External Sector | Economic Survey & Government Reports - UPSC PDF Download

 Page 1


CHAPTER
03
External trade recovered strongly in 2021-22 after the pandemic-induced slump of the 
previous year, with strong capital flows into India, leading to a rapid accumulation of 
foreign exchange reserves. The resilience of India’s external sector during the current 
year augurs well for growth revival in the economy. However , the downside risks of global 
liquidity tightening and continued volatility of global commodity prices, high freight costs, 
coupled with the fresh resurgence of COVID-19 with new variants may pose a challenge 
for India during 2022-23.
Owing to the recovery of global demand coupled with revival in domestic activity, 
India’s merchandise exports and imports rebounded strongly and surpassed pre-COVID 
levels during the current financial year. The revival in exports was also helped by timely 
initiatives taken by Government. USA followed by UAE and China remained the top 
export destinations in April-November , 2021, while China, UAE and USA were the largest 
import sources for India. Despite weak tourism revenues, there was significant pickup 
in net services receipts during April-December, 2021 on account of robust software and 
business earnings, with both receipts and payments crossing the pre-pandemic levels.
India’s current account balance turned into deficit of 0.2 percent of GDP in the first half 
(H1) of 2021-22, largely led by deficit in trade account. Net capital flows were higher at 
US$ 65.6 billion in H1: 2021-22, on account of continued inflow of foreign investment,  
revival in net external commercial borrowings (ECBs), higher banking capital and  
additional special drawing rights (SDR) allocation. India’s external debt rose to US$ 
593.1 billion as at end-September 2021, from US$ 556.8 billion a year earlier, reflecting 
additional SDR allocation by IMF , coupled with higher commercial borrowings.
The robust capital flows were sufficient to finance the modest current account deficit, 
resulting in an overall balance of payments (BoP) surplus of US$ 63.1 billion in H1 of 
2021-22, that led to an augmented foreign exchange reserves crossing the milestone of 
US$ 600 billion and touched US$ 633.6 billion as of December 31, 2021. As of end-
November 2021, India was the fourth largest forex reserves holder in the world after 
China, Japan, and Switzerland. 
A sizeable accretion in reserves led to an improvement in external vulnerability indicators 
such as foreign exchange reserves to total external debt, short-term debt to foreign 
exchange reserves, etc. India’s external sector is resilient to face any unwinding of the 
global liquidity arising out of the likelihood of faster normalisation of monetary policy 
by systemically important central banks, including the Fed, in response to elevated 
inflationary pressures.
External Sector
Page 2


CHAPTER
03
External trade recovered strongly in 2021-22 after the pandemic-induced slump of the 
previous year, with strong capital flows into India, leading to a rapid accumulation of 
foreign exchange reserves. The resilience of India’s external sector during the current 
year augurs well for growth revival in the economy. However , the downside risks of global 
liquidity tightening and continued volatility of global commodity prices, high freight costs, 
coupled with the fresh resurgence of COVID-19 with new variants may pose a challenge 
for India during 2022-23.
Owing to the recovery of global demand coupled with revival in domestic activity, 
India’s merchandise exports and imports rebounded strongly and surpassed pre-COVID 
levels during the current financial year. The revival in exports was also helped by timely 
initiatives taken by Government. USA followed by UAE and China remained the top 
export destinations in April-November , 2021, while China, UAE and USA were the largest 
import sources for India. Despite weak tourism revenues, there was significant pickup 
in net services receipts during April-December, 2021 on account of robust software and 
business earnings, with both receipts and payments crossing the pre-pandemic levels.
India’s current account balance turned into deficit of 0.2 percent of GDP in the first half 
(H1) of 2021-22, largely led by deficit in trade account. Net capital flows were higher at 
US$ 65.6 billion in H1: 2021-22, on account of continued inflow of foreign investment,  
revival in net external commercial borrowings (ECBs), higher banking capital and  
additional special drawing rights (SDR) allocation. India’s external debt rose to US$ 
593.1 billion as at end-September 2021, from US$ 556.8 billion a year earlier, reflecting 
additional SDR allocation by IMF , coupled with higher commercial borrowings.
The robust capital flows were sufficient to finance the modest current account deficit, 
resulting in an overall balance of payments (BoP) surplus of US$ 63.1 billion in H1 of 
2021-22, that led to an augmented foreign exchange reserves crossing the milestone of 
US$ 600 billion and touched US$ 633.6 billion as of December 31, 2021. As of end-
November 2021, India was the fourth largest forex reserves holder in the world after 
China, Japan, and Switzerland. 
