Unlocking India's Export Potential

India is focusing on export-driven growth to sustain its economic trajectory toward becoming a $20 trillion economy by 2047, emphasizing the crucial role of the import export business and import trade in achieving prosperity.

India’s ambition to become a developed nation by 2047 hinges on sustained economic growth, with the country targeting a $20 trillion economy and improved living standards. Central to this vision is a shift towards an export-led growth model, underpinned by the import export business and import trade. This strategy has the potential to not only create millions of jobs but also reduce the trade deficit and integrate India into global value chains.

Countries like China, South Korea, and Vietnam have proven that export-led growth can drive prosperity. With a significant labor force and growing industrial potential, India can attract global manufacturers, move beyond its dependence on services, and rise as a global manufacturing hub.

Driving Employment Generation

• Export-led growth has the potential to generate millions of jobs, particularly in labor-intensive sectors like textiles and pharmaceuticals.
• A growing emphasis on global markets creates ample employment opportunities, particularly for India’s young workforce, helping reduce both unemployment and underemployment.
• For instance, the production-linked incentive (PLI) scheme has significantly boosted the smartphone manufacturing sector.
• In FY23, India’s smartphone exports reached ₹90,000 crore, double the previous year, creating nearly 300,000 direct jobs and 600,000 indirect jobs.

Reducing Trade Deficit and Enhancing Foreign Exchange Reserves

• By focusing on increasing exports, India can reduce its dependency on imports, especially in high-demand sectors like electronics and renewable energy components.
• Growth in exports will narrow the trade deficit, strengthen foreign exchange reserves, and make the economy more resilient to external shocks.
• India’s merchandise exports surged by 6% to $447 billion in FY23, with significant growth in sectors like petroleum, pharmaceuticals, and chemicals, contributing to narrowing the trade deficit to $21.94 billion in December 2024.
• On the other hand, an enhanced focus on import trade diversification could help balance trade more effectively and secure better terms in global markets.

Integrating into Global Value Chains (GVCs)

• Export-driven manufacturing will integrate India into global value chains, enabling access to advanced technologies and international best practices.
• This integration will help Indian industries enhance their productivity and innovation, making them globally competitive.
• A notable example of this is the collaboration with Apple, with the company aiming to make India a central hub for iPhone production. Apple’s suppliers are expected to contribute 32% of global iPhone manufacturing by 2026-27.

Promoting Regional Development

• Export-oriented growth has the potential to drive industrialization across India’s Tier-2 and Tier-3 cities, decentralizing economic activity and reducing regional disparities.
• Manufacturing hubs in states like Tamil Nadu, Karnataka, and Uttar Pradesh are becoming engines of inclusive development.
• Tamil Nadu’s rise as India’s leading exporter of electronic goods in FY23, accounting for 30% of total electronic exports, highlights the growth of regional export hubs.

Boosting Technological Upgradation

• Export-driven sectors encourage companies to adopt cutting-edge technologies to maintain global competitiveness.
• This leads to technological upgradation and significant improvements in industry-wide productivity.
• India is the world’s largest exporter of generic medicines, driven by adherence to global standards and innovation in generics and biosimilars.
• The Serum Institute of India, the world’s largest vaccine manufacturer, exemplifies technological advancement, with an annual capacity of 4 billion doses.

Strengthening India’s Strategic Geopolitical Position

• Export-led growth enhances India’s global soft power and strengthens its economic diplomacy by fostering interdependencies with key trading partners.
• India’s trade agreements with ASEAN, Australia, and the UAE have been pivotal in strengthening economic ties.
• The India-Australia Economic Cooperation and Trade Agreement (ECTA) and the India-UAE Comprehensive Economic Partnership Agreement (CEPA) have contributed to robust trade relations, with India continuing to negotiate similar deals with the European Union and the United Kingdom.

Accelerating Green Growth and Sustainability

• Export-led growth in green technologies can position India as a leader in the global energy transition.
• Policies focused on renewable energy exports, including green hydrogen and solar energy, align with both economic and environmental goals.
• In 2023, India’s export of solar modules grew by 204%, reaching 4.8 GW, while the export of wind turbine components nearly doubled in revenue from 2019 to 2023.

