Trends and Patterns of Merchandise Exports and Imports of India in the Post-liberalization Era
14.1 Introduction
The process of trade liberalization and market-oriented economic reform that had started in early 1980s intensified in the 1990s.During the past fifteen years, the Indian economy has become substantially more integrated to the world economy. The focus of these reforms has been on liberalization, openness, transparency and globalization with a basic thrust on outward orientation and on export promotion. The philosophy behind economic reforms was that the role of government in making decisions on resource allocation should be minimize. It was prophese that this would not only lead to growth and diversification but also to the upgrading of the production structure, facilitated by imported technology and improved skills enhanced by trade. It is asserted that trade liberalization would help diversification of the structure of exports and output in favour of manufactured good. Has it happened? If it did, has it been accompanied with growth of manufacturing value added and structural change in exports and output? To what extent have the objectives of reform been achieved? This paper seeks to explain all these probes in the light of the external sector performance over the last fifteen years. The introduction part is followed by an evaluation of the main aspects of India’s foreign trade policy since reforms. The following section analyses the trends and pattern of export and imports and the direction of trade in some detail. The final session summerises the important observations from the analysis.
Indian trade policy can be widely divided in to three periods- An initial period of export pessimism or period of ‘indiscriminate’ import substitution policy (1956-1965), a later Period of gradual transformation from protectionist policies to liberal policies with some incentives to exports and with a transformation from indiscriminate import substitution to ‘efficient’ import substitution (1965-1990) and a more recent Period of liberalization in economic policy, especially after economic reforms, which replaced the erstwhile inward looking strategy with outward oriented development strategy (1991-till date).
14.2 Policy changes in the 1990s.
The impact of excessive controls and regulations on the overall performance of the economy and the grounds on which the idea of economic refoms in India is supported are well documented in number of studies. (Bhagavathi and Desai, 1970, Bhagavathi and Sreenivasan, 1975 Jha 1980, Dhar 1990, Alhuvalia, 1994 et al). The inward looking policies resulted in limited Indian participation in world markets. It resulted in a high level of protection to domestic industries with an anti agricultural bias, and paid little attention to an export led growth. The collapse of the world’s leading centrally planned economy of USSR undermined India’s faith in the inward looking policys followed till 1990. The political developments and the gulf crisis during 1990-91 in the context of fragile BoP situation culminated in a payments crisis of unprecedented dimension in the first quarter of 1991-92. The forex reserves declined to a level barely enough to finance the import requirements of mear three weeks.A high rate of inflation much above 10 percent raised serious concerns on the macro economic stability of Indian economy. the gross fiscal deficit had grown to about 10 per cent of GDP.The current account deficit increased to the tune of 3.2 percent of GDP in 1990.The debt GDP ratio which increased through 1980’s reached almost 60 percent by 1990s. Large scale withdrawal of NRI deposits in expectation of an imminent devaluation made the economy highly vulnerable to external shocks. An analysis by Willem Buiter and Urjit Patel (1992) showed that unless corrective steps were taken, India faced fiscal insolvency.All these factors helped the reform policies to be politically acceptable.The fear of being left behind China, which presented a sustained growth record since its 1978 economic reforms, also made the new economic policy domestically salable.
The new government which assumed office on June 1991 promptly took corrective steps to restore international confidence and announced a comprehensive adjustment package involving excahangr rate adjustment, fiscal correction and structural reforms. The rupee was devalued by 22.8 per cent. Various budgets and Export-Import (EXIM) Policy announcements since 90s carried forward the trade policy reforms. These policy measures liberalised India’s trade regime by eliminating QRs on intermediate or capital goods imports and lowering tariffs. Rupee was made fully convertible against current account in 1993.The multilateral commitments of the country to the World Trade organisatin along with the unilateral policy initiatives facilitated greater integration of the domestic economy with the world economy. Numerous incentives to encourage FDI have been undertaken. The five-year EXIM policy for 1992-97 was announced in March 1992 with a view to stimulate exports and facilitate imports of essential inputs as well as capital goods.(sreenivasan,2001). SEZs were desigined to overcome the limitations of export promotion zones (EPZ) and to attract foreign investments to India. In August 2004, the government announced a new Foreign Trade Policy (FTP) for the period 2004-09. The main objective of the Foreign Trade Policy is to double India’s percentage share of global merchandise trade by 2009; and to act as an effective instrument of economic growth by giving a thrust to employment generation, especially in semi-urban and rural areas. Today foreign trade is looked up on as the engine of further economic acceleration.
