Looks like the value of $ENV variable is not being passed outside the if loop.

Oh, it does. But it seems to be that you are thinking it should propagate back to the parent process. It doesn't. (Think about it, if it would, then the parent would propagate it back to *its* parents process, and that again to its parent process, all the way to the top level process (init(1) on UNIX systems). And then I guess they should propagate it down to their children - meaning the entire system would share all environment variables).