A sizeable accretion in reserves led to an improvement in external vulnerability indicators 
such as foreign exchange reserves to total external debt, short-term debt to foreign 
exchange reserves, etc. India’s external sector is resilient to face any unwinding of the 
global liquidity arising out of the likelihood of faster normalisation of monetary policy 
by systemically important central banks, including the Fed, in response to elevated 
inflationary pressures.
External Sector
86 Economic Survey 2021-22
GLOBAL ECONOMIC ENVIRONMENT
3.1 The COVID-19 pandemic continued to impact the global economic environment 
during 2021. The first half (H1) of the calendar 2021 witnessed an acceleration in the global 
economic activity, that lifted the merchandise trade above its pre-pandemic peak. Reflecting 
this, International Monetary Fund (IMF) in its World Economic Outlook (WEO) October 2021 
edition projected higher growth of global trade volume in goods and services of 9.7 percent 
in 2021, moderating to 6.7 percent in 2022, in line with the projected global recovery. World 
Trade Organization (WTO) in its October 2021 release, also upgraded its forecast for global 
merchandise trade volume growth to 10.8 percent in 2021, followed by a 4.7 percent rise in 2022 
(Figure 1).
Figure 1: Projection for World Trade Volume Growth
5.6
3.9
0.9
-8.2
9.7
6.7
10.8
4.7
-12
-8
-4
0
4
8
12
-12
-8
-4
0
4
8
12
2017 2018 2019 2020 2021 (P) 2022 (P)
Annual Per cent Change
Annual Per cent Change
World Trade Volume in Goods and Services (IMF)
World Merchandise Trade Volume (WTO)-RHS
Source: IMF and WTO
Note: Projections. The shaded area represents projected growth.
3.2 Apart from revival in global economic activity, the high growth rate for global merchandise 
trade volume in H1 of 2021 is also aided by the previous year’s slump, which bottomed out in 
the second quarter of 2020. The pick-up in momentum witnessed during the first two quarters 
of 2021 weakened again by the third quarter (Q3) due to rapid spread of Delta variant and the 
threat of new variants. It led to breakage in critical links of global supply chains resulting in 
longer than expected supply disruptions, taking its toll on the global recovery. The world trade 
in nominal value terms (US dollar) during 2021 tracked that in terms of volume: deceleration in 
Q3, following an acceleration in first quarter (Q1) and second quarter (Q2) (Figure 2).
3.3 Nonetheless, WTO’s prediction of merchandise trade volume growth of 10.8 per cent for 
whole of 2021 could still be realized if fourth quarter data could show a pick-up. This is possible 
even though the WTO’s Goods Trade Barometer has signalled a cooling of trade growth in the 
closing months of 2021 (index dropped to 99.5 in September 2021– close to the baseline value 
of 100), but it still remains on trend.
1
 
1
WTO's goods trade barometer index is a leading indicator that signals changes in world trade growth two to three months ahead of merchan-
dise trade volume statistics. Its baseline value is 100, a value greater than 100 suggests above -trend growth while a value below 100 indicates 
below-trend growth.
Page 3


CHAPTER
03
External trade recovered strongly in 2021-22 after the pandemic-induced slump of the 
previous year, with strong capital flows into India, leading to a rapid accumulation of 
foreign exchange reserves. The resilience of India’s external sector during the current 
year augurs well for growth revival in the economy. However , the downside risks of global 
liquidity tightening and continued volatility of global commodity prices, high freight costs, 
coupled with the fresh resurgence of COVID-19 with new variants may pose a challenge 
for India during 2022-23.
Owing to the recovery of global demand coupled with revival in domestic activity, 
India’s merchandise exports and imports rebounded strongly and surpassed pre-COVID 
levels during the current financial year. The revival in exports was also helped by timely 
initiatives taken by Government. USA followed by UAE and China remained the top 
export destinations in April-November , 2021, while China, UAE and USA were the largest 
import sources for India. Despite weak tourism revenues, there was significant pickup 
in net services receipts during April-December, 2021 on account of robust software and 
business earnings, with both receipts and payments crossing the pre-pandemic levels.
India’s current account balance turned into deficit of 0.2 percent of GDP in the first half 
(H1) of 2021-22, largely led by deficit in trade account. Net capital flows were higher at 
US$ 65.6 billion in H1: 2021-22, on account of continued inflow of foreign investment,  
revival in net external commercial borrowings (ECBs), higher banking capital and  
additional special drawing rights (SDR) allocation. India’s external debt rose to US$ 
593.1 billion as at end-September 2021, from US$ 556.8 billion a year earlier, reflecting 
additional SDR allocation by IMF , coupled with higher commercial borrowings.