14.3 India and global Trade
India’s exports and imports were US $ 18.14 Billion and US $ 24.07 Billion respecively in 1990-91. Exports reached US $ 177.5 Billion in 2008 to become the 27th leading merchandise exporter and imports reached US $ 293.4 Billion to become the 16th leading merchandise importer of the world. India’s share in world merchandise exports, after rising from 0.5 per cent in 1990 to 0.8 percent in 2003 reached 1.1 per cent in 2005. (International Trade Statistics 2009:12) (Figure 14.1). This increase was due to the rise in India’s exports growing at more than double the rate of growth of world exports since 2005. India’s significant export growth in int first decade of the 21st century was on account of a host of favorable external developments and domestic policy initiatives. Trade in services has been growing faster than merchandise trade. The share of services in total external trade increased from 21.5 per cent in 1990 to 27.4 percent in 2006. As per the latest trade data published by WTO India’s total service exports stood at US $ 102.6 billion to become the 9th leading service exporter with a share of 2.7 percent of world service exports. India ranks 13 among leading service importers with a share of 2.4 per cent of world service imports. Total service imports amounts to US $ 83.6 billion. (International Trade Statistics 2009:14).
Figure 14.1: India’s Share in the world MerchandiseTrade
Source: International Trade Statistics 2007.
14.4 Export- Import & Trade Balance as Percentage of GDP
The index of openness of Indian economy, measured as the ratio of foreign trade to GDP increased from 13.4 per cent in 1990-91 to 39.7 by 2008-09, though fluctuations may be observed in between. (Table 14.1). Both exports and imports as a percentage of GDP have increased during the post reform period. In the crisis year, 1991-92 exports as a percentage of GDP was 6.7 and that of imports was 7.7 leading to a trade deficit of 1 percentage. The share of exports in GDP reached 8.9 per cent in 1995-96 from its level of 5.8 per cent in 1990-91. In 2009-10 exports as a percentage of GDP stood at 13.4 and that of imports at 21.2 leading to a trade deficit of 7.8 per cent. India’s import-to-GDP ratio, which rose sharply from 7.7 per cent in 1991-92 to 12.3 per cent in 1996-97, has in fact marginally declined to 11.5 per cent in 1998-99.Since then it has reached a record 24.7 per cent in 2008-09 and later subsiding to 21.2 percent in 2009-10 due to ecomomic slowdown. The high growth in imports in value terms was primarily due to the high oil prices. The overall growth of trade has also created a potential economic problem — a growing trade deficit. Until 2004, India’s merchandise trade balance — exports minus imports — generally ran a deficit of less than US $ 9000 million. However, since then, India’s merchandise trade deficit has grown from US $ 14,306.64 million in 2004-05 to US $ 118400.8 million in 2008-09. While this is a cause for concern, it may reflect a lag between export growth and growth in import of capital, intermediate and basic goods.
