Over the last five years, India’s merchandise exports underwent significant changes in terms of composition and destinations. In this chapter, we discuss India’s export target for FY09, state the emerging commodity groups, their contributions and their prospects in India’s merchandise exports and also explore the emerging export destinations that have demonstrated strong growth in the last couple of years and have huge opportunities in store for India. Additionally, we also take up the various issues that Indian exporters have been facing of late.

During FY97 to FY07, India’s contribution to world trade has gone up considerably from 0.5% to around 1.1%, underlined by several milestones. India’s merchandise exports started accelerating since FY03 (in US dollar terms) and grew at a CAGR of 24.9% during FY04-08; in fact, this growth rate was much higher than the global merchandise export growth of 16.1%. The Indian government plans to raise its merchandise exports to US$ 200 billion by FY09 from US$ 155.5 billion in FY08, which translates into a growth of 28.6%.

Foreign direct investment (FDI) has also been playing a role in the country’s buoyant merchandise exports. FDI reached US$ 20.1 billion during Apr-Feb 2007-08, as against US$ 11.9 billion in the same period during the previous year. These foreign funds invested heavily in sectors such as telecom, power, seaport, road, airport development to ensure quality infrastructure for better export performance. The cumulative FDI inflows since April 2000–February 2008 in few infrastructure development sectors was as follows: telecom - US$3.8 billion, power - US$1.7 billion, construction activities - 1US$ 3 billion, seaports - US$ 0.8 billion, and air transport - 2US$ 0.21 billion.

India’s exports are expected to accelerate in future, taking into account the growing numbers of approved, in-principle and notified SEZs in the country. As on March 27, 2008, there were 453 (of which 246 valid approvals) approved SEZs, 136 in-principle and 207 notified SEZs, which once operational are expected to boost India’s merchandise exports. It is to be noted that in FY07, exports from 19 functional SEZs stood at Rs 347.9 billion and during April-December 2007-08 they reached Rs 400 billion. It is estimated that exports from SEZs would reach Rs 1,246.8 billion by FY09.

Ships, boats and floating emerges as fastest growing commodity group

Emerging commodities are defined as the high export potential commodity groups that have been witnessing robust growth over the last five-six years and which have a substantial share in India’s total exports. India’s 18 emerging commodity groups accounted for more than 55% of India’s total merchandise exports in FY07, up from 39% in FY02, thereby indicating their rising significance in India’s export basket.

Ships, boats and floating (US$ 1 billion) was notably the fastest-growing commodity group among the 18 emerging commodity groups, as it grew at a CAGR of 94.7% during FY02-07. As per UN Comtrade, global exports of this commodity group was around US$ 81.8 billion in 2006, of which India’s share was just 1.3%.

Similarly, ores slag and ash (Under the HS Code 26) also registered an overwhelming growth over the last five years. In 2006, global exports of this commodity group stood at US$ 85.1 billion, with Australia being the largest exporter with a 22.3% share, followed by Chile at 16.8%, Brazil at 11.5%. Again India had a nominal share of 5.7% of the total export in this group. India has tremendous scope to raise its share in global exports of all these commodity groups, provided it takes steps to boost its production in these categories.

Emerging destinations

India’s 21 emerging exporting countries have been listed in the table below. These countries have been growing strongly in the last five years and their share in India’s merchandise exports has gone up from 23.5% in FY02 to around 27.8% in FY07. Of all the 21 countries, India’s exports to Yemen Republic has seen the most impressive growth of more than 100% in FY07 as compared to last year. For instance, exports of mineral fuels, mineral oils and waxes (Under the HS Code 27) recorded a y-o-y growth of 55% and constituted almost 74% of India’s total exports to Yemen Republic. Even exports to Pakistan grew phenomenally at a y-o-y growth rate of almost 96%, driven by sugar, organic chemicals and cotton exports, which together constituted over 62% of the total exports to Pakistan.

Kenya was another country that showed a tremendous growth in imports from India. Kenyan imports of mineral fuels, mineral oils and waxes (Under the HS Code 27) comprised almost 63% of India’s total exports to Kenya in FY07, which increased by around 26% y-o-y.

