India continues to be the fastest growing economy in the world despite supply chain constraints, rising inflationary pressures and a sluggish global growth. A significant contributor to this is the country’s exports performance which is going strong two years in a row despite strong headwinds. The country’s total merchandise exports in FY2022–2023 are estimated to be USD447 billion—the highest ever achieved—as compared to USD422 billion in the previous fiscal.1 This 6 per cent y-o-y growth is in tandem with other global manufacturing hubs, such as Hong Kong (SAR) China, Vietnam, and Taiwan.
What are the commodities dominating the exports basket?
An analysis of the export quantity in the last few years shows how India’s merchandise exports have shifted away from traditional commodity baskets, such as textiles and gems and Jewellery, and have focused more on engineering goods, organic and inorganic chemicals, and electronic goods. Government initiatives, such as export promotion schemes and sector-specific Production Linked Incentive (PLI) schemes, are enabling India to become a high-value commodity exporter. We have achieved a momentous growth in electronics exports due to a strong domestic manufacturing landscape. For instance, India’s smartphone exports, which were nearly non-existent in 2014, have reached a record figure of USD11 billion in FY20232 due to the increasing presence of global electronics manufacturers. The drugs and pharmaceuticals industry has also benefitted from PLI schemes for pharmaceuticals, bulk drug parks, active pharmaceutical ingredients, etc. However, exports also surged in the pandemic-induced years due to increased global collaborations and donations of critical drugs. While a spike in oil prices led to an increase in petroleum exports, it remains to be seen how easing inflation may affect the value of this going forward.
What’s driving the exports surge?
- Strengthening manufacturing capabilities: Since the launch of the ‘Make in India’ movement in 2014, annual FDI growth has doubled from USD45 billion in 2014–2015 to USD84 billion in 2021–2022, leading to an improvement of the manufacturing sector.3 Further, numerous PLI schemes across sectors—such as automobile, textile, electronics, pharmaceuticals and food products—are empowering domestic manufacturers to become globally competitive. India has also been focusing on improving logistics. For instance, the average turnaround time for container vessels at major ports has improved from 43.44 hours in 2014 to 26.58 hours in 2021.4 Recent reforms such as PM Gati Shakti and the National Logistics Policy have been implemented to further reduce logistics costs and increase the competitiveness of our products. India’s rankings in the World Bank’s Logistics Performance Index improved significantly over the years, rising from 54 in 2014 to 44 in 2018 and further advancing to 38 in 2023.5 This attest to the country’s commitment towards improving logistics.
- Trade regulations: The government has focused on export-specific regulatory developments, which has helped exporters gain global recognition. The introduction of the World Trade Organisation (WTO) compatible schemes, such as the Remission of Duties and Taxes on Export Products (RoDTEP) and Rebate of State and Central Taxes and Levies (RoSCTL), continue to be beneficial. Recently, the government expanded the list of items applicable under the RoDTEP scheme from 8,731 to 10,481 to boost their shipments globally.6 These include products across sectors of chemical, pharma, and textiles. Other than this, Market Access Initiative, Districts as Export Hubs, and Champion Service Sectors scheme are also accelerating the overall trade.
- Changing global landscape: The growing sentiment of the ‘China plus one’ strategy among developed economies is putting Indian commodities on the global map. The country is also experiencing growing demand from new markets, such as the Netherlands, Brazil, and Saudi Arabia, which is leading to considerable export gains. Additionally, India has been proactive in signing Free Trade Agreements (FTAs) with strategically significant countries to boost economic activities. Recently, India concluded FTA deals with Mauritius, Australia, and the UAE, which are expected to further provide impetus to Indian exporters. For instance, the India-Australia Economic Cooperation and Trade Agreement is expected to increase the total bilateral trade to USD45–50 billion by 2035.7
Road to USD1 trillion merchandise export target by 2030
- Key learning from Southeast Asia: India needs to make itself more prominent in global trading patterns, as the country’s share in global exports was 2.1 per cent in 2022.8 The government can consider drawing strategic lessons from Southeast Asian countries that are capitalising on the global trading opportunity. Low labour costs, reduction in tariffs and a significant growth in trade ties have enhanced these countries’ export competitiveness. Additionally, Hong Kong (SAR) China, Singapore, Malaysia, and Vietnam have been consistently focusing on the production and export of high-value products. For instance, high-technology exports as a percentage of manufactured exports for Hong Kong (SAR) China is around 71 per cent whereas for India, it is just around 10 per cent.9 Going ahead, given India’s ambitious target of USD200 billion for engineering exports10 and USD120 billion for electronic goods export by 2025,11 greater emphasis must be given to the development of R&D.
- Regulatory reforms: India has implemented significant structural changes to improve its export patterns. For instance, the new Foreign Trade Policy (FTP) will provide a necessary boost to India’s trade. Key features of this policy include internationalisation of the Indian rupee, digital transformation, enhanced collaboration, and a dynamic period for policy upgradations. India also plans to establish a single trade body, replacing the existing multiple export promotion councils, to facilitate efficiency and accountability in trade. Moreover, corrections in input tariffs to maintain a stable cost structure can also be considered.
The way forward
India must also focus on skilling its vast youth population. With proper implementation of initiatives, such as the Skill India Mission and the recent budgetary focus on knowledge and skill development, India can look to enhance its labour advantage.
Going ahead, if India continues to focus on catalysing domestic manufacturing and addressing structural economic challenges, it will be on track to achieve the target of USD1 trillion in merchandise exports by 2030.14
A version of this article was published on 28 May, 2023 by The Economic Times Online