Table 14.1
| Export, Import, Total Trade & Trade Balance as per cent of GDP at current market prices | ||||
| | Export | Import | Total Trade | Balance of Trade |
| 1980-85 | 5 | 8.4 | 13.4 | -3.4 |
| 1985-90 | 5.1 | 8.2 | 13.3 | -3.2 |
| 1990-91 | 5.8 | 8.8 | 14.6 | -3 |
| 1991-92 | 6.7 | 7.7 | 14.4 | -1 |
| 1992-93 | 7.1 | 9.4 | 16.5 | -2.3 |
| 1993-94 | 8.1 | 9.6 | 17.7 | -1.5 |
| 1994-95 | 8.1 | 10.9 | 19 | -2.8 |
| 1995-96 | 8.9 | 12 | 20.9 | -3.1 |
| 1996-97 | 8.6 | 12.3 | 20.9 | -3.7 |
| 1997-98 | 8.3 | 12.2 | 20.5 | -3.9 |
| 1998-99 | 8.3 | 11.5 | 19.8 | -3.2 |
| 1999-00 | 8.4 | 12.4 | 20.8 | -4 |
| 2000-01 | 9.9 | 12.6 | 22.5 | -2.7 |
| 2001-02 | 9.4 | 11.8 | 21.2 | -2.4 |
| 2002-03 | 10.6 | 12.7 | 23.3 | -2.1 |
| 2003-04 | 11 | 13.3 | 24.3 | -2.3 |
| 2004-05 | 12.2 | 17.1 | 29.3 | -4.9 |
| 2005-06 | 13.1 | 19.5 | 32.6 | -6.4 |
| 2006-07 | 13.3 | 19.6 | 33.0 | -6.3 |
| 2007-08 | 13.3 | 20.5 | 33.7 | -7.2 |
| 2008-09 QE | 15.1 | 24.7 | 39.7 | -9.6 |
| 2009-10 RE | 13.4 | 21.2 | 34.6 | -7.8 |
Source: Directorate General of Commercial Intelligence and Statistics.
14.5 Growth Rate of Export and Import.
India’s exports grew substantially during the ‘nineties whether seen in terms of absolute values or relative to the GDP (Table-14.2). Since the introduction of new economic policies, India’s exports have risen from US $ 18,142.84 million in 1991-92 to US$ 18,5295.2 million in 2008-09 before subsiding to US$ 17,6574 million in 2009-10. The export growth, however, has been quite uneven. While during 1993-96 it recorded impressive gains, the annual growth rate fell sharply in 1996-97 and even turned negative in 1998-99. Once again, exports staged substantial recovery and recorded an average growth of 29.1 per cent between 2002-03 and 2008-09. But exports turned negative in 2009-10.While volume growth dominated export performance until 2002-03, there is an increasing contribution of higher unit values in recent years as reflected in the net terms of trade. (Table 14.2). This change coincided with a rising share of high value gems and jewellery items, gradual shift to garments from fibres and fabrics, and the sharp rise in prices of non-fuel primary items like ores and minerals, iron and steel and non-ferrous metals. (Table 2). Though the high growth in global output and demand, especially in the major trading collaborates of India, helped, it was the pick up in domestic economic activity, especially the consistent near double-digit growth in manufacturing that constituted the main driver of the recent export surge. India’s impressive export growth has exceeded world export growth in most of the years since 1995; but, since 2003, it has lagged behind the export growth of developing countries taken together, mainly because of China’s explosive export growth.
Figure 14.2: Growth rate of Exports and Imports
Source: Directorate General of Commercial Intelligence and Statistics.
Merchandise imports grew from US $ 24,072.53 million in 1990-91 to US $ 30,3696 million in 2008-09 before declining to US$ 27,8681 million in 2009-10. While India’s total import bill in dollar terms rose consistently through the 1990s starting from its 1991-92 level, the rate of growth has definitely decelerated since 1996-97.It again picked up from 2002-03. There is of course one good reason to expect a deceleration in import growth after 1995-96, and this is the deceleration in production and investment in the industrial sector. Again, industrial growth accelerated since 2003-04 and imports followed suit.Imports declined by 8.2 per cent in 2009-10 in response to global slowdown.Thus, output movements in the industrial sector, dependent on imports for capital equipment, intermediates and components, substantially explain movements in India’s import bill as well.( Chandrasekhar:2001).
In the post reform period imports grow at a fast rate than exports. During the period of 1980-89, the average annual growth rate of exports was 31.21 percent and imports 18.15 percent. However, during the period of 1990-99 both exports and imports grew at an average annual rate of 39 percent. However, in the first decade of the present millennium, exports grew at an average rate of 17.6 percent and imports at 19.9 percent. Total trade grew at the average annual rate of 22.7 percent in the 80s. It recorded a higher growth rate of 39.48 percent in the 90s. However, the growth rate has fallen to 19.9 percent in the first decade of the present millennium. While growth of total trade in the 80s was export lead, in 90s, both exports and imports equally contributed but in the current decade growth is mainly import lead. Liberalization of import tariffs, rise in crude oil prices and growth induced imports may explain the recent spurt in imports.
