External Sector 2022-23 | Indian Economy for UPSC CSE PDF Download

 Page 1


CHAPTER
11
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. 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. 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. 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. However , going forward, the expected easing of crude oil 
EXTERNAL SECTOR:  
WATCHFUL AND HOPEFUL
Page 2


CHAPTER
11
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. 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. 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. 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. However , going forward, the expected easing of crude oil 
EXTERNAL SECTOR:  
WATCHFUL AND HOPEFUL
312 Economic Survey 2022-23
Introduction
11.1 Two global shocks in the new millennium – one an economic shock and the other, a health 
shock - have had very contrasting repercussions on the global economy. Following the global 
financial crisis in 2007-08 as the inflationary pressures were muted, interest rates were extremely 
low for long years. The easing financial conditions supported global economic growth, which 
reached 4.5 per cent in 2010. Now, the Covid-19 pandemic is another shock to global growth 
performance, with economic growth down to a negative of 3.8 per cent in 2020. The following 
two years saw inflation rates rise to multi-decade highs, fuelled by global commodity and food 
price spikes. The situation has been further amplified by the Russia-Ukraine conflict. To stem 
the situation, monetary authorities in advanced economies, especially the US Federal Reserve 
(US Fed), are accelerating the pace of monetary policy normalisation. The 10-year Treasury 
yield in the US increased almost six-fold between mid-2020 and mid-2022. Risk assets were 
sold off sharply triggering capital flight from many emerging and frontier market economies, 
bringing to a halt the rebound of net capital flows to developing countries observed since the last 
quarter of 2020. 
11.2 Interest rates and prices of risk assets have been extremely volatile since April 2022, 
reflecting heightened uncertainty about the economic and policy outlook, exacerbated by low 
liquidity. The US dollar appreciated sharply against currencies of Emerging Market Economies 
(EMEs) and major advanced economies facing high borrowing costs. Thus, global financial 
conditions have considerably tightened especially since April 2022, and the balance of risks is 
significantly skewed to the downside, thereby weakening the global economic outlook. Global 
growth is forecast to slow from 6.0 per cent in 2021 to 3.2 per cent in 2022 and 2.7 per cent in 
2023 according to the International Monetary Fund (IMF).
1
 This is the weakest growth profile 
since 2001 except for the global financial crisis and the acute phase of the pandemic. Further, 
external public debt vulnerability concerns are being exacerbated as such debt in developing 
economies is at record levels presently and most of it is owed to private creditors, with much 
of it involving variable interest rates that could spike suddenly.
2
 Thus, emerging markets face a 
host of risks emanating from elevated external borrowing costs, sticky high inflation, volatile 
commodity markets, uncertain global economic growth outlook, and spill overs from policy 
tightening in advanced economies.
1
World Economic Outlook Report, IMF, October 2022.
2
“South Asia’s Current Macroeconomic Challenges and Policy Priorities”, Keynote Address by Shri Shaktikanta Das, Governor, Reserve Bank 
of India –6 January  2023 - at the high-level Conference co-organised by IMF Asia and Pacific Department and IMF South Asia Regional 
Training and Technical Assistance Centre, New Delhi
prices, the resilience of net services exports and buoyant inward remittances would result 
in lower CAD during the remainder of FY23 and is expected to be within sustainable 
limits. 
The fortified shock absorbers of India’ s external sector are in place to cushion the global 
headwinds be it the formidable forex reserves, sustainable external debt indicators, or 
market-determined exchange rate. While forex reserves as of the end December 2022 
stood at US$ 562.72 billion, accounting for 9.3 months of imports, the ratio of external 
debt to GDP is at a comfortable level of 19.2 per cent as of end-September 2022.
