Capex

Nageswaran emphasised that private-sector capital investment has started taking place in the economy. “The private sector has joined the investment party. It is not waiting to take off, it has taken off. If you look at the national income data, which gives you granular insight into the private sector capital formation, India’s gross fixed capital formation went up from 27% to 30.8% in FY23. A three and a half percent point increase and not all of it came from the public sector capital expenditure,” he adds.

He attributed the drop in private sector investment in FY20 and FY21 to the NBFC crisis and the COVID-19 pandemic. “But subsequently there has been recovery. Recently as per the August monthly bulletin by the RBI, fund mobilisation done by the companies on a bottoms-up aggregation basis is at a twelve-year high and is for capital investment. It is a story that is already unfolding,” he says.