The gross terms of trade, which measures the volume index of imports as a ratio of volume index of exports, show fluctuating trends during the period under consideration. (Table 2). In real terms, the flow of imports was stronger than the flow of exports after the mid-1990s. This comes through from figures on gross terms of trade. GoT declined to 111 in 2002-03 mainly due to the spurt in imports. However, a favourable GoT (164) in 2005-06 indicates that more imports are received on a given volume of exports. The net terms of trade, which measures the unit value index of exports as a proportion of unit value index of imports, deteriorated since 1999-00 as the unit value index of imports rose mainly due to a sharp rise in the price of crude petroleum and of gold and other metals. However this trend has been reversed in 2005-06 as unit value increase in exports more than compensated for the unit value increase in imports.With a rise in both export volume and unit value, the income terms of trade which measures the export’s purchasing power to import has been improving consistently during the 1990s (except 1996-97) improved further in 2005-06. Though the quantum index of imports significantly increased, a declining unit value index of imports coupled with an increase in both unit value and quantum index of exports resulted in a high income terms of trade in 2005-06. (Table 2)
Table 14.2
| INDEX NUMBERS AND TERMS OF FOREIGN TRADE | |||||||
| (Base: 1999-00 = 100) | |||||||
| Year | Unit value index | Quantum index | Terms of Trade | ||||
| | Exports | Imports | Exports | Imports | Gross | Net | Income |
| 1990-91 | 48 | 59 | 42 | 34 | 80 | 81 | 34 |
| 1991-92 | 61 | 69 | 45 | 32 | 71 | 89 | 40 |
| 1992-93 | 70 | 74 | 48 | 40 | 83 | 95 | 46 |
| 1993-94 | 78 | 73 | 56 | 47 | 84 | 108 | 60 |
| 1994-95 | 82 | 72 | 63 | 58 | 91 | 114 | 72 |
| 1995-96 | 80 | 78 | 83 | 73 | 88 | 103 | 86 |
| 1996-97 | 84 | 89 | 89 | 73 | 81 | 94 | 84 |
| 1997-98 | 98 | 90 | 84 | 80 | 95 | 109 | 91 |
| 1998-99 | 101 | 91 | 87 | 91 | 106 | 112 | 97 |
| 1999-00 | 100 | 100 | 100 | 100 | 100 | 100 | 100 |
| 2000-01 | 102 | 109 | 125 | 99 | 79 | 94 | 117 |
| 2001-02 | 103 | 112 | 126 | 103 | 82 | 92 | 116 |
| 2002-03 | 106 | 128 | 150 | 109 | 73 | 83 | 124 |
| 2003-04 | 114 | 132 | 161 | 128 | 80 | 86 | 139 |
| 2004-05 | 131 | 157 | 179 | 150 | 84 | 83 | 149 |
| 2005-06 | 139 | 179 | 206 | 174 | 84 | 78 | 160 |
| 2006-07 | 158 | 206 | 227 | 191 | 84 | 77 | 174 |
| 2007-08 | 166 | 210 | 245 | 218 | 89 | 79 | 194 |
| 2008-09 | 164 | 239 | 314 | 262 | 83 | 69 | 215 |
| Note : 1. Gross terms of trade implies volume index of imports expressed as percentage of volume index of exports. 2. Net terms of trade implies unit value index of exports expressed as percentage of unit value index of imports. 3. Income terms of trade implies the product of net terms of trade and volume index of exports expressed as a percentage. Source: Directorate General of Commercial Intelligence and Statistics. | |||||||
The capacity of exports to finance imports represented by export import ratio has declined. Export import ratio was 75.36 in 1990-91. It t reached its peak level of 95.42 in 1993-94 and since then fallen to 74.13 in 1999-2000, almost equal to the level prevalent in 1990-91. Since then it has further dropped to 69.1 in 2005-06 and again to 61 in 2009-10.
Figure 14.3: Export-Import Ratio & Trade Balance
Source: Directorate General of Commercial Intelligence and Statistics.