Page 3


CHAPTER
11
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. 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. 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. 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. However , going forward, the expected easing of crude oil 
EXTERNAL SECTOR:  
WATCHFUL AND HOPEFUL
312 Economic Survey 2022-23
Introduction
11.1 Two global shocks in the new millennium – one an economic shock and the other, a health 
shock - have had very contrasting repercussions on the global economy. Following the global 
financial crisis in 2007-08 as the inflationary pressures were muted, interest rates were extremely 
low for long years. The easing financial conditions supported global economic growth, which 
reached 4.5 per cent in 2010. Now, the Covid-19 pandemic is another shock to global growth 
performance, with economic growth down to a negative of 3.8 per cent in 2020. The following 
two years saw inflation rates rise to multi-decade highs, fuelled by global commodity and food 
price spikes. The situation has been further amplified by the Russia-Ukraine conflict. To stem 
the situation, monetary authorities in advanced economies, especially the US Federal Reserve 
(US Fed), are accelerating the pace of monetary policy normalisation. The 10-year Treasury 
yield in the US increased almost six-fold between mid-2020 and mid-2022. Risk assets were 
sold off sharply triggering capital flight from many emerging and frontier market economies, 
bringing to a halt the rebound of net capital flows to developing countries observed since the last 
quarter of 2020. 
11.2 Interest rates and prices of risk assets have been extremely volatile since April 2022, 
reflecting heightened uncertainty about the economic and policy outlook, exacerbated by low 
liquidity. The US dollar appreciated sharply against currencies of Emerging Market Economies 
(EMEs) and major advanced economies facing high borrowing costs. Thus, global financial 
conditions have considerably tightened especially since April 2022, and the balance of risks is 
significantly skewed to the downside, thereby weakening the global economic outlook. Global 
growth is forecast to slow from 6.0 per cent in 2021 to 3.2 per cent in 2022 and 2.7 per cent in 
2023 according to the International Monetary Fund (IMF).
1
 This is the weakest growth profile 
since 2001 except for the global financial crisis and the acute phase of the pandemic. Further, 
external public debt vulnerability concerns are being exacerbated as such debt in developing 
economies is at record levels presently and most of it is owed to private creditors, with much 
of it involving variable interest rates that could spike suddenly.
2
 Thus, emerging markets face a 
host of risks emanating from elevated external borrowing costs, sticky high inflation, volatile 
commodity markets, uncertain global economic growth outlook, and spill overs from policy 
tightening in advanced economies.
1
World Economic Outlook Report, IMF, October 2022.
2
“South Asia’s Current Macroeconomic Challenges and Policy Priorities”, Keynote Address by Shri Shaktikanta Das, Governor, Reserve Bank 
of India –6 January  2023 - at the high-level Conference co-organised by IMF Asia and Pacific Department and IMF South Asia Regional 
Training and Technical Assistance Centre, New Delhi
prices, the resilience of net services exports and buoyant inward remittances would result 
in lower CAD during the remainder of FY23 and is expected to be within sustainable 
limits. 
The fortified shock absorbers of India’ s external sector are in place to cushion the global 
headwinds be it the formidable forex reserves, sustainable external debt indicators, or 
market-determined exchange rate. While forex reserves as of the end December 2022 
stood at US$ 562.72 billion, accounting for 9.3 months of imports, the ratio of external 
debt to GDP is at a comfortable level of 19.2 per cent as of end-September 2022.
313 External Sector: Watchful and Hopeful
11.3 Against this fast-evolving global backdrop, this chapter chronicles the developments in the 
external sector of the Indian economy focusing on exports, imports, international investment, 
foreign exchange reserves, movement of the currency against the US dollar, external debt, and 
the BoP situation. Where available, a comparison of some of these indicators with some peer 
countries is also made to present India’s external sector situation in a proper perspective. 
Trade Helping India Reap the Benefits of Globalised World
11.4 In the present globalised and integrated world, trade is essential for developing countries 
to reap the benefit of increased globalisation of products and financial markets. It is well 
recognised that trade is not an end in itself but a means to balanced, equitable, and sustainable 
development. Conventional economic theories point towards potential gains that could emerge 
from openness to international trade and investment.
11.5 Over time, the trade openness of countries across the globe has been increasing as measured 
by trade as a proportion of GDP. For the world as a whole, the share of trade as a percentage of 
world GDP
3
 has been in the range of 50-60 per cent since 2003 and stood at 52 per cent in 2020, 
according to the World Bank database. For India as well, the share of trade as a percentage of 
GDP has been steadily increasing, being above 40 per cent since 2005 (except 2020 being the 
pandemic year). The ratio stands at 46 per cent in 2021 and 50 per cent for H1 of 2022.
