Observations on India’s External Trade for the Financial Year 2023-24
- In Economics
- 06:21 PM, Apr 18, 2024
- Mukul Asher
The Context
India’s 2023 FTP (Foreign Trade Policy) had set a very ambitious goal of achieving India’s exports of USD 2000 billion by 20301.
India hopes to progress towards this ambitious target when global growth (Figure 1) and global productivity growth (Figure 2) are likely to remain subdued.
Figure 1: Global Growth Prospects Not Promising
In addition to geo-political tensions, and geo-strategic realignments, the relationship between external trade and economic growth (trade elasticity of growth) is also not exhibiting the previous level of robustness. There is widespread adoption of industrial policies, including by India. Global inflation, while moderate, has an upward bias. There is volatility and uncertainty regarding global energy prices. The global environment therefore is not very conducive to achieving the 2023 FTP’s trade goals which require double-digit growth in exports.
It is in the above global context, that an overview of India’s 2023-24 external trade performance is undertaken in this column.
Figure 2: Subdued Global Productivity Growth
Figure 3: India’s Overall Trade in Merchandise and Services During FY 2023-242
Figure 3 suggests that India’s total exports were essentially constant in 2023-24 (USD 777 billion) over the previous year. This was 2.39 percent of total global trade of 32.5 trillion in 2022. The 2023-24 exports were little less than two-fifths of the target set for 2030.
India’s imports in 2023-24 declined by USD 43 billion over the previous year to USD 855 billion (about 2.6 percent of the global total). India’s presence in global trade is modest currently. India’s overall trade in 2023-24 was thus USD 1753 billion. Given the global environment outlined above, this is a reasonable performance.
Figure 3 suggests that in 2023-24, India’s overall trade deficit was USD 78 billion, a manageable level considering India’s GDP is approaching USD 4000 billion.
A notable feature of India’s external trade is while globally, services account for around a quarter of global exports, their share in India’s exports is nearly 44 percent. Thus, merchandise-based trade analysis, which is usually the norm due to better data availability, does not accurately reflect India’s global integration.
Figure 4: India’s Merchandise Trade During FY 2023-243
Figure 4 provides aggregate data on India’s merchandise trade. India’s exports in 2023-24 at USD 437 billion declined slightly over the previous year. The merchandise trade deficit in 2023-24 was USD 240 billion, somewhat lower than USD 265 billion in 2022-23.
The main contributors to merchandise exports were Electronics Goods (USD 29 billion); Drugs and Pharmaceuticals (USD 28 Billion); and engineering Goods (USD 109 billion). These sectors benefitted from targeted governmental support, including the Production Linked Incentive (PLI) scheme, which has enhanced manufacturing capabilities and global competitiveness.
Figure 5: India’s Services Trade during FY 2023-244
Figure 5 provides data on India’s services trade. India’s services trade in 2023-24 at USD 340 billion increased marginally by four percent over the previous year. As has been the trend for some years, India’s services trade showed a health surplus of USD 162 billion in 2023-24, helping to keep the overall trade deficit within manageable limits.
Overall good performance of services exports does not reveal India’s very modest performance in export of travel, transportation, and good related services. Over four-fifths of its service exports are from the category “other commercial services.”5
Figure 6: India’s Trade excluding Petroleum and Gems & Jewellery during FY 2023-246
Figure 6 provides data on India’s external trade excluding petroleum and gems and jewellery products. It exhibits a marginal increase in exports, and a small decline in imports, resulting in a trade deficit of USD 103 billion. It is useful to examine trade performance excluding these two product categories as it is the rest of the categories which are the focus of public policy.
Select Initiatives to Diversify and Accelerate Exports
Besides continuing with the process and structural reforms, India is taking many initiatives in diverse areas to increase and accelerate its exports of merchandise as well as services. Modernisation of traditional areas such as textiles, pharma, railways, steel, and automobiles is being undertaken with a view to becoming more export competitive. If the current government led by Prime Minister Modi is reelected in June 2024, both the scope and the scale of reforms aiming for transformation to progress towards the goal of Viksit (developed) Bharat by the end of Amrit Kaal in 2047 will be initiated. Thus, India is making efforts to reach the ambitious export goal set for 2030.