The robust capital flows were sufficient to finance the modest current account deficit, 
resulting in an overall balance of payments (BoP) surplus of US$ 63.1 billion in H1 of 
2021-22, that led to an augmented foreign exchange reserves crossing the milestone of 
US$ 600 billion and touched US$ 633.6 billion as of December 31, 2021. As of end-
November 2021, India was the fourth largest forex reserves holder in the world after 
China, Japan, and Switzerland. 
A sizeable accretion in reserves led to an improvement in external vulnerability indicators 
such as foreign exchange reserves to total external debt, short-term debt to foreign 
exchange reserves, etc. India’s external sector is resilient to face any unwinding of the 
global liquidity arising out of the likelihood of faster normalisation of monetary policy 
by systemically important central banks, including the Fed, in response to elevated 
inflationary pressures.
External Sector
86 Economic Survey 2021-22
GLOBAL ECONOMIC ENVIRONMENT
3.1 The COVID-19 pandemic continued to impact the global economic environment 
during 2021. The first half (H1) of the calendar 2021 witnessed an acceleration in the global 
economic activity, that lifted the merchandise trade above its pre-pandemic peak. Reflecting 
this, International Monetary Fund (IMF) in its World Economic Outlook (WEO) October 2021 
edition projected higher growth of global trade volume in goods and services of 9.7 percent 
in 2021, moderating to 6.7 percent in 2022, in line with the projected global recovery. World 
Trade Organization (WTO) in its October 2021 release, also upgraded its forecast for global 
merchandise trade volume growth to 10.8 percent in 2021, followed by a 4.7 percent rise in 2022 
(Figure 1).
Figure 1: Projection for World Trade Volume Growth
5.6
3.9
0.9
-8.2
9.7
6.7
10.8
4.7
-12
-8
-4
0
4
8
12
-12
-8
-4
0
4
8
12
2017 2018 2019 2020 2021 (P) 2022 (P)
Annual Per cent Change
Annual Per cent Change
World Trade Volume in Goods and Services (IMF)
World Merchandise Trade Volume (WTO)-RHS
Source: IMF and WTO
Note: Projections. The shaded area represents projected growth.
3.2 Apart from revival in global economic activity, the high growth rate for global merchandise 
trade volume in H1 of 2021 is also aided by the previous year’s slump, which bottomed out in 
the second quarter of 2020. The pick-up in momentum witnessed during the first two quarters 
of 2021 weakened again by the third quarter (Q3) due to rapid spread of Delta variant and the 
threat of new variants. It led to breakage in critical links of global supply chains resulting in 
longer than expected supply disruptions, taking its toll on the global recovery. The world trade 
in nominal value terms (US dollar) during 2021 tracked that in terms of volume: deceleration in 
Q3, following an acceleration in first quarter (Q1) and second quarter (Q2) (Figure 2).
3.3 Nonetheless, WTO’s prediction of merchandise trade volume growth of 10.8 per cent for 
whole of 2021 could still be realized if fourth quarter data could show a pick-up. This is possible 
even though the WTO’s Goods Trade Barometer has signalled a cooling of trade growth in the 
closing months of 2021 (index dropped to 99.5 in September 2021– close to the baseline value 
of 100), but it still remains on trend.
1
 
1
WTO's goods trade barometer index is a leading indicator that signals changes in world trade growth two to three months ahead of merchan-
dise trade volume statistics. Its baseline value is 100, a value greater than 100 suggests above -trend growth while a value below 100 indicates 
below-trend growth.
87 External Sector
Figure 2: Moderation in World Trade Volume and Value in Q3 of 2021
-30
-20
-10
0
10
20
30
40
50
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2018 2019 2020 2021 (P)
Growth rate (y-o-y), Percent
World Trade Volume World Trade Value
 Source: UNCTAD and WTO
 Note: The growth rate is calculated on the basis of index with 2019Q1= 100.
3.4 The trade performance of major economies in volume and value terms during 2021 broadly 
reflects the generic trajectory of world trade outlined above. These major economies witnessed 
deceleration in Q3 on the back of a pick-up in Q1 and Q2, barring Russia in the case of exports 
and Indonesia for imports (Figure 3).