Attracting Foreign Investments through Export-Oriented Growth

• Countries with strong export sectors are more likely to attract foreign direct investment (FDI), as multinational companies prefer economies integrated into global trade networks.
• India’s robust export-oriented sectors have played a pivotal role in boosting FDI, with the country recording the highest-ever FDI inflow of $83.57 billion in FY21-22.

High Logistics Costs and Poor Trade Infrastructure

• India’s logistics inefficiencies, compounded by outdated infrastructure, increase the cost of exports, making Indian goods less competitive in global markets.
• Challenges like limited container capacity, port congestion, and last-mile connectivity further add to logistical issues.
• Despite initiatives like the PM Gati Shakti Plan, India’s logistics cost-to-GDP ratio remains higher than the global benchmark of 8%.

Lack of Diversification in Export Basket

• India’s export basket is concentrated in a few sectors such as IT services, petroleum products, and gems and jewelry, leaving it vulnerable to sectoral downturns.
• Emerging sectors like green energy exports remain underdeveloped, while value-added exports from agriculture and textiles are limited.
• Petroleum products alone accounted for 21.1% of India’s total merchandise exports in FY23, underscoring the need for greater diversification.

Weak Integration into Global Value Chains

• India’s participation in global value chains remains limited, primarily due to inadequate supply chain networks and insufficient R&D investment.
• India’s textile sector, despite being the second-largest producer globally, lags behind countries like Bangladesh in terms of exports, partly due to structural differences in automation and innovation.

Trade Protectionism and Geopolitical Uncertainties

• Rising trade protectionism and tariffs pose significant challenges to India’s export potential, as many developed economies impose carbon tariffs and stricter environmental standards.
• Disruptions caused by the Russia-Ukraine war have further affected the supply of critical raw materials, exacerbating the challenges faced by Indian exporters.
• For instance, once fully implemented, the Carbon Border Adjustment Mechanism (CBAM) will impose a €173.8 per tonne duty on India’s steel exports to the European Union.

Limited Export Financing and Credit Accessibility

• Small and medium enterprises (SMEs) in India face significant challenges in accessing affordable export financing.
• High interest rates and complex lending processes, combined with a lack of awareness about export credit schemes, limit the growth potential of these businesses.
• Despite a growth in overall economic lending, export credit declined by 5% over the past two years, with priority sector lending for exports dropping by 41%.

Non-Tariff Barriers (NTBs) in Key Markets

• Non-tariff barriers such as strict quality standards and technical regulations in key markets like the EU and the US pose significant hurdles for Indian exporters.
• Over the last four years, 3,925 human food export shipments from India have been rejected at US customs due to non-compliance with sanitary and phytosanitary measures.

Volatile Global Demand and Recessionary Pressures

• Economic slowdowns and inflationary pressures in developed markets have reduced global demand for Indian exports.
• Sectors such as IT services and textiles are particularly sensitive to fluctuations in global economic conditions.
• India’s textile and apparel exports for FY24 declined by 3.24% to $34.4 billion, though recent improvements in demand are providing hope.

Modernizing Trade Infrastructure to Reduce Costs

• India must continue upgrading its logistics infrastructure to reduce export costs and improve efficiency.
• Expanding multi-modal transport networks through the PM Gati Shakti National Master Plan and improving port infrastructure will enhance trade facilitation.

Diversifying Export Basket and Markets

• India must move beyond traditional export items like petroleum products, IT services, and gems and jewelry to promote high-value manufacturing and processed goods.
• Focus on renewable energy, semiconductors, and electric vehicles will allow India to tap into emerging global markets.

Promoting MSMEs as Export Powerhouses

• Enhancing financial and technological support for MSMEs, which contribute nearly 45% to India’s exports, will empower them to scale globally.
• Linking government schemes like RAMP and TIES can provide MSMEs with the support needed to compete in international markets.

Enhancing Technological Upgradation in Manufacturing

• Indian industries need to adopt advanced manufacturing technologies, including automation, robotics, and artificial intelligence.
• Expanding the scope of PLI schemes to cover emerging sectors like precision machinery can incentivize modernization.

Strengthening Global Value Chain (GVC) Integration

• India must improve its position in global value chains by focusing on sectors like electronics, automotive components, and textiles.
• Encouraging joint ventures and creating manufacturing clusters will attract foreign investments and strengthen GVC integration.