Only select examples, mainly focusing on emerging areas, are given below.
- Défense Sector: There has been a long-overdue mindset and behavioural change among the Indian policymakers towards the willingness to demonstrate power when necessary; toward Atmanirbharta (self-reliance in a broader sense) in the defence sector; and in willingness to be a player globally in export of items from the defence sector. This is a relatively recent phenomenon and will take some time to produce results.
It is reported that India’s defence exports witnessed a significant surge in 2023–24, reaching INR 211 billion (USD 2.6 billion). The 2024-25 target is INR 350 billion (USD 4.2 billion. India is to deliver Brahmos BrahMos supersonic cruise missiles to the Philippines, two years after the two countries signed a deal worth almost $375 million to equip the Philippine Marines with three batteries of the missiles.
India is currently exporting military hardware to more than 85 countries, with around 100 domestic firms involved. The hardware includes missiles, artillery guns, rockets, armoured vehicles, offshore patrol vessels, personal protective gear, a variety of radars, surveillance systems and ammunition7.
The role of the private sector in providing competition to the public sector defence firms (who are rapidly enhancing their own capabilities) is a positive sign, improving India’s global competitive position in this sector. In the future, greater joint ventures between the private and public sectors can be expected.
India’s pursuit of Atmanibharta in the defence sector has moderated imports of defence products, though in absolute terms, India will continue to be a major importer.
MEA (Ministry of External Affairs) has provided a line of credit to African countries to purchase weaponry and military platforms from India. India’s embassies are also being roped in to promote defence exports from India, an additional fillip for dealmaking.
The standout feature from the latest export data is that India’s private sector has been the source of 60% of all defence exports, with defence PSUs (Public Sector Undertakings) accounting for the remaining 40% this year. This is significant to the extent that defence PSUs in the Indian military-industrial complex has traditionally been privileged, in terms of government support8.
The Indian government has launched ‘Innovations for Defence Excellence’ (iDEX), geared to fostering an ecosystem that generates innovation and stimulates the development of technologies through tie-ups with academia, R&D institutions, startups, and industry.
The Chairperson of India’s DRDO (Defence Research & Development Organisation) has stated that the aim of the DRDO is to make India the global leader in futuristic defence technologies.
United Kingdom sent two Royal Fleet auxiliary ships arriving in March 2024 at the L&T Kattupalli shipyard for maintenance. This is the first time the Royal Navy vessels sought maintenance in India, indicating progress in the UK-India 2030 Roadmap, which reflects the two nations’ commitment to a secure Indian Ocean.
Three shipyards in India have obtained approval from the United States Navy for ship repair facilities9.
There has been a groundbreaking partnership between India and the United States in jointly producing fighter jet engines for the Indian Air Force.
The above brief analysis suggests that the Defence sector has the potential to accelerate India’s exports.
- Space Sector: India aims to increase its share of the space market, currently around USD 400 billion, from 2 percent to 9 percent by 2030. To achieve this aim, ISRO (India Space Research Organisation) is opening its infrastructure and facilities; enabling and promoting non-government entities to undertake independent space activities; transferring technologies to industries; and creating an environment conducive to space sector research and innovation10.
India has recently permitted 100% foreign direct investment in the manufacture of satellite systems without official approval and eased the rules for launch vehicles11.
- Electronics Sector: India is in the early stages of developing globally competitive capabilities in the electronics sector. In 2023-24. India’s electronic sector exports were about USD 29 billion. Apple’s iPhone exports from India alone were around USD 12 billion.
Recent developments in this sector include, Tesla has reportedly entered into a strategic agreement with Tata Electronics to source semiconductor chips for its worldwide activities.
Tata Group is also in collaboration with Taiwan's Power chip Semiconductor Manufacturing Corporation (PSMC) to establish a cutting-edge plant in Gujarat's Dholera. PSMC's chairman, Frank Huang, has confirmed that the inaugural semiconductor chip from this partnership will be ready by the end of 2026.
