Product and Market Diversification of India’s Exports

Dr. S.P. Sharma & Ms. Ashima Dua

India's exports have undergone significant changes in the recent years in terms of volume, composition and direction. Supported by market resilience and dynamism, exports witnessed steady growth trajectory 9-10% during FY 2017-18 and FY 2018-19. In particular, over the years, product and market diversification of India's exports have increased significantly, opening new avenues in terms of increased volumes and enhanced growth trajectory. The focus of this article is to measure and analyse the extent of the changes in the direction and composition of exports from India as a result of the various measures taken during the last few years on diversifying into new markets and new products. 

India's Leading Export Basket

As part of its export led growth strategy, export product diversification by an economy is characterised by the change in the composition of a country's export basket from traditional to non-traditional export products. A more extensive base for the diversification of composition of exports through an upgraded value addition acts as stability in the export earnings along with expanded growth avenues.

The comparison of the top 10 products of exports from India for the year 2010-11 and 2018-19, reveals that the concentration of India decreased from 62.7 % to 60.6%. This indicates that India's export basket has witnessed diversification with the inclusion on more products in the export basket and increase in the volumes of products other than the top 10 products of exports from India. This suggests that India's dependency on its conventional export-basket has fallen by around 2%. Such expansion of its domestic value chains points towards the strengthening manufacturing sector at the domestic front as well as a vigorous diversification strategy taken up by the Indian exporters over the years.

It can be observed that over these years, the products of articles of apparel and clothing accessories and cereals have become few of the new leading products of export from India with their respective shares at 2.5% each in the year 2018-19. These commodities didn't occupy the leading positions in the year 2010-11. However, cotton which was as the 9th leading export product for India in 2010-11 has lost its prominence in the year 2018-19.

Over the years, percentage shares of three commodities in the leading export basket of India have fallen which include pearls, precious or semiprecious stones, mineral fuels and products of their distillation, and Electrical machinery and equipment and parts thereof.

Table 1: Top 10 Products of Exports from India

Pearls and precious stones and mineral fuels products of their distillation continue to be the top two items of export in both the years of 2010-11 and 2018-19, however, over these years, their respective shares have fallen from 17.5% to 12.3% for pearls and precious stones and from around 17% to 14.5% for mineral fuels and products of their distillation. The share of the product category of electrical machinery and equipment and parts thereof in the export basket has registered a decline with its share falling from 4.1% to 3.9%.

Product category of nuclear reactors, boilers, machinery and mechanical appliances; parts thereof, has reported a rise in its share of exports from 3.6% in the year 2010-11 to 6.4% in the year 2018-19. For the year 2010-11, Nuclear reactors, boilers, machinery; parts thereof had the sixth largest share in the Indian export basket but in 2018-19, it has become the third leading item of export from India.

Similarly, other products which have witnessed an increase in their respective shares in the leading export basket of India include vehicles other than railway or tramway rolling stock, and parts and accessories thereof, organic chemicals, pharmaceutical products and iron and steel. The percentage share of vehicles other than railway has registered an impressive increase from 3.7% to 5.5%. Pharmaceutical products  has exhibited an increase in its share in Indian export basket from 2.7% to 4.5%.

For organic chemicals, its share in the Indian export basket has risen to 5.5% and Iron and steel exports have reported an increase from 2.9% to 3.0%. It is worth noting that cereals and articles of apparel and clothing accessories, not knitted or crocheted didn't constitute in the items of leading exports from India in the year 2010-11. But over the eight years, both of them have shown an increase in their respective shares to 2.5% each in the year 2018-19.

Leading Merchandise Exporter Countries

China leads the world's international trade with USD 2494 billion worth of exports in the year 2018, followed by USA, Germany, Japan and Netherlands. Value of India's merchandise exports stands at USD 323 billion for the year 2018, with its position at 18 in the world ecosystem. India's share of the merchandise exports is 1.7% of that of the world.

It is observed that in the year 2018, among the leading exporter countries in the world, India's concentration of its exports in its top ten destinations is the least at 45.5%. On the other hand, the other leading economies have relatively higher degree of concentration of their respective directions of exports markets.