Among the three focus regions identified by the Indian government (CIS, LAC and Africa5), Africa accounted for the highest share of 6% in India’s total exports in FY07, followed by LAC with 3% and CIS at around 1%. Moreover, the Indian government has identified certain sectors such as agriculture, handlooms, handicraft, gems and jewellery, leather, marine, electronics and IT hardware manufacturing industries and sports goods and toys sectors for special focus and initiatives.

Promising commodity groups for exports

The table below indicates commodity-wise imports of the 15 emerging countries. These commodities’ combined imports of US$ 1,756.8 billion (in all the 15 emerging countries) accounted for almost 14.2% of the total global imports in 2006. Hence, India has ample opportunity to exploit these groups.

India has enormous potential to export certain commodities in the 21 emerging countries, as its export share in these countries is relatively low in the selected commodities. [India’s share in some of these commodities is as follows: electrical machinery, equipment, sound recorder (1.3%); nuclear reactors, boilers, machinery and mechanical appliances (1.5%) and vehicles other than railway tramway railway stock (1.6%).]

The total import of mineral fuels, oils, waxes, bituminous by the emerging countries constituted around 22.7% of the total imports of 18 emerging commodities in 2006. Korean Republic was the largest importer in this commodity group with a share of 21.7%.

In 2006, nuclear reactors, boilers, machinery and mechanical appliances constituted almost 19.6% of the total commodities imported by these emerging countries. Out of all the emerging countries, France was the major importer. However, India’s export to France in this category was at a negligible 0.12%.

In 2006, electrical machinery, equipment, sound recorders, television image comprised almost 17.8% of the total imported commodities. Of all the emerging countries importing this commodity, Korean Republic was the leader, as it was the largest importing country with a share of around 16.8%. However, India’s share in Korea’s imports in these segments was a negligible 0.03%.

Vehicles other than railway tramway railway stock, parts and accessories accounted for almost 13% of the total commodities imported by the emerging countries during the year. Canada was the largest importer of these commodities with a 26.2% share. India’s share in Canada’s imports of these commodities was barely 0.02% in 2006, underlining the huge potential that is unexplored in these countries.

India’s merchandise exports – The way forward

India’s total trade of merchandise goods, including import and export, reached almost US$ 400 billion in FY07, accounting for 1.5% of world trade. In recent times, the total trade in goods and services constituted around 44% of India’s GDP, which was a milestone in India’s recent economic progress. Over the last four years, booming trade has generated around 13.6 mn employment opportunities in the country. However, in order to achieve higher trade activities, the Indian government needs to take initiatives to boost indigenous capabilities through high R&D investments and through development of information and technology, knowledge corridors etc.

Moreover, the country needs to face some challenges that could erode India’s impressive growth in the global market. Continuous Rupee appreciation against the US dollar is one such challenge; in fact, the Rupee grew by 7.33% (during April 03, 2007 to March 31, 2008), which is substantial. The challenge seems more noteworthy as majority of our external trade is invoiced in US Dollar and any fluctuation in exchange value has an impact on exporters, importers, borrowers, lenders etc. Besides, inadequate infrastructure (road, seaport, air transport), is another key constraint for booming trade, especially because seaports handle more than 95% of India’s trade (in volume terms).

Additionally, the continuous rise in inflation in India, has forced the Indian government to impose certain export restrictions on few commodities such basmati rice, non-basmati rice, edible oils, pulses, and cement, which are likely to effect its merchandise exports in future.

Despite the continuous appreciation in Rupee and transaction costs, India’s merchandise exports in US Dollar terms grew by 23% during Apr-Mar 2007-08 at US$ 155.5 billion (provisional), whereas in Rupee terms, it grew by only 9.4%. Therefore, in order to achieve the target of US$ 200 billion by FY09, the Indian government is taking several initiatives such as swift tax refund, interest subsidies, export tax bonanza to boost exports. As per the recent advanced estimates by CSO, the Indian economy is expected to grow by 8.7% in FY08. Hence, merchandise exports have a great role to play to help the country sustain a growth rate of over 9% in future.