Global Scenario
11.6 Post Covid-19-induced disruptions, global trade prospects have improved in FY22. Global 
trade exhibited resilience in the first half (H1) of 2022, notwithstanding the headwinds from the 
Russia-Ukraine conflict. Robust merchandise imports – emerging primarily from Europe, the 
United States, and parts of the developing world supported the growth of merchandise trade in 
H12022. This partially reflected pent-up demand relating to the legacy of the pandemic-driven 
spending shift from services towards goods that were constrained earlier because of the supply 
bottlenecks. Other factors contributing to the trend were the appreciation of the dollar in the case 
of the United States, the relative dynamism of intra-regional trade in Europe, and favourable 
terms-of-trade effects in some large emerging economies due to elevated energy prices.
4
 The 
global trade volume grew by 4.8 per cent in H12022, on top of an impressive recovery of 9.7 
per cent in 2021, as per the World Trade Organisation (WTO) statistics. The global merchandise 
trade in value terms rose year-on-year (Y oY), by 22.2 per cent in 2021, reversing the deceleration 
observed in the previous three years. During the H1 of 2022, the trade-in value terms grew by 32 
per cent compared to the corresponding period of 2019.
5
 
11.7 However, the global trade outlook turned grimmer in the second half (H2) of 2022 on the 
back of a confluence of adverse factors including the increasing likelihood of a recession in the 
major economies and the tapering demand for consumer durables; aggressive monetary policy 
tightening by several central banks; disorderly financial conditions; continued supply-chain 
disruptions and elevated freight charges. The leading indicators of global trade viz., inventories 
3
Trade is the sum of exports and imports of goods and services measured as a share of GDP. 
4
UNCTAD, Trade and Development Report 2022, Development prospects in a fractured world: Global disorder and regional responses, October 
2022.
5
WTO’s press release, International Trade Statistics, 5 October 2022.
Page 4


CHAPTER
11
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. 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. 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. 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. However , going forward, the expected easing of crude oil 
EXTERNAL SECTOR:  
WATCHFUL AND HOPEFUL
312 Economic Survey 2022-23
Introduction
11.1 Two global shocks in the new millennium – one an economic shock and the other, a health 
shock - have had very contrasting repercussions on the global economy. Following the global 
financial crisis in 2007-08 as the inflationary pressures were muted, interest rates were extremely 
low for long years. The easing financial conditions supported global economic growth, which 
reached 4.5 per cent in 2010. Now, the Covid-19 pandemic is another shock to global growth 
performance, with economic growth down to a negative of 3.8 per cent in 2020. The following 
two years saw inflation rates rise to multi-decade highs, fuelled by global commodity and food 
price spikes. The situation has been further amplified by the Russia-Ukraine conflict. To stem 
the situation, monetary authorities in advanced economies, especially the US Federal Reserve 
(US Fed), are accelerating the pace of monetary policy normalisation. The 10-year Treasury 
yield in the US increased almost six-fold between mid-2020 and mid-2022. Risk assets were 
sold off sharply triggering capital flight from many emerging and frontier market economies, 
bringing to a halt the rebound of net capital flows to developing countries observed since the last 
quarter of 2020. 
11.2 Interest rates and prices of risk assets have been extremely volatile since April 2022, 
reflecting heightened uncertainty about the economic and policy outlook, exacerbated by low 
liquidity. The US dollar appreciated sharply against currencies of Emerging Market Economies 
(EMEs) and major advanced economies facing high borrowing costs. Thus, global financial 
conditions have considerably tightened especially since April 2022, and the balance of risks is 
significantly skewed to the downside, thereby weakening the global economic outlook. Global 
growth is forecast to slow from 6.0 per cent in 2021 to 3.2 per cent in 2022 and 2.7 per cent in 
2023 according to the International Monetary Fund (IMF).
1
 This is the weakest growth profile 
since 2001 except for the global financial crisis and the acute phase of the pandemic. Further, 
external public debt vulnerability concerns are being exacerbated as such debt in developing 
economies is at record levels presently and most of it is owed to private creditors, with much 
of it involving variable interest rates that could spike suddenly.
