Learning objectives: This chapter intends to guide you to move into this highly lucrative business
Indian exports have grown at a robust annual average rate of 21.3% in the last decade between 2003 and 2013; the average value of exports rising from USD 52.7 billion in 2003 to 300.2 billion in 2013. Exports have come to be regarded as an engine of economic growth in the wake of liberalization and structural reforms in the economy.
1.1 EXPORTS FROM INDIA Over the six and half decades since independence, the country has brought about a landmark agricultural revolution that has transformed the nation from chronic dependence on grain imports into a global agricultural powerhouse that is now a net exporter of food. India exports several agricultural products such as Basmati rice, wheat, cereals, spices, fresh fruits, dry fruits, buffalo meat, cotton, tea, coffee and other cash crops particularly to the Middle East, Southeast and East Asian countries. It earns about 10 percent of its exports earnings from this trade.
The state of Gujarat has become a hub for the manufacture and export of pharmaceuticals and APIs. The industry is expected to double from its 2012 levels to US$55 billion by 2020, according to a McKinsey report. Engineering industry in India is the largest sub-sector of its industry GDP and is one of three largest foreign exchange earning sectors for the country. It includes transport equipment, machine tools, capital goods, transformers, switchgears, furnaces, cast and forged simple to precision parts for turbines, automobiles and railways. India s engineering industry sector exported $67 billion worth of engineering goods in 2013-14 fiscal year, as well as served part of the domestic demand for engineering goods.
The engineering industry of India includes its growing car, motor cycle and scooters industry, as well as productivity machinery such as tractors. India is the world s largest producer of and the largest market for tractors accounting for 29% of worlds tractor production in 2013. India is the 12 th largest producer and 7 th largest consumer of machine tools in the world.
Ludhiana produces 90% of woolens in India and is known as Manchester of India. Tirupur has gained universal recognition as the leading source of hosiery, knitted garments, casual wear and sports wear. Expanding textile centers such as Ichalkarangi enjoy one of the highest per capita incomes in the country. India s cotton farms, fiber and textile industry provides employment to million people in India.
India s services sector has the largest share in GDP, accounting for 57% in 2012, up from 15% in 1950. It is the 12 th largest in the world by nominal GDP and fourth largest when purchasing power is taken into account. The services sector provides employment to 27% of the work force.
Since 2000,Indian companies have expanded overseas, investing FDI and creating jobs outside India, Since liberalization, the value of India s international trade has increased sharply with the contribution of total trade in goods and services to the GDP rising from 16% in 1990-91 to 47% in 2008-10.
India accounts for 1.44% of exports and 2.12% of imports for merchandise trade and 3.34% of export and 3.31% of imports for commercial services trade worldwide. India s major trading partners are the European Union, China, USA & UAE. In 2006-07, major export commodities included engineering goods, petroleum products, chemicals and pharmaceuticals, gems and jewellery, textiles and garments, agricultural products, iron ore and other minerals.
Indian trade has undergone massive restructuring following the 1991 liberalization policies. Ever since, India s exports have experienced a growth rate of 18.11%. Indian exports fell from $200.9 billion in 2008 to $165 billion in 2009. India ranked 22 nd in terms of export volume.
Being a country with a huge workforce, India has seen its trade boosted by the production of precious stones and metals. The various other export commodities that India exports are: Petroleum products Machinery Iron and steel Chemicals Vehicles Apparel
India s main export partners are: UAE US China Singapore
1.2 EXPORTS-ENGINE OF ECONOMIC GROWTH: Exports have come to be regarded as an engine of economic growth in the wake of liberalization and structural reforms in the economy. The global economic scenario continues to be bleak with India witnessing slowdown in exports with our traditional partners. Under the circumstances, we need to set in motion strategies and policy measures which analyse growth of exports in several different sectors as well as in newer markets.
In view of our remarkable achievements in foreign trade during 2004-09, the Foreign Trade Policy 2009-14 has envisaged two milestones. First, to double India s export of Goods and Services by 2014 by achieving an annual export growth of 15% with an annual export target of US$200 billion by March 2011 and achieving the high export growth path of around 25% per annum in the remaining three years i.e. upto 2014 and Secondly to double India s share in global trade by 2020.
Strategy for Doubling Exports: Global economic outlook is a major determinant of export performance of any country. Export growth cannot, therefore, be viewed in isolation from economic outlook in the world economy. Keeping in view the urgency of managing the growing trade deficit and uncertain global economic scenario, department of Commerce in May 2011 finalized a strategy paper for doubling merchandise exports in three years from US$246 billion in 2010-11 to US$500 billion in 2013-14. Exports were envisaged to increase at compounded average growth of 26.7% per annum.
Exports by Principal Commodities: Exports of the top five commodities during the period 2011-12(April-October) registered a share of 53.1 percent mainly due to significant contribution in the exports of Petroleum(crude and products), Gems and Jewellery, Transport Equipments, Machinery, Machinery and Instruments, Drugs, Pharmaceuticals & Fine Chemicals.
