Economic Survey 2022-23: External Sector Buffeted By Shocks And Uncertainty

India's external sector has been buffeted by shocks and uncertainty manifested in terms of elevated, though now easing global commodity prices; tightening international financial conditions; heightening financial market volatility; reversal of capital flows; currency depreciation, and looming global growth and trade slowdown, the Economic Survey 2022-23 has said.

"However, it has been able to face these headwinds from a position of strength on the back of strong macroeconomic fundamentals and buffers. During FY23 (till December 2022) India's exports have displayed resilience on the back of record levels of exports in FY22. Petroleum products, gems & jewellery, organic & inorganic chemicals, drugs & pharmaceuticals were among the leading export items. However, the slowdown in Indian exports is inevitable in a slowing global economy characterised by slowing global trade. Recognising the key role exports play in improving the resilience of the external sector, from a medium to long-term perspective, various export promotion measures are being considered/implemented," the report has stated.

According to the Economic Survey, these measures would nurture the inherent comparative advantage that Indian exports embody. "In addition, while National Logistics Policy would ease the domestic frictions to encourage Indian exports by reducing the cost of internal logistics, the latest Free Trade Agreements, such as with UAE and Australia, would address the external frictions by creating opportunities for exports at concessional tariffs and non-tariff barriers. Thus, the whole ecosystem would evolve in an export-friendly manner over time.

Apart from the elevated crude oil prices, the revival of economic activity contributed to an increase in imports. Petroleum, crude & products; electronic goods; coal, coke & briquettes, etc.; machinery, electrical & non-electrical and gold were among the top import items," the survey noted.

According to it, while the continued softening of the global commodity price outlook would assist moderate imports going forward, non-gold, non-oil imports may not decelerate significantly. Further, efforts are underway to promote international trade settlement in Indian Rupees. "Once these initiatives gain traction, dependence on foreign currency would potentially reduce, making the economy less vulnerable to external shocks. Balance of Payments (BoP) encountered pressures during the year under review. While the impact of a sharp rise in oil prices was discernible in the widening of the Current Account Deficit (CAD), notwithstanding the cushion provided by the surplus on Invisibles (services, transfer, and income), policy tightening by the US Federal Reserve and the strengthening of the US dollar led to Foreign Portfolio Investment (FPI) outflows. As a result, the surplus of the capital account was lower than the CAD leading to a depletion of forex reserves on a BoP basis," the report stated.