Figure 3: Merchandise trade performance of major economies
-40
-20
0
20
40
60
80
100
Brazil
China
India
Indonesia
Russia
S. Africa
USA
2020Q1 2020Q2 2020Q3 2020Q4
2021Q1 2021Q2 2021Q3
-60
-40
-20
0
20
40
60
Brazil
China
India
Indonesia
Russia
S. Africa
USA
2020Q1 2020Q2 2020Q3 2020Q4
2021Q1 2021Q2 2021Q3
a. Growth in Export Volume
(y-o-y, Per cent)
b. Growth in Import Volume
(y-o-y, Per cent)
Source: WTO
Note: The growth rate is calculated on the basis of index with 2019Q1= 100.
3.5 The impact on trade in value terms varied significantly across different types of goods. Trade 
of manufacture goods, agricultural products and fuels & mining products witnessed positive and 
higher year-over-year (y-o-y) growth during Q2 of 2021 than in Q1, before moderating in Q3. 
The trade value of fuels and mining products was boosted by a four-fold rise in natural gas 
prices. Among manufactured goods, some sectors showed strong y-o-y increase, including iron 
and steel, electronic components and pharmaceuticals while others such as automotive products 
Page 4


CHAPTER
03
External trade recovered strongly in 2021-22 after the pandemic-induced slump of the 
previous year, with strong capital flows into India, leading to a rapid accumulation of 
foreign exchange reserves. The resilience of India’s external sector during the current 
year augurs well for growth revival in the economy. However , the downside risks of global 
liquidity tightening and continued volatility of global commodity prices, high freight costs, 
coupled with the fresh resurgence of COVID-19 with new variants may pose a challenge 
for India during 2022-23.
Owing to the recovery of global demand coupled with revival in domestic activity, 
India’s merchandise exports and imports rebounded strongly and surpassed pre-COVID 
levels during the current financial year. The revival in exports was also helped by timely 
initiatives taken by Government. USA followed by UAE and China remained the top 
export destinations in April-November , 2021, while China, UAE and USA were the largest 
import sources for India. Despite weak tourism revenues, there was significant pickup 
in net services receipts during April-December, 2021 on account of robust software and 
business earnings, with both receipts and payments crossing the pre-pandemic levels.
India’s current account balance turned into deficit of 0.2 percent of GDP in the first half 
(H1) of 2021-22, largely led by deficit in trade account. Net capital flows were higher at 
US$ 65.6 billion in H1: 2021-22, on account of continued inflow of foreign investment,  
revival in net external commercial borrowings (ECBs), higher banking capital and  
additional special drawing rights (SDR) allocation. India’s external debt rose to US$ 
593.1 billion as at end-September 2021, from US$ 556.8 billion a year earlier, reflecting 
additional SDR allocation by IMF , coupled with higher commercial borrowings.
The robust capital flows were sufficient to finance the modest current account deficit, 
resulting in an overall balance of payments (BoP) surplus of US$ 63.1 billion in H1 of 
2021-22, that led to an augmented foreign exchange reserves crossing the milestone of 
US$ 600 billion and touched US$ 633.6 billion as of December 31, 2021. As of end-
November 2021, India was the fourth largest forex reserves holder in the world after 
China, Japan, and Switzerland. 
A sizeable accretion in reserves led to an improvement in external vulnerability indicators 
such as foreign exchange reserves to total external debt, short-term debt to foreign 
exchange reserves, etc. India’s external sector is resilient to face any unwinding of the 
global liquidity arising out of the likelihood of faster normalisation of monetary policy 
by systemically important central banks, including the Fed, in response to elevated 
inflationary pressures.
External Sector
86 Economic Survey 2021-22
GLOBAL ECONOMIC ENVIRONMENT
3.1 The COVID-19 pandemic continued to impact the global economic environment 
during 2021. The first half (H1) of the calendar 2021 witnessed an acceleration in the global 
economic activity, that lifted the merchandise trade above its pre-pandemic peak. Reflecting 
this, International Monetary Fund (IMF) in its World Economic Outlook (WEO) October 2021 
edition projected higher growth of global trade volume in goods and services of 9.7 percent 
in 2021, moderating to 6.7 percent in 2022, in line with the projected global recovery. World 
Trade Organization (WTO) in its October 2021 release, also upgraded its forecast for global 
merchandise trade volume growth to 10.8 percent in 2021, followed by a 4.7 percent rise in 2022 
(Figure 1).
Figure 1: Projection for World Trade Volume Growth
5.6
3.9
0.9
-8.2
9.7
6.7
10.8
4.7
-12
-8
-4
0
4
8
12
-12
-8
-4
0
4
8
12
2017 2018 2019 2020 2021 (P) 2022 (P)
Annual Per cent Change
Annual Per cent Change
World Trade Volume in Goods and Services (IMF)
World Merchandise Trade Volume (WTO)-RHS
Source: IMF and WTO
Note: Projections. The shaded area represents projected growth.