2
 Thus, emerging markets face a 
host of risks emanating from elevated external borrowing costs, sticky high inflation, volatile 
commodity markets, uncertain global economic growth outlook, and spill overs from policy 
tightening in advanced economies.
1
World Economic Outlook Report, IMF, October 2022.
2
“South Asia’s Current Macroeconomic Challenges and Policy Priorities”, Keynote Address by Shri Shaktikanta Das, Governor, Reserve Bank 
of India –6 January  2023 - at the high-level Conference co-organised by IMF Asia and Pacific Department and IMF South Asia Regional 
Training and Technical Assistance Centre, New Delhi
prices, the resilience of net services exports and buoyant inward remittances would result 
in lower CAD during the remainder of FY23 and is expected to be within sustainable 
limits. 
The fortified shock absorbers of India’ s external sector are in place to cushion the global 
headwinds be it the formidable forex reserves, sustainable external debt indicators, or 
market-determined exchange rate. While forex reserves as of the end December 2022 
stood at US$ 562.72 billion, accounting for 9.3 months of imports, the ratio of external 
debt to GDP is at a comfortable level of 19.2 per cent as of end-September 2022.
313 External Sector: Watchful and Hopeful
11.3 Against this fast-evolving global backdrop, this chapter chronicles the developments in the 
external sector of the Indian economy focusing on exports, imports, international investment, 
foreign exchange reserves, movement of the currency against the US dollar, external debt, and 
the BoP situation. Where available, a comparison of some of these indicators with some peer 
countries is also made to present India’s external sector situation in a proper perspective. 
Trade Helping India Reap the Benefits of Globalised World
11.4 In the present globalised and integrated world, trade is essential for developing countries 
to reap the benefit of increased globalisation of products and financial markets. It is well 
recognised that trade is not an end in itself but a means to balanced, equitable, and sustainable 
development. Conventional economic theories point towards potential gains that could emerge 
from openness to international trade and investment.
11.5 Over time, the trade openness of countries across the globe has been increasing as measured 
by trade as a proportion of GDP. For the world as a whole, the share of trade as a percentage of 
world GDP
3
 has been in the range of 50-60 per cent since 2003 and stood at 52 per cent in 2020, 
according to the World Bank database. For India as well, the share of trade as a percentage of 
GDP has been steadily increasing, being above 40 per cent since 2005 (except 2020 being the 
pandemic year). The ratio stands at 46 per cent in 2021 and 50 per cent for H1 of 2022.
Global Scenario
11.6 Post Covid-19-induced disruptions, global trade prospects have improved in FY22. Global 
trade exhibited resilience in the first half (H1) of 2022, notwithstanding the headwinds from the 
Russia-Ukraine conflict. Robust merchandise imports – emerging primarily from Europe, the 
United States, and parts of the developing world supported the growth of merchandise trade in 
H12022. This partially reflected pent-up demand relating to the legacy of the pandemic-driven 
spending shift from services towards goods that were constrained earlier because of the supply 
bottlenecks. Other factors contributing to the trend were the appreciation of the dollar in the case 
of the United States, the relative dynamism of intra-regional trade in Europe, and favourable 
terms-of-trade effects in some large emerging economies due to elevated energy prices.
4
 The 
global trade volume grew by 4.8 per cent in H12022, on top of an impressive recovery of 9.7 
per cent in 2021, as per the World Trade Organisation (WTO) statistics. The global merchandise 
trade in value terms rose year-on-year (Y oY), by 22.2 per cent in 2021, reversing the deceleration 
observed in the previous three years. During the H1 of 2022, the trade-in value terms grew by 32 
per cent compared to the corresponding period of 2019.
5
 
11.7 However, the global trade outlook turned grimmer in the second half (H2) of 2022 on the 
back of a confluence of adverse factors including the increasing likelihood of a recession in the 
major economies and the tapering demand for consumer durables; aggressive monetary policy 
tightening by several central banks; disorderly financial conditions; continued supply-chain 
disruptions and elevated freight charges. The leading indicators of global trade viz., inventories 
3
Trade is the sum of exports and imports of goods and services measured as a share of GDP. 