14.6 Composition of Exports
The structural change in the composition of exports is lagging behind the structural change in the composition of GDP. Much of India’s economic growth has been the result of the expansion of its service sector. The share of manufacturing in GDP has remained disappointingly flat. At 16.3 per cent of GDP, the share of manufacturing in 2006-07 was still below the 16.7 per cent level of 1990-01. In contrast, the share of services in GDP has risen steadily during this period from 44 per cent to 55 per cent. However, the share of services in total external trade increased from 21.5 per cent in 1990 to 27.4 percent in 2006. Among the commodity groups, primary products contributed 23.83 per cent of India’s exports in 1990-91. Since then its share has fallen to 17.72 per cent in 1999-00 and further to 13.9 per cent in 2008-09. However, the share of manufactured goods, which was 71.63 in 1990-91, has reached 80.7 per cent in 1999-00 but there after it has fallen to 70.39 in 2005-06 and further to 67.2 in 2008-09. However, the share of petroleum products increased from 2.88 per cent in 1990-91 to 17.4 percent in 2007-08 before dropping down to 14.7 per cent in 2008-09.
Figure 13.4: Major Commodity Groups of Exports
Source: Directorate General of Commercial Intelligence and Statistics.
14.6.1 Export commodity basket
India’s export basket has diversified in past five years with engineering goods, petroleum products and chemical products increasing their share in the export basket, while traditional exports like textiles, gems and jewellery and leather and leather products losing their shares. In 1990-91 the major items of exports were Textile (23.93 per cent), Agriculture and allied products (18.49), Gems and jewellery (16.12), Engineering goods (12.40) and Chemicals and related products (9.52).Engineering goods (25.9 per cent), Petroleum products (14.7), Textile (11.0), Chemicals and related products (12.4), Gems and jewellery (15.2) and Agriculture and allied products (9.91) were the major items of export in 2008-09.(Table14.3) The share of traditional labour intensive exports declined steeply in the case of leather and leather manufactures, and to a smaller extent in the case of handicrafts. Since these products were reserved for production by small scale industries, which either were not internationally competitive, or could not expand, even if competitive, given the reservations policy, the decline in the share of these products in incremental exports is not surprising. Despite the new opportunities that opened up with the phasing out of textiles quotas, textiles exports in total exports showed a disappointing declining trend. In textiles, with the quota regime giving way to free market at the global level at the beginning of 2005, there is a lot of expectation from the Indian textile industry. India’s performance has not been satisfactory. There exists considerable scope for further diversification of India’s export basket in terms of its composition.
| Table14.3 Composition of India’s Exports ( per cent share) | ||
| | 1990-91 | 2008-09P |
| Agriculture and allied products | 18.49 | 9.6 |
| Chemicals and related products | 9.52 | 12.4 |
| Engineering goods | 12.40 | 25.9 |
| Gems and jewellery | 16.12 | 15.2 |
| Handicrafts (excluding handmade carpets) | 1.23 | 0.2 |
| Leather and manufactures | 7.99 | 1.9 |
| Ores and minerals | 5.34 | 4.3 |
| Petroleum products | 2.88 | 14.7 |
| Textile | 23.93 | 11.0 |
| Others | 2.10 | 4.8 |
Source: Directorate General of Commercial Intelligence and Statistics.
14.7 Import commodity basket
Among the commodity groups of import Petroleum, crude and products constitute major item of imports in 1990-91 as well as in 2008-09 though its share in India’s total imports has increased from 25.04 per cent in 1990-91 to 31.3 per cent in 2008-09. The share of capital goods has also increased from 24.24 per cent in 1990-91 to 27.9 per cent in 2007-08. Share of export related items has fallen from 15.29 per cent in 1990-91 to 10.2 per cent in 2008-09. Export of bulk consumption goods (consisting of agricultural commodities such as cereals, pulses, edible oil and sugar that were imported to meet domestic supply shortfalls; and other bulk items mostly non-competing raw-materials and intermediates such as fertilizer) which constituted 2.31 per cent of Indian imports in 1990-91 peaked at 5.95 per cent in 1998-99 but subsequently fallen to 2.78 per cent in 2004-05 and further to 1.7 per cent in 2008-09.