3.2 Apart from revival in global economic activity, the high growth rate for global merchandise 
trade volume in H1 of 2021 is also aided by the previous year’s slump, which bottomed out in 
the second quarter of 2020. The pick-up in momentum witnessed during the first two quarters 
of 2021 weakened again by the third quarter (Q3) due to rapid spread of Delta variant and the 
threat of new variants. It led to breakage in critical links of global supply chains resulting in 
longer than expected supply disruptions, taking its toll on the global recovery. The world trade 
in nominal value terms (US dollar) during 2021 tracked that in terms of volume: deceleration in 
Q3, following an acceleration in first quarter (Q1) and second quarter (Q2) (Figure 2).
3.3 Nonetheless, WTO’s prediction of merchandise trade volume growth of 10.8 per cent for 
whole of 2021 could still be realized if fourth quarter data could show a pick-up. This is possible 
even though the WTO’s Goods Trade Barometer has signalled a cooling of trade growth in the 
closing months of 2021 (index dropped to 99.5 in September 2021– close to the baseline value 
of 100), but it still remains on trend.
1
 
1
WTO's goods trade barometer index is a leading indicator that signals changes in world trade growth two to three months ahead of merchan-
dise trade volume statistics. Its baseline value is 100, a value greater than 100 suggests above -trend growth while a value below 100 indicates 
below-trend growth.
87 External Sector
Figure 2: Moderation in World Trade Volume and Value in Q3 of 2021
-30
-20
-10
0
10
20
30
40
50
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2018 2019 2020 2021 (P)
Growth rate (y-o-y), Percent
World Trade Volume World Trade Value
 Source: UNCTAD and WTO
 Note: The growth rate is calculated on the basis of index with 2019Q1= 100.
3.4 The trade performance of major economies in volume and value terms during 2021 broadly 
reflects the generic trajectory of world trade outlined above. These major economies witnessed 
deceleration in Q3 on the back of a pick-up in Q1 and Q2, barring Russia in the case of exports 
and Indonesia for imports (Figure 3).
Figure 3: Merchandise trade performance of major economies
-40
-20
0
20
40
60
80
100
Brazil
China
India
Indonesia
Russia
S. Africa
USA
2020Q1 2020Q2 2020Q3 2020Q4
2021Q1 2021Q2 2021Q3
-60
-40
-20
0
20
40
60
Brazil
China
India
Indonesia
Russia
S. Africa
USA
2020Q1 2020Q2 2020Q3 2020Q4
2021Q1 2021Q2 2021Q3
a. Growth in Export Volume
(y-o-y, Per cent)
b. Growth in Import Volume
(y-o-y, Per cent)
Source: WTO
Note: The growth rate is calculated on the basis of index with 2019Q1= 100.
3.5 The impact on trade in value terms varied significantly across different types of goods. Trade 
of manufacture goods, agricultural products and fuels & mining products witnessed positive and 
higher year-over-year (y-o-y) growth during Q2 of 2021 than in Q1, before moderating in Q3. 
The trade value of fuels and mining products was boosted by a four-fold rise in natural gas 
prices. Among manufactured goods, some sectors showed strong y-o-y increase, including iron 
and steel, electronic components and pharmaceuticals while others such as automotive products 
88 Economic Survey 2021-22
and telecommunications equipment showed stagnation or decline, reflecting the recent shortage 
of semiconductors.
3.6 As regards global financial conditions, in 2021, inflation picked up globally as economic 
activity revived with opening up of economies. Inflation in US touched 6.8 per cent in November 
2021, the highest since 1982, driven largely by energy and food prices. As inflation worries 
are mounting, a distinct shift towards the unwinding of pandemic-led stimulus is taking hold. 
This may result in tightening of financial conditions, adversely affecting capital flows, putting 
pressure on exchange rate and slowing down growth in emerging economies. Therefore, the 
revival in inflation across the world now poses risks from both a tighter global liquidity condition 
and exchange rate volatility in global currency.
3.7 Overall, the balance of risks for global trade is tilted to the downside. The biggest 
downside risk emanates from the pandemic itself, particularly with resurgence of new variants 
such as Omicron. Further, in addition to the surge in global inflation, as outlined above, longer 
port delays, higher freight rates, shortage of shipping containers, shortage of inputs such as 
semiconductors, with supply-side disruptions being exacerbated by recovery in demand, pose 
significant risks, inter alia, for global trade. 