4
UNCTAD, Trade and Development Report 2022, Development prospects in a fractured world: Global disorder and regional responses, October 
2022.
5
WTO’s press release, International Trade Statistics, 5 October 2022.
314 Economic Survey 2022-23
and new export orders seem to bear testimony to these adverse events. Trade growth is likely 
to slow in the closing months of 2022 and into 2023, according to the WTO Goods Trade 
Barometer
6
 released on 28 November 2022, as the global economy continues to be buffeted by 
strong headwinds. The current reading of 96.2 is below both the baseline value for the index and 
the previous reading of 100.0, reflecting the slowdown in demand for traded goods.
11.8 Thus, as regards the future trade projections, according to the WTO, world trade is expected 
to lose momentum in H2-2022 and remain subdued in 2023. The organisation forecasts global 
trade to grow in 2023 by just 1 per cent, a sharp downward revision from the previous estimate 
of 3.4 per cent
7
. However, there is a high degree of uncertainty associated with the forecast due 
to shifting monetary policy in advanced economies and the unpredictable nature of the Russia-
Ukraine conflict. The United Nations Conference on Trade and Development (UNCTAD), in 
its Global Trade update of December 2022 has also noted that the ongoing trade slowdown 
is expected to worsen for 2023 and further that while the outlook for global trade remains 
uncertain, negative factors appear to outweigh positive trends.
Figure XI.1: Growth in Global Merchandise Trade: Actual and Forecast
19.5
19.0
17.6
22.2
3.4
0.5
-5.6
9.7
3.5
1.0
3.0
3.4
-10
-5
0
5
10
15
20
25
2018 2019 2020 2021 2022 2023
Value US$ trillion / Volume percent change (Y-o-Y)
Value (US$ trillion) Volume Volume Forecast (Oct 2022) Volume Forecast (April 2022)
Source: WTO
India’s growing and diversifying trade
11.9 International trade has been an important pillar of the resilience of India’s external sector. 
Trade as a percentage of GDP for India was in the range of 12-15 per cent in the 1980s; 16-25 
per cent in the 1990s and 25-50 per cent in the 2000s. In the following paragraphs, a detailed 
analysis of India’s trade performance is presented.
6
The WTO has developed a set of indicators to provide “real-time” information on trends in world trade. The Goods Trade Barometer is a lead-
ing indicator that signals changes in world trade growth two to three months ahead of merchandise trade volume statistics. Values greater than 
100 signal above-trend expansion while values less than 100 indicate below-trend growth. 
7
WTO’s press release, International Trade Statistics, 5 October 2022.
Page 5


CHAPTER
11
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. 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. 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. 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. However , going forward, the expected easing of crude oil 
EXTERNAL SECTOR:  
WATCHFUL AND HOPEFUL
312 Economic Survey 2022-23
Introduction
11.1 Two global shocks in the new millennium – one an economic shock and the other, a health 
shock - have had very contrasting repercussions on the global economy. Following the global 
financial crisis in 2007-08 as the inflationary pressures were muted, interest rates were extremely 
low for long years. The easing financial conditions supported global economic growth, which 
reached 4.5 per cent in 2010. Now, the Covid-19 pandemic is another shock to global growth 
performance, with economic growth down to a negative of 3.8 per cent in 2020. The following 
two years saw inflation rates rise to multi-decade highs, fuelled by global commodity and food 
price spikes. The situation has been further amplified by the Russia-Ukraine conflict. To stem 
the situation, monetary authorities in advanced economies, especially the US Federal Reserve 
(US Fed), are accelerating the pace of monetary policy normalisation. The 10-year Treasury 
yield in the US increased almost six-fold between mid-2020 and mid-2022. Risk assets were 
sold off sharply triggering capital flight from many emerging and frontier market economies, 
bringing to a halt the rebound of net capital flows to developing countries observed since the last 
quarter of 2020. 
11.2 Interest rates and prices of risk assets have been extremely volatile since April 2022, 
reflecting heightened uncertainty about the economic and policy outlook, exacerbated by low 
liquidity. The US dollar appreciated sharply against currencies of Emerging Market Economies 
(EMEs) and major advanced economies facing high borrowing costs. Thus, global financial 
conditions have considerably tightened especially since April 2022, and the balance of risks is 
significantly skewed to the downside, thereby weakening the global economic outlook. Global 
growth is forecast to slow from 6.0 per cent in 2021 to 3.2 per cent in 2022 and 2.7 per cent in 
2023 according to the International Monetary Fund (IMF).