1.3 EXPORTS GROWTH Exports during February 2013 were valued at US$26259.42 million during February,2012. Cumulative value of exports for the period April-February 2012 was US$265946.37 million as against US$277124.56 million registering a negative growth of 4.03 percent in dollar terms over the same period last year.
Country wise pattern of exports in Q1 of 2012-13 shows that the USA became the biggest destination for India s exports with a share of 14.4 percent, replacing UAE (13.4 percent) followed by China (5.1 percent), Singapore(4.5 percent) and Hong Kong ( 4.2 percent). These five countries together accounted for around 41.6 percent of India s total exports during Q1 of 2012-13.
Indian exports have grown at a robust annual average rate of 21.3% (CAGR) between FY03 and FY13, the value of exports rising from USD 52.7 billion in FY03 to 300.20 billion in FY13. The export value of FY13, comes marginally lower than the peak of USD 305.70 billion recorded in FY2012, consequent on global demand drying up to certain extent in the face of economic uncertainty and moderation in global growth.
Major manufactured goods exported by India include engineering goods, chemicals and related products, textiles and ready-made garments. Manufactured goods account for major share of exports (61.2 % as of FY 13) followed by petroleum and crude products (20.1% in FY13) and agri-products (13.5% I FY13)
The export of ores and minerals has grown by 12.1%(CAGR, FY03-FY13) to touch USD 5.6 billion in FY13, while export of petroleum and crude products has registered exponential growth of 41.9% (CAGR, FY03-FY13) to stand at USD 60.2 billion in FY13. Contribution of petroleum and crude products in India s export basket has risen over the years, while that of manufactured goods has declined. Other commodity groups have registered rangebound charges in share.
In terms of share in overall exports, the share of agri and allied products, ores and minerals and other commodities have moved in a range-bound fashion. However there has been some perceptible shift from the manufactured goods to the petroleum and crude products segment between FY03 and FY13.
Asia has always dominated as India s exports partner over the years; followed by Europe, America and Africa. However, exports to America and Africa have declined from FY03 to FY13 and increased with Asia instead.
1.4 DIRECTION OF EXPORT: When comparing the direction of exports in FY03 with that in FY13, one can notice the shift towards trade within the Asian zone rising. Although, nominally speaking, trade with Europe and America has risen over the 10 year period under consideration, their share in overall exports has declined. Coupled with increased trade integration with Asia, this shift of export direction away from America and Europe may be attributed to the modernization in economic activity in these countries, which has caused import demand from these countries to contract.
INDIAN ELECTRONICS HARDWARE EXPORTS: We are making India to emerge as the electronics and IT hardware outsourcing hub in the world. The global electronic industry today is one of the fastest growth areas in international trade. Indian electronics hardware industry is still in the development phase, and India has so far been able to capture a minuscule share of the global electronics hardware as compared to her neighboring Asian countries.
Overview of Global Market in Electronics Hardware: Rapid innovation and speed to market Short Product Life Cycle Highly automated manufacturing to give consistent quality at low cost High volume production Continuous improvement in capabilities for reducing costs Profit accrual through volumes
Government of India and the Indian Electronic Hardware manufacturers have taken some proactive initiatives as follows: Identification of a vision and strategic growth plan Reducing operational costs of manufacturing and improving business attractiveness Promoting single manufacturing clusters Promoting R&D activities and human resource development Promoting India as an ideal destination for Electronics Hardware manufacturing Relaxation of Labour laws Identification of thrust areas and development of incubators Skill development Pro-active policies for development of entrepreneurship in hardware sector like software
The industry level initiatives taken include: Developing mass production capacities Global Partnerships for rapid technology acquisitions Strategic exploitation of niche markets Made in India product branding and new products Initiation of a Marketing Campaign through participation in International Fairs, India Contact Programmes, Release of print ads in International publications etc Initiative to build the image of India as a manufacturing hub to be the way of doing the manufacturing business
Major obstacles and suggestions for growth in FDI flow in Electronics Hardware sector Lack of awareness of investment opportunities in India Wrong perception about setting up of operatives in India Poor Infrastructure facility Lack of Publicity of India Advantage
Suggestions : FDI flow necessitates a Pro business and pro-growth congenial enabling policy regime, projection and publicity of image of India emerging as the logistically and economically viable manufacturing hub for supply to SAARC, Central Asian markets. India is to be promoted as an emerging potential market with low barriers and it is hassle free to operate and foreign investors are welcome in any Special Economic Zones which are nothing but deemed foreign enclaves.
1.5 EXPORT STRATEGY FOR INDIAN TRADE The long-term vision is to make India a major player in the world trade by 2020 and assume a role of leadership in the international trade organizations commensurate with India s growing importance. Our goal in the medium term is to double India s exports of goods and services by 2014 with a long term objective of doubling India s share in gold trade by the end of 2020. The realization of the aspirations of the exports growing at the targeted rate would depend to a great extent on the early recovery of the world economy and its sustained high growth thereafter. At present export of taxes to other countries is sought to be eliminated through the mechanism of duty drawback on the basis of estimated incidence of embedded taxes. This system is not geared to fully compensate the exporters. The system of Goods and Service Tax (GST)proposed to be introduced may provide the solution. GST is also expected to help growth in India s international trade.