3.8 Against this backdrop, India’s external sector has shown immense resilience during the 
year, which augurs well for growth revival in the economy.
DEVELOPMENTS IN INDIA’S MERCHANDISE TRADE
Merchandise Exports
3.9 Following the global trend, India’s merchandise exports recovered strongly from the 
pandemic-induced collapse and registered positive growth in the current financial year. During 
2021-22 (April-December), the merchandise exports recorded growth of 49.7 per cent to US$ 
301.4 billion, compared to corresponding period of last year and 26.5 per cent over 2019-20 
(April-December), exceeding the pre-pandemic levels. 
3.10 Out of an ambitious export target of US$ 400 billion set for 2021-22, India has already 
attained more than 75 per cent of it by exporting goods worth US$ 301.4 billion, which is 
actually higher than the export target of US$ 300 billion set for the April-December period of 
2021-22. This shows that India is well on track as far as attaining the export target is concerned. 
Sharp recovery in key markets; increased consumer spending; pent up savings and disposable 
income due to announcement of fiscal stimulus by major economies; global commodity price 
rise and an aggressive export push by the government have bolstered exports in 2021-22. 
3.11 After bottoming out in Q1: FY 21, there was an impressive rebound in merchandise 
exports, with strong y-o-y and sequential growth, crossing a milestone of US$ 100 billion in Q2 
and Q3 of 2021-22 (Figure 4a). This is remarkable in view of moderation in global trade growth, 
elevated shipping rates and persistent problem of container shortages.
Page 5


CHAPTER
03
External trade recovered strongly in 2021-22 after the pandemic-induced slump of the 
previous year, with strong capital flows into India, leading to a rapid accumulation of 
foreign exchange reserves. The resilience of India’s external sector during the current 
year augurs well for growth revival in the economy. However , the downside risks of global 
liquidity tightening and continued volatility of global commodity prices, high freight costs, 
coupled with the fresh resurgence of COVID-19 with new variants may pose a challenge 
for India during 2022-23.
Owing to the recovery of global demand coupled with revival in domestic activity, 
India’s merchandise exports and imports rebounded strongly and surpassed pre-COVID 
levels during the current financial year. The revival in exports was also helped by timely 
initiatives taken by Government. USA followed by UAE and China remained the top 
export destinations in April-November , 2021, while China, UAE and USA were the largest 
import sources for India. Despite weak tourism revenues, there was significant pickup 
in net services receipts during April-December, 2021 on account of robust software and 
business earnings, with both receipts and payments crossing the pre-pandemic levels.
India’s current account balance turned into deficit of 0.2 percent of GDP in the first half 
(H1) of 2021-22, largely led by deficit in trade account. Net capital flows were higher at 
US$ 65.6 billion in H1: 2021-22, on account of continued inflow of foreign investment,  
revival in net external commercial borrowings (ECBs), higher banking capital and  
additional special drawing rights (SDR) allocation. India’s external debt rose to US$ 
593.1 billion as at end-September 2021, from US$ 556.8 billion a year earlier, reflecting 
additional SDR allocation by IMF , coupled with higher commercial borrowings.
The robust capital flows were sufficient to finance the modest current account deficit, 
resulting in an overall balance of payments (BoP) surplus of US$ 63.1 billion in H1 of 
2021-22, that led to an augmented foreign exchange reserves crossing the milestone of 
US$ 600 billion and touched US$ 633.6 billion as of December 31, 2021. As of end-
November 2021, India was the fourth largest forex reserves holder in the world after 
China, Japan, and Switzerland. 
A sizeable accretion in reserves led to an improvement in external vulnerability indicators 
such as foreign exchange reserves to total external debt, short-term debt to foreign 
exchange reserves, etc. India’s external sector is resilient to face any unwinding of the 
global liquidity arising out of the likelihood of faster normalisation of monetary policy 
by systemically important central banks, including the Fed, in response to elevated 
inflationary pressures.
External Sector
86 Economic Survey 2021-22
GLOBAL ECONOMIC ENVIRONMENT
3.1 The COVID-19 pandemic continued to impact the global economic environment 
during 2021. The first half (H1) of the calendar 2021 witnessed an acceleration in the global 
economic activity, that lifted the merchandise trade above its pre-pandemic peak. Reflecting 
this, International Monetary Fund (IMF) in its World Economic Outlook (WEO) October 2021 
edition projected higher growth of global trade volume in goods and services of 9.7 percent 
in 2021, moderating to 6.7 percent in 2022, in line with the projected global recovery. World 
Trade Organization (WTO) in its October 2021 release, also upgraded its forecast for global 
merchandise trade volume growth to 10.8 percent in 2021, followed by a 4.7 percent rise in 2022 
(Figure 1).