Figure 13.5: Major Commodity Groups of Imports
Source: Directorate General of Commercial Intelligence and Statistics.
In 1990-91 major imports include Petroleum, crude and products (25.04), other commodities (23.82), Machinery except electrical and electronic (8.72), Pearls, precious and semi-precious stones (8.65), Project goods (5.92), Organic and inorganic chemicals (5.30) and Iron and steel (4.89). In 2008-09 import consists of Petroleum, crude and products (31.3), Electronic goods (8.4), Transport equipment (4.5), Gold & silver (6.41) and Machinery except electrical and electronic (7.2). Oil continues as the top import item, and over three-quarters of its oil imports are crude oil. Jewelry (gold and Pearls, precious and semi-precious stones) remains India’s second biggest import, consisting of nearly equal amounts of gold and diamonds to be used by India’s jewelry manufacturing industry. The next two top import categories —machinery and electrical machinery — incorporate both consumer goods (televisions, telephones, and computers) and intermediate goods (hard disc drives and integrated circuits).
| Table 13.4 Composition of India’s Imports ( per cent share) | ||
| | 1990-91 | 2008-09 P |
| Petroleum, crude and products | 25.04 | 31.32 |
| Electronic goods | 0.00 | 8.32 |
| Transport equipment | 3.87 | 4.47 |
| Gold & silver | 0.00 | 6.41 |
| Machinery except electrical and electronic | 8.72 | 7.18 |
| Metalliferrous ores, metal scrap, etc | 3.54 | 2.71 |
| Organic and inorganic chemicals | 5.30 | 4.17 |
| Pearls, precious and semi-precious stones | 8.65 | 4.95 |
| Iron and steel | 4.89 | 3.21 |
| Coal, coke and briquittes, etc. | 1.83 | 3.43 |
| Fertilisers | 4.09 | 4.66 |
| Non-ferrous metals | 2.55 | 1.80 |
| Textile yarn, fabrics, made-ups, etc | 1.02 | 0.87 |
| Edible oil | 0.75 | 1.18 |
| Project goods | 5.92 | 1.07 |
| Others | 23.82 | 14.19 |
Source: Directorate General of Commercial Intelligence and Statistics.
14.8 Direction of Trade
Among India’s individual trade partners (exports+imports), U.S.A was the largest trade partner accounting for 13.26 per cent of India’s total trade in 1990-91. In 2008-09 UAE with a share of 9.9 per cent was Indias’s largest individual trade partner followed by China (8.6) and USA (8.1) Emergence of Dubai as a world trading hub for re-exports coupled with high oil prices, as India not only imports crude oil from but also exporting refined POL products, UAE has emerged as the largest trading partner of India.Russia and Japan which were the 2nd and 3rd largest trade partners in 1990-91 is not among the top ten trade partners of India in 2006-07. China has emerged as the second largest trade partner accounting for 8.6 per cent of India’s trade in 2008-09. With the collapse of the Soviet empire, barter trade arrangements with that region collapsed as well. This led in the post reform era, to a declining share of Eastern Europe in both imports and exports.
| Table 13.5 INDIA'S TOP TRADE PARTNERS | ||||||||
| 1990-91 | 2000-01 | 2008-09P | ||||||
| RANK | COUNTRY | Per cent share | RANK | COUNTRY | Per cent share | RANK | COUNTRY | Per cent share |
| 1 | U.S.A | 13.26 | 1 | U.S.A | 12.96 | 1 | U.A.E. | 9.9 |
| 2 | Russia | 10.30 | 2 | U.K. | 5.75 | 2 | China | 8.6 |
| 3 | Japan | 8.30 | 3 | Belgium | 4.56 | 3 | U.S.A | 8.1 |
| 4 | Germany | 7.95 | 4 | Germany | 3.86 | 4 | Saudi Arabia | 5.1 |
| 5 | U.K. | 6.63 | 5 | Japan | 3.82 | 5 | Germany | 3.8 |
| 6 | Belgium | 5.25 | 6 | Switzerland | 3.78 | 6 | Singapore | 3.3 |
| 7 | Saudi Arabia | 4.38 | 7 | Hong | 3.67 | 7 | Iran | 3.0 |
| 8 | U.A.E. | 3.55 | 8 | U.A.E. | 3.42 | 8 | Hong-Kong | 2.7 |
| 9 | Singapore | 2.78 | 9 | Singapore | 2.46 | 9 | Switzerland | 2.6 |
| 10 | Italy | 2.76 | 10 | China, | 2.45 | 10 | Korea | 2.6 |
Source: Directorate General of Commercial Intelligence and Statistics.
