Rise in Indian Exports: Resilient Economy

Context: India recorded the highest monthly exports during the fiscal in February, registering an 11.9 per cent growth to USD 41.4 billion, mainly driven by increased shipments of engineering goods, electronic items and pharma products.

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.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.

Reasons for exports surge

1. 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.

2. Reducing logistics costs: India has also been focusing on improving logistics. 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.This attest to the country’s commitment towards improving logistics.

3. Trade regulations: 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. Other than this, Market Access Initiative, Districts as Export Hubs, and Champion Service Sectors scheme are also accelerating the overall trade.

4. Changing global landscape: 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. 

5. Trade Facilitation: Simplification and streamlining of trade processes, including customs procedures and documentation requirements, can expedite the movement of goods and reduce trade barriers, facilitating increased exports.

6. Globalization and Liberalization: India's integration into the global economy and liberalization of trade policies have opened up opportunities for exporters to access international markets and participate in global value chains, contributing to the rise in exports.

Road to USD 1 trillion merchandise export target by 2030

1. 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.The government can consider drawing strategic lessons from Southeast Asian countries that are capitalizing on the global trading opportunity. Low labour costs, reduction in tariffs and a significant growth in trade ties have enhanced these countries’ export competitiveness. 

2. 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 internationalization of the Indian rupee, digital transformation, enhanced collaboration, and a dynamic period for policy upgrades. India also plans to establish a single trade body, replacing the existing multiple export promotion councils, to facilitate efficiency and accountability in trade. 

3. Enhancing Export Competitiveness: Improving the competitiveness of Indian exporters through measures such as skill development, technology adoption, and quality enhancement is crucial. Investing in infrastructure, logistics, and digital connectivity can reduce transaction costs and enhance efficiency.

4. Focus on Services Exports: Besides merchandise exports, India should prioritize the promotion of services exports such as IT services, business process outsourcing (BPO), tourism, and healthcare. Leveraging India's strengths in services sectors and tapping into global demand for services can contribute significantly to export earnings.

5. Sustainable and Inclusive Growth: Promoting sustainable and inclusive growth in export-oriented industries, including MSMEs and rural enterprises, is essential. Providing support for capacity building, technology adoption, and access to finance can empower small and medium-sized exporters and contribute to overall export growth.

Way forward

• Reforms and policy initiatives in recent years are resolving manufacturing challenges and boosting exports. Additionally, the government can consider addressing the complexities in the disbursement of funds under the PLI schemes. Further developments in the PLI scheme will help the country tap into the estimated USD1 trillion global semiconductor market opportunity by 2030. 

• India must also focus on skilling its vast youth population. With the 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 catalyzing domestic manufacturing and addressing structural economic challenges, it will be on track to achieve the target of USD 1 trillion in merchandise exports by 2030.