Figure 1: Projection for World Trade Volume Growth
5.6
3.9
0.9
-8.2
9.7
6.7
10.8
4.7
-12
-8
-4
0
4
8
12
-12
-8
-4
0
4
8
12
2017 2018 2019 2020 2021 (P) 2022 (P)
Annual Per cent Change
Annual Per cent Change
World Trade Volume in Goods and Services (IMF)
World Merchandise Trade Volume (WTO)-RHS
Source: IMF and WTO
Note: Projections. The shaded area represents projected growth.
3.2 Apart from revival in global economic activity, the high growth rate for global merchandise 
trade volume in H1 of 2021 is also aided by the previous year’s slump, which bottomed out in 
the second quarter of 2020. The pick-up in momentum witnessed during the first two quarters 
of 2021 weakened again by the third quarter (Q3) due to rapid spread of Delta variant and the 
threat of new variants. It led to breakage in critical links of global supply chains resulting in 
longer than expected supply disruptions, taking its toll on the global recovery. The world trade 
in nominal value terms (US dollar) during 2021 tracked that in terms of volume: deceleration in 
Q3, following an acceleration in first quarter (Q1) and second quarter (Q2) (Figure 2).
3.3 Nonetheless, WTO’s prediction of merchandise trade volume growth of 10.8 per cent for 
whole of 2021 could still be realized if fourth quarter data could show a pick-up. This is possible 
even though the WTO’s Goods Trade Barometer has signalled a cooling of trade growth in the 
closing months of 2021 (index dropped to 99.5 in September 2021– close to the baseline value 
of 100), but it still remains on trend.
1
 
1
WTO's goods trade barometer index is a leading indicator that signals changes in world trade growth two to three months ahead of merchan-
dise trade volume statistics. Its baseline value is 100, a value greater than 100 suggests above -trend growth while a value below 100 indicates 
below-trend growth.
87 External Sector
Figure 2: Moderation in World Trade Volume and Value in Q3 of 2021
-30
-20
-10
0
10
20
30
40
50
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2018 2019 2020 2021 (P)
Growth rate (y-o-y), Percent
World Trade Volume World Trade Value
 Source: UNCTAD and WTO
 Note: The growth rate is calculated on the basis of index with 2019Q1= 100.
3.4 The trade performance of major economies in volume and value terms during 2021 broadly 
reflects the generic trajectory of world trade outlined above. These major economies witnessed 
deceleration in Q3 on the back of a pick-up in Q1 and Q2, barring Russia in the case of exports 
and Indonesia for imports (Figure 3).
Figure 3: Merchandise trade performance of major economies
-40
-20
0
20
40
60
80
100
Brazil
China
India
Indonesia
Russia
S. Africa
USA
2020Q1 2020Q2 2020Q3 2020Q4
2021Q1 2021Q2 2021Q3
-60
-40
-20
0
20
40
60
Brazil
China
India
Indonesia
Russia
S. Africa
USA
2020Q1 2020Q2 2020Q3 2020Q4
2021Q1 2021Q2 2021Q3
a. Growth in Export Volume
(y-o-y, Per cent)
b. Growth in Import Volume
(y-o-y, Per cent)
Source: WTO
Note: The growth rate is calculated on the basis of index with 2019Q1= 100.
3.5 The impact on trade in value terms varied significantly across different types of goods. Trade 
of manufacture goods, agricultural products and fuels & mining products witnessed positive and 
higher year-over-year (y-o-y) growth during Q2 of 2021 than in Q1, before moderating in Q3. 
The trade value of fuels and mining products was boosted by a four-fold rise in natural gas 
prices. Among manufactured goods, some sectors showed strong y-o-y increase, including iron 
and steel, electronic components and pharmaceuticals while others such as automotive products 
88 Economic Survey 2021-22
and telecommunications equipment showed stagnation or decline, reflecting the recent shortage 
of semiconductors.
3.6 As regards global financial conditions, in 2021, inflation picked up globally as economic 
activity revived with opening up of economies. Inflation in US touched 6.8 per cent in November 
2021, the highest since 1982, driven largely by energy and food prices. As inflation worries 
are mounting, a distinct shift towards the unwinding of pandemic-led stimulus is taking hold. 
This may result in tightening of financial conditions, adversely affecting capital flows, putting 
pressure on exchange rate and slowing down growth in emerging economies. Therefore, the 
revival in inflation across the world now poses risks from both a tighter global liquidity condition 
and exchange rate volatility in global currency.