1
 This is the weakest growth profile 
since 2001 except for the global financial crisis and the acute phase of the pandemic. Further, 
external public debt vulnerability concerns are being exacerbated as such debt in developing 
economies is at record levels presently and most of it is owed to private creditors, with much 
of it involving variable interest rates that could spike suddenly.
2
 Thus, emerging markets face a 
host of risks emanating from elevated external borrowing costs, sticky high inflation, volatile 
commodity markets, uncertain global economic growth outlook, and spill overs from policy 
tightening in advanced economies.
1
World Economic Outlook Report, IMF, October 2022.
2
“South Asia’s Current Macroeconomic Challenges and Policy Priorities”, Keynote Address by Shri Shaktikanta Das, Governor, Reserve Bank 
of India –6 January  2023 - at the high-level Conference co-organised by IMF Asia and Pacific Department and IMF South Asia Regional 
Training and Technical Assistance Centre, New Delhi
prices, the resilience of net services exports and buoyant inward remittances would result 
in lower CAD during the remainder of FY23 and is expected to be within sustainable 
limits. 
The fortified shock absorbers of India’ s external sector are in place to cushion the global 
headwinds be it the formidable forex reserves, sustainable external debt indicators, or 
market-determined exchange rate. While forex reserves as of the end December 2022 
stood at US$ 562.72 billion, accounting for 9.3 months of imports, the ratio of external 
debt to GDP is at a comfortable level of 19.2 per cent as of end-September 2022.
313 External Sector: Watchful and Hopeful
11.3 Against this fast-evolving global backdrop, this chapter chronicles the developments in the 
external sector of the Indian economy focusing on exports, imports, international investment, 
foreign exchange reserves, movement of the currency against the US dollar, external debt, and 
the BoP situation. Where available, a comparison of some of these indicators with some peer 
countries is also made to present India’s external sector situation in a proper perspective. 
Trade Helping India Reap the Benefits of Globalised World
11.4 In the present globalised and integrated world, trade is essential for developing countries 
to reap the benefit of increased globalisation of products and financial markets. It is well 
recognised that trade is not an end in itself but a means to balanced, equitable, and sustainable 
development. Conventional economic theories point towards potential gains that could emerge 
from openness to international trade and investment.
11.5 Over time, the trade openness of countries across the globe has been increasing as measured 
by trade as a proportion of GDP. For the world as a whole, the share of trade as a percentage of 
world GDP
3
 has been in the range of 50-60 per cent since 2003 and stood at 52 per cent in 2020, 
according to the World Bank database. For India as well, the share of trade as a percentage of 
GDP has been steadily increasing, being above 40 per cent since 2005 (except 2020 being the 
pandemic year). The ratio stands at 46 per cent in 2021 and 50 per cent for H1 of 2022.
Global Scenario
11.6 Post Covid-19-induced disruptions, global trade prospects have improved in FY22. Global 
trade exhibited resilience in the first half (H1) of 2022, notwithstanding the headwinds from the 
Russia-Ukraine conflict. Robust merchandise imports – emerging primarily from Europe, the 
United States, and parts of the developing world supported the growth of merchandise trade in 
H12022. This partially reflected pent-up demand relating to the legacy of the pandemic-driven 
spending shift from services towards goods that were constrained earlier because of the supply 
bottlenecks. Other factors contributing to the trend were the appreciation of the dollar in the case 
of the United States, the relative dynamism of intra-regional trade in Europe, and favourable 
terms-of-trade effects in some large emerging economies due to elevated energy prices.
4
 The 
global trade volume grew by 4.8 per cent in H12022, on top of an impressive recovery of 9.7 
per cent in 2021, as per the World Trade Organisation (WTO) statistics. The global merchandise 
trade in value terms rose year-on-year (Y oY), by 22.2 per cent in 2021, reversing the deceleration 
observed in the previous three years. During the H1 of 2022, the trade-in value terms grew by 32 
per cent compared to the corresponding period of 2019.