For the year 2018, 81% of the exports from Hong Kong are concentrated in its top ten destinations of exports, while that from Korean economy accounted for around 72% of its exports. The top ten destinations of exports from Japan registered a high share of around 71%, followed by Netherlands (69%), France (65%), USA (64%), UK (63%), Germany (59%), China (58%) and Italy (58%).

Table 2: Leading Merchandise Exporter Countries

Source: Trademap database   

It indicates that when compared across the leading exporter countries of 2018, Indian economy has the greatest degree of geographical diversification in terms of the direction of its exports. Reliance of Indian exports markets on its top ten trade partners is not as high as the other economies, which points towards its expanding international markets as a result of rigorous diversification strategy taken up over the years.

However, in terms of volume of exports, India's merchandise exports stood at USD 323 billion for the year 2018 which is significantly lower than the other leading exporter countries. China leads the world's international trade with USD 2494 billion worth of exports in 2018, followed by USA, Germany, Japan and Netherlands.

India's Leading Export Destinations

It cannot be denied that exports concentration on only a few markets act as an impediment to achieve a steady and sustainable exports growth trajectory. India has embarked upon a diversification strategy wherein exporters are encouraged to venture into new export destinations. It is a result of such robust policies that direction of exports from India has witnessed momentous changes.

The comparison of the top ten destinations of exports from India for the year 2010-11 and 2018-19 shows that the total share of the leading export markets has decreased from 50% to 45.5%. This indicates that India's export market has witnessed diversification and new export avenues. The fact that India's dependency on its conventional trade partners has fallen by around 5%. Such expansion of its international markets points towards the vigorous diversification strategy as taken up by the Indian exporters over the years.

Table 3: Top 10 Destinations of Exports from India

Source: Ministry of Commerce and Industry, Government of India

It can be observed that over these years, the economies of Korea and Iraq have become few of the leading export destinations for India with their respective shares at 1.4% and 0.5% in the year 2018-19. These countries didn't occupy the leading positions in the year 2010-11. However, Switzerland which was one of the leading export markets for India in 2010-11 has lost its prominence in the year 2018-19.

Respective shares of countries such as UAE, China and Singapore as India's export destinations has fallen over the years. As compared to the year 2010-11, the % share of UAE in Indian exports has fallen massively from 13.5% to 9.1%. This has changed UAE's position in the leading export destinations from 1st in the year 2010-11 to 2nd in the year 2018-19. China's share has decreased from 5.7% in 2010-11 to 5.1% in 2018-19 and that of Singapore's has declined from 3.9% to 3.5%. Over the years, the share of Saudi Arabia has fallen from 1.9% to 1.7% and that of Indonesia has declined from 2.3% to 1.6% in the year 2010-11 to the year 2018-19.

Over the years, there are four out of ten leading export destinations whose respective % shares in the Indian exports have risen viz. USA, Hong Kong and Germany. In 2010-11, India's exports to USA accounted for USD 25.29 billion with its share at 10.1% whereas for the year 2018-19, USA imports value from India has more than

doubled to USD 52.4 billion and its share stands at 15.9%. The share of Germany as India's export destinations has remained intact at 2.7%. Further, for Hong Kong, its % share of imports from India has fallen from 4.1% in the year 2010-11 to 3.9% in the year 2018-19.

For the year 2018-19, United States of America is the top export destination. Its volume of Indian exports as well as share in the India's leading export destinations have increased massively. In 2010-11, India's exports to USA accounted for USD 25.29 billion with its share at 10.1% whereas for the year 2018-19, USA imports value from India has more than doubled to USD 52.4 billion and its share as the leading export destination from India stands at 15.9%. 

Over the years, volume of exports to UAE has fallen from USD 33.82 billion to USD 30.13 billion and its share in the export basket of India has fallen massively from 13.5% to 9.1%. This has changed UAE's position in the leading export destinations from 1st in the year 2010-11 to 2nd in the year 2018-19. China's import volume from India has increased from USD 14.17 billion to USD 16.75 billion, however, its share in the over exports from India has decreased from 5.7% in 2010-11 to 5.1% in 2018-19. Similarly, India's exports volume to Hong Kong and Singapore have risen over the years, USD 10.32 billion to USD 13 billion for Hong Kong and from USD 9.83 billion to USD 11.57 billion for Singapore, but both of their shares in the India's exports' markets have fallen. The % share of Hong Kong has fallen from 4.1% to 3.9% and that of Singapore has declined from 3.9% to 3.5%.

