Exports serve to raise national GDP (gross domestic product) and people’s income. Goods imported for consumption and investment into productive capacities also need to be paid for. A nation prospers if goods/merchandise exports pay not only for imports but also generate a surplus in order to acquire foreign assets.
India’s goods exports in April-October 2023 were worth $244.89 billion, 7 per cent lower than exports worth $263.33 billion during the same period in 2022, and $147.06 billion (60 per cent) less than imports worth $391.96 billion (see table below).
The government has taken numerous measures to boost exports (production-linked incentive schemes, Make-in-India, and opening up FDI among others) and control imports (high import tariffs, promoting ethanol, renewable energy, and so on) to flip the equation.
India’s merchandise exports in 2019-20, the year just before COVID-19, were lower than exports in 2013-14. After two years of exports growth during 2021-23, merchandise exports are looking at decline and stagnancy in 2023-24.
Nothing seems to be working. Why?
Modi Government Has Done Poorly on Goods Export Front
In 2013–14, the year before PM Modi assumed office in May 2014, India exported goods worth $314.46 billion.
The Modi government's takeover coincided with India’s merchandise exports going down to an embarrassingly low of $262.29 billion in 2015–16. In 2018–19, the last year of first term of the Modi Government, India’s goods exports, at $330.07 billion, barely exceeded the 2013-14 exports, recording a measly growth of less than 1 per cent per annum.
In 2018-19, with India’s goods imports at $514.08 billion, exports were $184 billion (56 per cent) smaller than imports. The second term (2019-2024) also began on a dismal note. Merchandise exports went down to $313.36 billion in 2019-20, and further down to $291.81 billion in 2020-21.
Merchandise exports grew smartly in 2021-22, thanks to the global supply disruptions and fiscal stimulus packages in the US and Europe, to reach $422.01 billion. The year 2022-23 witnessed India’s highest merchandise exports at $450.43 billion, though the momentum slackened.
Going by the trend this year, India is likely to finish 2023-24 with exports at $425 billion, translating into an annual growth rate of 5.19 per cent during the second term of the Modi Government and 3.06 per cent for its 10 years.
Without doubt, Indian exports stagnated during the last 10 years.
Why are We Seeing Such an Outcome?
First of all, India’s foreign trade policy (FTP), inexplicably delayed, is quite unimaginative.
The five-year FTP was due on 31 March 2020. The government finally issued it on 31 March 2023; three years late. This FTP essentially reproduced the government’s existing schemes for export promotion and applicable procedures. There was no new or imaginative measure to promote exports.
The government identified e-commerce exports as a promising new category with a potential of $200 to $300 billion by 2030. A comprehensive new e-commerce policy, addressing its exports/imports, was promised. The policy has not materialised yet.
Production-linked incentive (PLI) schemes for large electronics, which include mobile phones, with an outlay of Rs 40,995 crore, and PLI for hardware, with an outlay of Rs 17,000 crore, were the Modi government’s big initiatives to promote electronics exports.
Electronics exports did grow from $8.83 billion in 2018-19 to $23.57 billion in 2022-23, with smartphone exports being worth $10.96 billion. The imports, however, grew in this period from $57.38 billion to $77.27 billion. While exports grew by $14.74 billion, imports increased by $19.89 billion. So, India ran a humungous trade deficit of $53.69 billion in electronics trades in 2022-23.
The government introduced the Merchandise Exports from India Scheme (MEIS) in 2015-16 (replaced with the Rebate of Duties and Taxes on Exported Goods scheme in January 2021) to provide turnover-linked export incentives. These schemes had no visible impact on merchandise exports. It is vouched by the fact that India’s export turnover in 2019-20 were lower than the exports in 2013-14.
Similarly, import control measures proved equally ineffective. The government wanted to cut down on the import of petroleum products, which constitute a big chunk of India’s total imports. Prime Minister Modi vowed in April 2015 to bring down India’s import dependence on petroleum products from 77 per cent to 67 per cent by 2022.
Instead, India’s import dependence went up to 83.7 per cent in 2018-19 and 87.3 per cent in 2022-23. Higher tariffs and a ban on many products imported from China, besides not permitting Chinese investment in India, did not result reducing in the merchandise trade gap with China. It went up instead.
Services Exports Should Be Our Primary Strategy
India has tremendous talent in human resources and services. Services exports have been booming, without any support from the government, because of the strength of their global competitiveness.
India’s services exports, $26.85 billion in 2003-04, grew to $151.81 billion in 2013-14, at a spectacular rate of 18.9 percent per annum. Services exports growth also decelerated in the first term of the Modi government. At $208 billion in 2018-19, services exports recorded an annual growth rate of 8.8 per cent. In the second term, services exports did accelerate to 11.83 per cent, with exports rising to $325.00 billion in 2022-23.
But this growth has been subdued in 2023-24 with the April-October exports of $191.97 billion recording a growth rate of only 5.82 per cent over exports of $181.42 in 2021-22.
The government has literally no scheme to support the export of services.
Services do not need government incentives. The sector only needs the government to create a conducive policy environment greater exports.
India Can Become Export Surplus Country
India ran a humungous merchandise trade deficit of $265 billion in 2022-23. The overall trade deficit was much lower at $122 billion, thanks to services trade surplus of $143 billion.
India’s trade policy and strategy should have two goals
Elimination of the overall trade account deficit by 2030
Generating merchandise trade surplus by the middle of the 2030s
Services exports growth, supported by exports of new services and immigration, eliminating policy cobwebs in data and electronics, and focusing on personal, environmental, and financial services, can wipe out merchandise trade deficit by 2030.
For this, India should secure significant concessions on services trade by offering concessions on import tariffs on the merchandise side besides allowing freer imports of technology and capital in major trade agreements with Europe, the UK, and the RCEP (Regional Comprehensive Economic Partnership) countries.
This makes India a competitive merchandise producer and exporter, besides giving a big boost to services export.
With all of this, India will have a decent chance to have a trade surplus in 2030 and a merchandise trade surplus in about 12-15 years from now.
(The author is a former Economic Affairs Secretary and Finance Secretary of India. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)
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