Region wise, Asia and Oceania account for more than60 per cent of India’s total trade in 2008-09. Its share in India’s total trade has increased from 36.7 percent in 1990-91 to 64.4 per cent in 2008-09. The relative share of EU, North America and eastern Europe has decreased from the levels prevailed in 1990-91. However, the relative share of African and Latin American countries has increased. Of late, Africa has emerged as major source of petroleum products as India imports almost 20 per cent of its petroleum products from Africa in 2008-09.( Figure 14.2)
Figure 14.6: Regional Distribution of India’s Trade
14.8.1 Direction of Exports
In the 1990s, more than half of India’s exports were directed towards OECD markets, with 28 per cent directed to EU markets and around 15 per cent to U.S. Around 16 per cent went to Russia. However, over time there has been some diversification in terms of direction of India’s exports. In terms of export destination, UAE emerged as the principal destination accounting for 13.2 per cent of India’s total exports in 2008-09, followed by U.S.A (11.4 per cent), China (5.0 per cent), Singapore (4.6 per cent) and Hong Kong. (3.6 per cent). Share of EU has declined to 21.3 per cent in 2008-09, while share of North America has declined to 12.1 per cent. There has been considerable increase in share of Asian developing countries in India’s export basket.Asia and Oceania have emerged as major export destinations. From a level of around 30.45 per cent in 1990-91, the share of Asia & Oceania, account for half of India’s total exports in 2008-09. Share of Africa has also increased over time.
Figure 13.7: Regional Distribution of India’s Exports
14.8.2 Direction of Imports
In 1990-91 US was the major source of imports (12.14) followed by Germany (8.04), Japan (7.51), Saudi Arabia (6.71), and U.K.(6.70). In 2006-07, China (10.7) has emerged as India’s major source of imports followed by U.A.E. (7.8). Saudi Arabia (6.8), U.S.A(6.1) and Iran (4.1) As a region for India’s imports, Asia and Oceania continued to be the major – and rapidly growing — source accounting for 65 per cent of total imports. Imports from EU were 29 per cent in 1990-91 and that from North America were 13.44 per cent. In 2008-09, their respective shares were 14.3 and 7.1. (Figure 14.8). In North America, US were the major source of imports; Germany, Switzerland and the UK were the major import sources in EU. Imports from Africa has increased mainly due to dramatic growth in imports from Nigeria (mainly crude oil)
Figure13.8:Regional Distribution of India’s Imports
14.9 Global Slowdown and India’s Trade
Indian exports and imports fell in line with global trade flows, firmly dismissing the decoupling myth for the Indian economy. Though India escaped the direct adverse impact of the recession of 2008-09, she did suffer the “second round” effects when the financial meltdown morphed into a worldwide economic downturn. Thousands of jobs were lost due to contraction in output in the exportable sectors and indirectly due to decline in output of the sectors, which provide inputs to the exportable sectors.
In terms of year on year growth rates, the export decline started from October 2008; imports started declining a little later, from December 2008. Before the crisis, India’s exports and imports had been growing robustly. The slowdown in India’s trade flows, however, started even prior to the post-Lehman crisis. Exports had begun to decelerate from June 2008 and import from September 2008 (Fig.14.5). This was the consequence of the tight monetary policy driven by inflationary concerns. These initial decelerations were pushed to the subsequent collapse by the global economic crisis.