Addressing Non-Tariff Barriers

• India must develop domestic testing, certification, and quality assurance mechanisms aligned with international standards.
• Mutual recognition agreements with key trading partners can help reduce compliance costs.

Expanding Digital Trade and E-Commerce Exports

• Capitalizing on the global e-commerce boom will enable Indian manufacturers to sell on international platforms and participate in digital trade.
• Initiatives like the Open Network for Digital Commerce (ONDC) can promote small businesses to reach global markets.

Strengthening R&D for High-Tech and Innovation Exports

• A higher allocation of GDP to R&D and the creation of export-focused innovation parks will help India compete in high-value global markets.

Establishing India as a Global Skill Export Hub

• India can promote itself as a hub for skilled labor, particularly in sectors like healthcare, IT, and construction, where labor shortages are prevalent in developed nations.

Creating Export-Linked Special Purpose Vehicles (SPVs)

• Export-specific SPVs can aggregate resources to scale sectors like green hydrogen or semiconductors, accelerating growth and reducing fragmentation.

Promoting Export of Space Technologies

• India’s space sector, with ISRO at the forefront, can capitalize on its low-cost space missions to establish itself as a major exporter of space technologies.

• Gujarat: Textiles, petrochemicals, and gems. Major hubs: Mundra, Kandla ports.
• Tamil Nadu: Automobiles, electronics, textiles. Key port: Chennai.
• Maharashtra: Pharmaceuticals, IT services, engineering. Key port: JNPT.
• Karnataka: IT services, aerospace, electronics. Bengaluru as an IT hub.
• Andhra Pradesh: Marine products, agro-exports, textiles. Key hub: Visakhapatnam.
• Rajasthan: Gems, jewelry, handicrafts. Notable hubs: Jaipur, Jodhpur, Udaipur.
• West Bengal: Jute, tea, leather. Key hub: Kolkata.
• Odisha: Minerals, steel, aluminum. Key port: Paradip.
• Assam & North-East: Tea, organic products, handicrafts. Key focus: ASEAN connectivity.

India is at a critical juncture, where export-driven growth, along with a strategic focus on import trade, can significantly transform its economic trajectory. By focusing on diversification, infrastructure modernization, and empowering MSMEs, India can enhance its export potential and position itself as a global economic powerhouse. With strategic initiatives targeting emerging sectors like green technology, space, and high-value manufacturing, India is poised to meet its ambitious goal of a $20 trillion economy by 2047.

• What is India’s Foreign Trade Policy (FTP)?
  A framework to boost exports, reduce trade deficits, and integrate with global supply chains. FTP 2023 focuses on ease of doing business and sectoral incentives.

• What is the share of agriculture, manufacturing & services in India’s GDP?

  • Agriculture: ~18%
  • Manufacturing & Industry: ~28%
  • Services: ~54% (Economic Survey 2023-24)

• What is the China Plus One strategy?
  A strategy where companies reduce dependence on China by diversifying production. India benefits via PLI schemes, infrastructure upgrades, and investment incentives.

1. How would the recent phenomena of protectionism and currency manipulations in world trade affect macroeconomic stability of India? (2018/15M)
2. In a globalized world, intellectual property rights assume significance and are a source of litigation. Broadly distinguish between the terms – copyrights, patents and trade secrets (2014/12.5M)

With reference to the Indian economy, consider the following statements: (2022)

1. An increase in Nominal Effective Exchange Rate (NEER) indicates the appreciation of rupee.
2. An increase in the Real Effective Exchange Rate (REER) indicates an improvement in trade competitiveness.
3. An increasing trend in domestic inflation relative to inflation in other countries is likely to cause an increasing divergence between NEER and REER.

A. 1 and 2 only

B. 1 and 2 only

C. 1 and 3 only

D. 1, 2 and 3

Consider the following statements regarding the Agreement on Trade-Related Investment Measures (TRIMs): (2020)

1. It applicable to both goods and services.
2. Local content requirement is part of TRIMS.

Which of the above given statement is/are correct?

A. 1 only

B. 2 only

C. Both 1 and 2

D. Neither 1 nor 2