Across the years, exports from India to Indonesia have fallen from USD 5.70 billion to USD 5.56 billion. This has led to a drop in the percentage share of Indonesian economy as India's export destination from 2.3% in 2010-11 to 1.6% in 2018-19. Further, though the exports volume to Saudi Arabia has risen from USD 4.68 billion to USD 5.56 billion but its % share has declined from 1.9% in the year 2010-11 to 1.7% in the year 2018-19. The exports volume from India to Switzerland stood at USD 0.69 billion in the year 2010-11.

However, Switzerland is no longer among the leading export destinations from India in the year 2018-19. On the other hand, Korea and Iraq have replaced this European nation and made it to the leading export markets for India in the year 2018-19. The expansion of the direction of exports to Korea and Iraq is suggestive of the opening of newer avenues for export destinations for India.

Conclusion and Recommendations

India's export markets' concentration has fallen from 2010-11 to 2018-19 suggesting that India's dependency on its conventional trade partners has fallen by around 5%. Such expansion of its international markets points towards the vigorous diversification strategy as taken up by the Indian exporters over the years.

The structural shift in India's direction of exports from developed to developing economies is considered to be the result of various developments at the domestic as well as international fronts in terms of global economic imbalances, increasing trends of bilateral and multilateral trade agreements, exchange rate fluctuations, trade facilitation measures and most significantly, export diversification policy measures undertaken by the Government and highly focused upon by the exporters.

The country's dependence on its traditional export destinations like China, Singapore, Hong Kong, UAE, Saudi Arabia and Germany in India's total exports has fallen over the years. However, the prominence of USA as an exporting destination from India is still high. USA's share in the India's leading export destinations has increased from around 10% to about 16% since 2010-11 to 2018-19.

Due to the financial crisis of 2008 and the resultant contraction in global demand, India lost its major markets abroad, and its foreign investment, on which it had depended for growth capital, withered. Nonetheless, the demand in the advanced countries like United States of America seems to be have re-emerged due to various policy initiatives. Thus, such traditional export destinations can't be ruled out and there is a need to persistently strengthen the long term trade relations with them.

Further, the analysis of the composition of India's exports over the last eight years shows that the country has been successful in enhancing variation in its export products. Export products' concentration has fallen from 2010-11 to 2018-19 by around 2%. The new products which have added to the list of the leading items of

Exports basket of 2018-19 include Cereals and Articles of apparel and clothing accessories, not knitted or crocheted.  On the other hand, cotton, which was one of the leading products of export in the year 2010-11, is no longer in the list of leading export basket of 2018-19. 

Going ahead, a constant focus is required to fortify India's trade trajectory with the emerging and developing economies, especially the South Asian Economies due to the massive potential as exhibited by them. Amid a frequent changing global dynamics, a more strengthened diversification of India's export basket is needed to be developed. Expansion of domestic capacity and extended participation of MSMEs in global value chain would play an instrumental role in enhancing volumes of Indian exports and increase India's share in total World exports.

Furthermore, a better logistics performance in the trade sector is strongly associated with trade growth, export diversification and economic growth. To enhance the competitiveness of exports from India and hence the export growth trajectory, there is a need to improve physical infrastructure like strengthening of rural-urban connectivity to markets, awareness about the global markets opportunity to industry stakeholders, stronger linkage between raw material suppliers and processing units, access to the latest and the most efficient technology and techniques will help bring competitive advantage to the major players.

In a nutshell, India should continue exploring new markets as its export destinations, and policy initiatives must be directed towards further geographical as well as product diversification. In the wake of growing concerns of protectionism in the global environment, greater trade facilitation by tapping the potential markets and expanding the range of the country's export basket would go a long way in achieving a steady and sustainable exports growth trajectory and expanded production possibility frontiers at the domestic economy with tremendous opportunities for jobs for growing young skilled, semi skilled and unskilled work force.

S.P. Sharma is Chief Economist, PHD Chamber of Commerce and Industry, New Delhi email: spsharma@phdcci.in) & Ashima Dua is Research Scholar, PHD Chamber of Commerce and Industry, New Delhi email: ashima.phdcci@ gmail.com)    

Views expressed are personal.

(Image Courtesy : Google)