The dependence on low value addition export items like petroleum products and gems and jewellery may not be sustainable in the medium to long term. Therefore diversification into non-traditional areas like engineering, chemicals, petrochemicals, plastics etc and to services sectors is essential.
STRENGTHS: Availability of most natural resources and long coastline Diversified Industrial base Skilled manpower including entrepreneurial ability WEAKNESS : Major infrastructural deficit in terms of power, ports, roads and railways Lack of state of art technology in many manufacturing
OPPORTUNITIES: Good combination of skilled manpower and technology THREATS: Higher labour productivity, world class infrastructure base of China could make it difficult for India to gain a larger share of global exports. India s bilateral trade with China is also currently running an annual trade deficit of $17 billion. Lower cost competitors like Bangladesh ( in textiles and clothing) and Vietnam(for textiles, clothing, tea, coffee and some spices) could erode India s share in global trade.
ABILITY : English language skills Growing middle class and disposable incomes represent a robustly growing domestic market Low wages compared to all developed and emerging developing countries like China and Brazil Younger population as compared to all developed countries and China
1.7 EXPORT OF CONSULTANCY SERVICES: The current size of consulting industry in India is about Rs.10000 crores including exports and is expected to grow at an approximation of 25% in the next few years. Indian consulting organisations are growing with great pace to compete with international organizations. In the recent period, the trade policy in India reflects the strategic importance of India s comparative advantage of trade in services.
The services sector ahs been identified as a thrust sector for trade policy. The Foreign Trade Policy had set up Services Export Promotion Council to map opportunities for key services in import markets and to develop strategic market access programme. Some of the other key initiatives of the government in promoting exports of consultancy services are through Market Development Assistance (MDA), Market Access Initiative(MAI) scheme, proactive EXIM Policy and EXIM Bank Schemes. Government also provides exemption on service tax for export of consultancy services. Income Tax exemption under section 80 O need to be reinstated to enhance consultancy export.
The major strengths of Indian consulting organizations include professional competence, low cost structure, diverse capabilities, high adaptability and quick learning capability of Indian consultants. On the other hand there are major weaknesses of Indian consulting organizations, which has hindered the export growth of consulting sector in the country, are low quality assurance, low local presence overseas, low equity base, lack of market intelligence, low level of R&D.
1.8 ENGINEERING DESIGN BACKOFFICE SERVICES: Engineering Design Backoffice Services transfer ideas and designs into functional components that can be manufactured and marketed in a short time period. The strength of this industry is its cost effectiveness, large pool of trained engineers, well established engineering industry, time zone advantage for real time solutions. Good IT infrastructure, reputed affordable IT education, English speaking professionals, Government incentives, influx of talent from other educational streams. The weakness of this industry is low promotion of Indian capabilities, lack of local presence of Indian engineering industry, low level of knowledge on international standards and codes etc
The opportunity of offshore industry are India s edge in outsourcing market with its ability to combine skills with cost. With this trend, Indian engineering design consulting organizations are increasingly looking to potential locations like USA, UK and Japan. The clients for these services include large international companies operating in the sectors of Engineering services, Automobile & manufacturing, IT and software who directly outsource their design and development requirements to have competitive advantage of costs and benefits of different time zones.
1.9 EXIM BANK EXPORT ADVISORY SERVICES: The Export Advisory Services Group (EAS) offers a diverse range of information, advisory and support services, which enable exporters to evaluate international risks, exploit export opportunities and improve competitiveness. Value added information and support services are provided to Indian projects exporters on the projects funded by multilateral agencies. The group undertakes customized research on behalf of interested companies in the areas such as establishing market potential, defining marketing arrangements and specifying market distribution channels. Developing export market entry plans, facilitating accomplishment of international quality certification and display of products in trade fairs and exhibitions are other services provided.
EXIM Bank provides a wide range of information, advisory and support services, which complement its financing programmes. These services are provided on a fee basis to Indian companies and overseas entities. The scope of the services includes market-related information, sector and feasibility studies, technology supplier identification, partner search, investment facilitation and development of joint ventures both in India and abroad.
1.10 SUMMARY AND CONCLUSIONS: We have not yet used our full potential in pushing Exports to the required levels as we should. Perhaps we are waiting for more and more Export incentives and subsidies to treat it as our Milch Cow. The landmark agricultural powerhouse has transformed the nation from chronic dependence on grain imports into a global agricultural powerhouse that is now a net exporter of food has to be repeated in other sectors of Export also. We need to relook at our Export strategies. Our strength and weakness have to be rebalanced to support our abilities. We must look at the developing countries scenario and become a leader for Exports to these countries. We have to tap the services sector also and provide value addition to our exports.
We have completed Chapter 3 Next we move to Chapter4 Merchanting Trade