India’s Leading Exporters - Overview of India’s merchandise exports

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PREFACE \| FOREWORD \| EXECUTIVE SUMMARY \| METHODOLOGY \| KEY HIGHLIGHTS \| TRENDS IN COMODITY EXPORTS
OVERVIEW OF INDIA'S MERCHANDISE EXPORTS\| FUTURE OUTLOOK\| COMPANY LISTING\| EDITORIAL TEAM\| LAUNCH EVENT\| SPONSORS

With the advent of globalisation and subsequent opening up of trade, the international trade pattern has acquired a new shape across geographies and India is no exception. An increase in both economic and trade liberalisation paid off well for India, as its trade to GDP ratio more than doubled from 13.1% in 1990 to 32.6% in 2006. We foresee this growth trend to continue in the coming years. In this chapter, we provide an overview of growth in Indian exports in dollar terms over the last five years and also give an account of India’s share in world trade. The chapter not only gives a detailed account of ‘product group-wise’ export share in the total merchandise exports from India but also of the leading destinations for India’s exports.

Global economy witnessed a moderate growth of 3.6% in 2007, as compared with 3.9% in 2006 (World Bank). However, several developing economies, such as India, China and Brazil, witnessed robust growth during the year. The Indian economy, for instance, witnessed a healthy growth rate of 8.8% during FY05-07. Also, its domestic economy reached higher echelons in the competitive global market as its merchandise exports grew by an average of 24.9% in the last five years. However, during FY08, India’s merchandise exports grew by 23% at US$155.5 billion, against the set target of US$160 billion, largely due to rupee appreciation by more than 7.3% during the financial year.

World exports

The global growth rate of real merchandise exports dipped from 8.0% in 2006 to 5.5% in 2007 as per the provisional data released by the World Trade Organisation (WTO) due to slowdown in economic activities, primarily in developed economies. Nevertheless, world trade in dollar terms grew by 15.4% at US$ 13.6 trillion during the same period. Among all exporting nations, Germany was the frontrunner, accounting for 9.8% of the total global exports, followed by China at around 9.0%, the US at 8.6%, and Japan at 5.3%. While China displaced the US to become the second largest exporting country in the world in 2007, India accounted for 1.1% of the total merchandise exports.

The global commercial services exports reported a growth of around 20% in 2007 at US$3.3 trillion. The US continued to lead the global commercial services exports with 13.9% share, followed by the UK at 8.0% and Germany at 6.0%. India’s share stood at 2.5% and was primarily attributable to the booming IT-ITeS sector.

India’s merchandise exports

In the post-reform period, India’s merchandise exports witnessed unprecedented growth and contributed significantly towards the country’s overall economic development. In FY07, India’s merchandise exports contributed around 14% to its GDP; in terms of US dollars, it grew by 23% to US$155.5 billion in FY08. In fact, its merchandise exports grew at a CAGR of 24.9% between FY04-08. The chart given below indicates the trend of India’s merchandise exports in the past five years.\

Commodity group-wise export contribution

In FY07, chemicals, engineering and minerals & metal product groups1 together contributed over 56.5% to the total merchandise exports, up from around 40.0% in FY03. This growth was largely due to chemicals and allied products, whose share in India’s merchandise exports shot up from 19.0% in FY03 to 27.9% at US$ 35.3 billion in FY07.

Chemicals and pharmaceuticals, including petroleum products, formed the largest product group in India’s merchandise exports in FY07 and grew at a CAGR of 36.9% during FY03-07. While petroleum products contributed 52.6% of these exports, basic chemicals, pharmaceuticals and cosmetics together contributed around 29.6% of merchandise exports. In FY07, while the US accounted for 11.6% of the total organic chemicals exports, China was second with around 9.0%.

Engineering goods was the second-largest product group in India’s export basket in FY07 and contributed around 14.9% of the total merchandise exports at US$ 18.8 billion. Moreover as this sector grew at a CAGR of around 37.1% in the same period, it demonstrated India’s growing significance as an engineering outsourcing destination across the world, especially for transport equipment, which alone grew at a CAGR of 38.5% during FY03-08.

In FY07, India’s IT-ITeS exports grew by 33% to US$ 31.8 billion against the previous year and contributed a major share towards India’s service exports. While IT services accounted for around 57.5% of the IT-ITeS exports, ITeS-BPO accounted for 26.8% and engineering services and R&D, software products accounted for the rest.

India’s top 10 export destinations

The US has traditionally been India’s leading export destination and in FY07 also it accounted for as much as 14.9% of the total merchandise exports worth an estimated US$ 18.9 billion. Even though the US share in India’s merchandise exports dwindled from 20.7% in FY03 to 14.9% in FY07, in value terms it increased from US$ 10.9 billion to US$ 18.9 billion. This was also an indication of India’s growing preference for trading with other emerging markets by diversifying its product group and improving its quality etc. The UAE, which is India’s second-largest export market, accounted for 9.5% of its total exports in FY07 (in FY03, UAE accounted for 6.3%). The spurt in exports to the UAE can be largely attributed to rise in exports of mineral fuels, mineral oils and products (Under the HS Code 27), which constituted almost 30.4% of the total exports to the UAE. It is to be noted that the UAE is an important market for re-export in the entire Middle East region and in 2005, its total re-export was as high as US$ 26.4 billion.

India’s exports to China have also seen rapid growth from just 3.7% in FY03 to 6.6% in FY07. Similarly, India’s export share to Singapore has gone up from around 2.0% in FY01 to 4.8% in FY07. This underscores India’s growing export focus on Asian countries.

India’s share in the above mentioned countries’ imports was quite low in 2006. For instance, Germany’s total import stood at US$ 922.2 billion, of which France accounted for an 8.5% share, highest among other destinations, followed by the Netherlands at 8.3%, China at 6.8%. However, India’s share was fairly low as compared with these nations at 0.6%. Likewise, China’s total imports in the same period was around US$ 791.5 billion, with Japan being its leading exporter, accounting for a 14.6% share, followed by the Republic of Korea at 11.3%. Incidentally, India accounted for just 1.3% of China’s total imports. Considering all these factors, it seems critical for the Indian government to boost its share in these countries’ import baskets. In such an endeavour, the domestic output would be a major determinant, especially that of the manufacturing sector.