Growing Challenges on India’s Export Front

Syllabus: Economy

Source:  EPW

Context: India’s merchandise exports face major challenges as the US imposed a 50% tariff on a substantial share of exports, threatening stagnation in its largest market (≈20% share). This comes at a time when India’s global export share has stagnated despite earlier gains.

About Growing Challenges on India’s Export Front:

Historical Trends in India’s Export Competitiveness:

• Early Gains (1990s–2010):
  • Exports as a % of GDP rose from 7.1% in 1990 to 20.4% in 2010.
  • Both merchandise and services contributed, supported by globalisation and reforms.
• Reversal and Stagnation (2010–2024):
  • Share fell to 17.7% by 2020, recovering marginally to 21.2% in 2024, almost at 2016 levels.
  • India’s global merchandise share rose from 0.51% (1990) to 1.81% (2024) — most gains front-loaded in the first two decades.
• Sectoral Performance:
  • Agriculture: rose from 0.85% (1990) → 2.22% (2024).
  • Fuel & Mining: sharp jump, 0.32% → 2.62% (led by petroleum).
  • Manufacturing: tripled to 1.73%, still lagging; textiles (5.77%), pharma (2.56%) and steel (2.64%) remain bright spots.
• Services Outperforming Goods:
  • Share of global services exports: 2.9% (2010) → 4.2% (2024).
  • IT-BPM, telecom, business services dominate; other services remain weak.

Structural Challenges:

• Tariff Shock from US:
  • 50% tariffs weaponise trade, undermining WTO norms.
  • Will likely depress India’s most buoyant market, compounding global slowdown effects.
• Competitiveness Erosion:
  • Declining merchandise share indicates structural inefficiencies.
  • Rising costs, poor logistics, regulatory complexity constrain exports.
• Over-Dependence on Services:
  • Services exports share is double that of goods.
  • Narrow base: IT/ITES dominate; construction, telecom and business services contribute ≈40%.
• Narrow Manufacturing Depth:
  • Few competitive sub-sectors (textiles, pharma, steel, chemicals, telecom equipment).
  • Most high-value industries (electronics, precision machinery, advanced materials) remain underrepresented.
• Global Headwinds:
  • Protectionism, tariff & non-tariff barriers, reshoring/nearshoring trends.
  • WTO’s weakened dispute settlement reduces recourse for India.

Initiative taken so far:

• Export Promotion Mission (EPM): Flagship 2025 initiative with sector-specific programs like Niryat Protsahan (easy credit for exporters) and Niryat Disha (market access, branding, logistics).
• RoDTEP Scheme: Refunds hidden central, state, and local taxes on exports; expanded in 2025 to cover steel, pharma, and chemicals, including DTA units.
• Simplified EPCG Scheme: Allows duty-free import of capital goods for export production; 2025 reforms eased compliance, deadlines, and fees for struggling sectors.
• BHARATI Initiative for Agri-Food Exports: APEDA’s 2025 program to incubate 100 agri-food startups, integrating AI quality checks and blockchain traceability for export readiness.
• E-Commerce Export Hubs: Creates hubs with warehousing, customs clearance, and logistics support; higher courier export threshold benefits MSMEs and small sellers.

Implications:

• Economic Growth: Export stagnation will drag GDP, already heavily reliant on domestic demand.
• Employment: Weak manufacturing exports stall job creation in labour-intensive industries (textiles, leather, light engineering).
• Balance of Payments: Rising import bills (energy, electronics) without robust exports threaten external stability.
• Geopolitical Leverage: Shrinking trade share weakens India’s bargaining power in global trade negotiations.

Way Forward:

• Strengthen Competitiveness of Manufacturing:
  • Improve logistics (reduce cost from 13–14% of GDP to global benchmark 8%).
  • Ease compliance, integrate into global value chains (GVCs).
  • Focus on electronics, EVs, green tech, semiconductors.
• Diversify Export Markets:
  • Reduce dependence on US/EU by expanding to Africa, Latin America, ASEAN.
  • Leverage FTAs (UAE, Australia, UK under negotiation).
• Deepen Services Diversification:
  • Beyond IT, strengthen healthcare, tourism, education, financial services, creative industries.
• Policy & Institutional Support:
  • WTO reform advocacy; parallel bilateral/multilateral pacts.
  • Incentivise R&D, quality upgradation for MSME exporters.
• Agriculture & Fuels:
  • Enhance agro-processing exports, value addition in petrochemicals.
  • Move from raw commodities to branded, processed products.

Conclusion:

India’s exports face weak merchandise growth and falling global share, showing both external shocks and domestic competitiveness loss. Strengthening manufacturing, diversifying markets, and expanding services are key to regaining export momentum.