While advanced chip manufacturing is a priority for countries like the US, South Korea, and Japan, India is strategically focusing on legacy chips. These chips, produced with 28-nanometer (nm) technology or larger, account for nearly 95 percent of global semiconductor consumption, driving everyday applications from weapon systems to smartphones. India's strategic focus on this segment is likely to yield results in relatively less time12.
- Others: India is also undertaking reforms to enhance resilience and leverage its external sector engagement. As an example, India aims to nearly eliminate the import of urea as an input in fertiliser. At present, the gap between annual domestic production and demand is currently around 40 lakh tons, and this gap is to be closed by new production facilities13.
India is using its competitiveness in the digital economy to expand markets for many regions and locations in India. India is focusing on meeting Stringent Sanitary and Phytosanitary (SPS) standards of global markets to expand its fruits, vegetables, and horticulture products; while modernising the food processing industry.
The Gujarat Cooperative Milk Marketing Federation (GCMMF), which owns the Amul brand, is collaborating with the Michigan Milk Producers Association (MMPA) to distribute fresh milk in the US market. This is an important diversification of dairy products in an Indian form.
Concluding Remarks
Indian policymakers are determined to use external trade as one of its major nodes of economic growth to emerge as a viksit (developed) Bharat by 2047. Wide-ranging initiatives to meet the target are underway as examined in this column. India is expected to perform creditably regarding its external sector.
However, the global environment is not conducive to achieving USD 2000 billion in exports (current position is only 40 percent target achievement) by 2030. Thus, this target is better termed aspirational.
India could consider sector and sub-sector level targets, with strategies for each geography to reach as close as possible to the 2030 target. Accountability for the export performance also needs to be set, including involving India’s diplomatic missions, with the provision of appropriate resources, including staffing levels, and augmenting their commercial and economic competence.
References
- https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1912572-Accessed on 12 April 2024
- https://pib.gov.in/PressReleseDetailm.aspx?PRID=2017942#:~:text=India's%20trade%20deIndi’s total imports deficit%20has%20shown,decline%20of%20(%2D)%2035.77%20percent-Accessed 16 April 2024
- https://pib.gov.in/PressReleseDetailm.aspx?PRID=2017942#:~:text=India's%20trade%20deficit%20has%20shown,decline%20of%20(%2D)%2035.77%20percent-Accessed 16 April 2024
- https://pib.gov.in/PressReleseDetailm.aspx?PRID=2017942#:~:text=India's%20trade%20deficit%20has%20shown,decline%20of%20(%2D)%2035.77%20percent -Accessed 16 April 2024
- https://www.wto.org/english/res_e/publications_e/trade_profiles23_e.htm -Accessed on 17 April 2024
- https://pib.gov.in/PressReleseDetailm.aspx?PRID=2017942#:~:text=India's%20trade%20deficit%20has%20shown,decline%20of%20(%2D)%2035.77%20percent-Accessed 16 April 2024
- https://www.hindustantimes.com/india-news/india-set-to-begin-delivery-of-brahmos-missiles-to-philippines-101706187940193.html -Accessed on 12 April 2024
- https://www.orfonline.org/research/indias-defence-exports-continuing-defence-reforms-is-critical-Accessed on 17 April 2024
- https://maritime-executive.com/article/third-indian-shipyard-wins-u-s-navy-approval-for-ship-repairs-Accessed on 17 April 2024
- https://static.pib.gov.in/WriteReadData/specificdocs/documents/2022/nov/doc20221125136001.pdf-Accessed on 17 April 2024.
- https://www.weforum.org/agenda/2024/02/india-space-sector-foreign-investment/-Accessed on 12 April 2024
- https://swarajyamag.com/infrastructure/tata-tesla-deal-a-game-changer-for-indias-semiconductor-ambitions-Accessed on 17 April 2024
- https://www.indiainfoline.com/news/economy/india-plans-to-cease-importing-urea-by-the-end-of-2025-Accessed on April 12 2024
Image source: Trade Promotion Council of India
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