5
 
11.7 However, the global trade outlook turned grimmer in the second half (H2) of 2022 on the 
back of a confluence of adverse factors including the increasing likelihood of a recession in the 
major economies and the tapering demand for consumer durables; aggressive monetary policy 
tightening by several central banks; disorderly financial conditions; continued supply-chain 
disruptions and elevated freight charges. The leading indicators of global trade viz., inventories 
3
Trade is the sum of exports and imports of goods and services measured as a share of GDP. 
4
UNCTAD, Trade and Development Report 2022, Development prospects in a fractured world: Global disorder and regional responses, October 
2022.
5
WTO’s press release, International Trade Statistics, 5 October 2022.
314 Economic Survey 2022-23
and new export orders seem to bear testimony to these adverse events. Trade growth is likely 
to slow in the closing months of 2022 and into 2023, according to the WTO Goods Trade 
Barometer
6
 released on 28 November 2022, as the global economy continues to be buffeted by 
strong headwinds. The current reading of 96.2 is below both the baseline value for the index and 
the previous reading of 100.0, reflecting the slowdown in demand for traded goods.
11.8 Thus, as regards the future trade projections, according to the WTO, world trade is expected 
to lose momentum in H2-2022 and remain subdued in 2023. The organisation forecasts global 
trade to grow in 2023 by just 1 per cent, a sharp downward revision from the previous estimate 
of 3.4 per cent
7
. However, there is a high degree of uncertainty associated with the forecast due 
to shifting monetary policy in advanced economies and the unpredictable nature of the Russia-
Ukraine conflict. The United Nations Conference on Trade and Development (UNCTAD), in 
its Global Trade update of December 2022 has also noted that the ongoing trade slowdown 
is expected to worsen for 2023 and further that while the outlook for global trade remains 
uncertain, negative factors appear to outweigh positive trends.
Figure XI.1: Growth in Global Merchandise Trade: Actual and Forecast
19.5
19.0
17.6
22.2
3.4
0.5
-5.6
9.7
3.5
1.0
3.0
3.4
-10
-5
0
5
10
15
20
25
2018 2019 2020 2021 2022 2023
Value US$ trillion / Volume percent change (Y-o-Y)
Value (US$ trillion) Volume Volume Forecast (Oct 2022) Volume Forecast (April 2022)
Source: WTO
India’s growing and diversifying trade
11.9 International trade has been an important pillar of the resilience of India’s external sector. 
Trade as a percentage of GDP for India was in the range of 12-15 per cent in the 1980s; 16-25 
per cent in the 1990s and 25-50 per cent in the 2000s. In the following paragraphs, a detailed 
analysis of India’s trade performance is presented.
6
The WTO has developed a set of indicators to provide “real-time” information on trends in world trade. The Goods Trade Barometer is a lead-
ing indicator that signals changes in world trade growth two to three months ahead of merchandise trade volume statistics. Values greater than 
100 signal above-trend expansion while values less than 100 indicate below-trend growth. 
7
WTO’s press release, International Trade Statistics, 5 October 2022.
315 External Sector: Watchful and Hopeful
Figure XI.2: India’s Trade catching up with global trade levels
India, 45.3
World, 56.5
0
10
20
30
40
50
60
70
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Total Trade as percentage of GDP
Source: World Bank database
Table XI.1:  Key aspects of India’s trade (Calendar year-wise)
2019 2020 2021
Export performance (in per cent)
Share in World Merchandise Exports 1.7 1.6 1.8
Share in World Commercial Services Exports 3.5 4.0 4.0
Share in World Merchandise Plus Services Exports 2.1 2.1 2.2
Import Performance (in per cent)
Share in World Merchandise Imports 2.5 2.1 2.5
Share in World Commercial Services Imports 3.0 3.2 3.5
Share in World Merchandise Plus Services Imports 2.6 2.3 2.7
India’s rank in world trade
Merchandise Exports 18 21
Merchandise Imports 10 14
Services Exports 8 7
Services Imports 10 10
Source: DGFT, Monthly Foreign Trade Statistics, November 2022 (based on data till October 2022)