3.7 Overall, the balance of risks for global trade is tilted to the downside. The biggest 
downside risk emanates from the pandemic itself, particularly with resurgence of new variants 
such as Omicron. Further, in addition to the surge in global inflation, as outlined above, longer 
port delays, higher freight rates, shortage of shipping containers, shortage of inputs such as 
semiconductors, with supply-side disruptions being exacerbated by recovery in demand, pose 
significant risks, inter alia, for global trade. 
3.8 Against this backdrop, India’s external sector has shown immense resilience during the 
year, which augurs well for growth revival in the economy.
DEVELOPMENTS IN INDIA’S MERCHANDISE TRADE
Merchandise Exports
3.9 Following the global trend, India’s merchandise exports recovered strongly from the 
pandemic-induced collapse and registered positive growth in the current financial year. During 
2021-22 (April-December), the merchandise exports recorded growth of 49.7 per cent to US$ 
301.4 billion, compared to corresponding period of last year and 26.5 per cent over 2019-20 
(April-December), exceeding the pre-pandemic levels. 
3.10 Out of an ambitious export target of US$ 400 billion set for 2021-22, India has already 
attained more than 75 per cent of it by exporting goods worth US$ 301.4 billion, which is 
actually higher than the export target of US$ 300 billion set for the April-December period of 
2021-22. This shows that India is well on track as far as attaining the export target is concerned. 
Sharp recovery in key markets; increased consumer spending; pent up savings and disposable 
income due to announcement of fiscal stimulus by major economies; global commodity price 
rise and an aggressive export push by the government have bolstered exports in 2021-22. 
3.11 After bottoming out in Q1: FY 21, there was an impressive rebound in merchandise 
exports, with strong y-o-y and sequential growth, crossing a milestone of US$ 100 billion in Q2 
and Q3 of 2021-22 (Figure 4a). This is remarkable in view of moderation in global trade growth, 
elevated shipping rates and persistent problem of container shortages.
89 External Sector
Figure 4: India’s Merchandise Exports
0
20
40
60
80
100
120
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2019-20 2020-21 2021-22 (P)
US$ Billion
POL Exports Non POL Exports
-40
-20
0
20
40
60
80
100
-40
-20
0
20
40
60
80
100
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2019-20 2020-21 2021-22 (P)
Growth rate (y-o-y), Per cent
Percentage Points
POL Exports Non POL Exports Exports growth (RHS)
a. Accelerating exports in 2021-22 b. Relative Contribution in Exports growth
(Driven by both POL & non-POL exports)
Source: Department of Commerce 
Note: P: Provisional
3.12 The rise in exports is contributed by high growth in petroleum, oil and lubricants (POL) exports 
(constituting about 15 per cent of total exports) as well as non-POL exports, indicating the broad-based 
nature of expansion (Figure 4b). This is reflected in the fact that more than 85 per cent of major export 
commodity groups recorded positive growth during April-December, 2021 over April-December, 
2020. Driven by robust demand for engineering goods, gems & jewellery, and chemicals, the non-POL 
exports stood at US$ 257.5 billion during 2021-22 (April-December), registering a growth of 40.1 per 
cent over corresponding period of last year and 24.9 percent over 2019-20 (April-December). 
3.13 Owing to rise in global crude oil prices, petroleum products continued to be the most 
exported commodity in April-November 2021, whose exports have more than doubled and their 
share rose to 14.9 percent from 8.8 per cent in corresponding period a year earlier (Table 1). 
Exports of pearls, precious, semi-precious stones and gold & other precious metal jewellery have 
shown substantial growth of 88 per cent in April-November, 2021 compared to last year owing 
to various measures undertaken by Government such as reduction in import duty of precious 
metals, resolution of procedural issues to enhance ease of doing business along with revival in 
demand in major export markets. The exports of aluminium and its products is a newly added 
commodity in the list of top ten exported commodities during April-November, 2021.
Table 1: Top 10 Export Commodities
Rank Commodity
(US$ Billion) Share (in Per cent)
2019-
20
2020-
21
2020-
21
2021-
22 (P)
2019-
20
2020-
21
2020-21
2021-22 
(P)
(Apr-Nov) (Apr-Nov) 
1
Petroleum 
Products
41.3 25.8 15.3 39.5 13.2 8.8 8.8 14.9
2
Pearl, 
Precious, 
Semiprecious 
Stones
20.7 18.1 9.8 18.1 6.6 6.2 5.6 6.8
3 Iron and Steel 9.3 12.1 7.7 15.9 3.0 4.2 4.4 6.0