Figure 24.5: Growth Rate of Exports & Imports
India’s exports registered a negative growth for 13 months since October 2008 till October 2009 and imports registered a negative growth for 12 months since December 2008 till November 2009. One of the core reasons for the sharp fall in India’s exports is the high income demand elasticity for exports which makes exports highly sensitive to GDP movements. India’s exports have been found to be more sensitive to income than to price changes. It is estimated that a 1 per cent decline in GDP growth of world will lead to 1.88 per cent decline in India’s growth of exports to world (UNCTAD 2009). The increased elasticity of world trade is due to the emergence of cross-border production and supply networks. Other factors through which exporters were hit hard were the sharp reduction in the prices of the major traded commodities. Thus, the decline in trade was a combined effect of both volume and price decline.
The decline in exports was mainly due to the decline in the exorts of engineering goods, petroleum products, gems & jewellery and iron & steel. Interms of markets the decline was mainly contributed by the decline of exports to E.U, U A E, U S A and Singapore.In case of imports the decline was on account of the decline in the imports of petroleum, petroleum products, capital goods, export related items like pearls, precious & semi-precious stones, fertilisers and transport equipments. In terms of market U A E, E U, Saudi Arabia, China, and U S A
The Indian policy response to the plummeting of its exports has been principally to provide fiscal incentives in the form of reduced import duties on imports needed for exports and raising the rates of duty drawback available to exporters. In addition, exporters have been given a two per cent interest rate subsidy on the refinancing of trade finance as well as for their working capital requirements. This may have helped in the slight recovery that is now being seen in the year on year data.
India’s recovery on export front started happening from November 2009 which further picked up in the month of March 2010. The momentum is likely to be maintained, though the shadow of the fresh financial crisis in Europe looms large over the future and export performance depends how the European crisis unfolds. European Union generally accounts for about a quarter of India's exports. The Indian government has set a target of $200 billion-worth merchandise exports for 2010-11 and wants to double the exports by 2014. Export target of $ 200 billion for 2010-11 set by government could be at stake if Euro Zone sovereign crisis are not prevented from spreading to larger part of European Union. The export products which are likely to be adversely affected include in areas of engineering, readymade garments, yarn, chemicals, oil seeds, electrical goods and leather.Imports would grow especially most of capital goods, components and power equipment as India’s economic expansion will continue to go on and it will remain a centre for larger economic activities. This will spur up demand and sustain the growth momentum.
Concluding observations
The post reform period witnessed significant changes in the trend, pattern and structure of India’s external trade. The assertion that trade liberalization would help diversification of the structure of exports and output in favour of manufactured good has not materialised. The change in the pattern of specialization in exports is, more or less in conformity with change in pattern of production. The share of manufacturing has marginally fallen in GDP and significantly fallen in the share of exports. The growth of services was more pronounced in GDP growth and is reflected in the increasing share of services in exports. While volume growth dominated export performance until 2002-03, there is an increasing contribution of higher unit values in the2000s as reflected in the net terms of trade.the hare of primary products has fallen in exports and that of petroleum products showed an increase. This increase in the share of petroleum products reflects the increasing refining capacity of the country. Another notable aspect of India’s recent export growth is the relatively poor performance of its past leading sector textiles. The fall in the share of textiles reflects the fact that India is not being able to get full benefits from the removal of the MFA. Another feature of India’s trade in the last two decades was the overwhelming importance of Asia and Oceania.
In the post reform, period imports grow at a fast rate than exports. The demand for imports is bound to increase due to the envisaged growth of the economy – raw materials, capital goods, components and energy. The opening up of import of a variety of consumer goods is also likely to add to the import basket. India has been also periodically required to depend on external sources mass consumption items like edible oils. Since the increase in imports noted above could have been due to relaxation of the import regime, and thus has been on the expected lines, and also because the commitments under WTO make the import policies virtually irreversible, the trade gap could only be dealt with by increasing India’s exports. Thus to sustain a higher rate of growth while keeping the current account deficits under control and to make Indian industry competitive, it is imperative to increase the country’s exports at a fast pace. Though India has been able to withstand the global slowdown with minimum damages, India will have to try and achieve a robust growth in its exports by expanding its share in major markets.High dependence on few markets and few exportable products may her vulnerable to any future slowdowns.
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