What will it take to unlock export-led growth for India? | Number Theory

These developments raise a larger question about the Indian economy: the importance of exports, both overall and product-specific, for India’s economic growth

Finance Minister Nirmala Sitharaman will present the Union Budget on Sunday. The budget is being presented in the backdrop of headwinds from US’s 50% tariff on Indian exports and promised tailwinds from the Indo-EU Free Trade Agreement. These developments raise a larger question about the Indian economy: the importance of exports, both overall and product-specific, for India’s economic growth. This is best answered by four data points discussed below.

@FinMinIndia

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  India’s best growth and investment phase came when exports were booming

  A comparison of compound annual growth rate (CAGR) of GDP, Gross Fixed Capital Formation (GFCF) and export of goods and services show that GDP growth was the highest in the period between 2000-01 to 2010-11 if one were to compare long-term growth. This was also the period when GFCF – it is the investment component of GDP -- was the highest and so was export growth. Export growth could not retain its momentum in the aftermath of the global financial crisis and overall growth and investment have been subdued too despite the push in government cap-ex in the last few years. The short point is, unless exports rediscover their mojo, private investment or overall growth will not rise sustainably.
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  GFC to pandemic was a lost decade for exports

  The long-term growth numbers shown above do not have more recent export numbers. Quarterly numbers on goods exports show that merchandise exports have recovered after what can be termed as a lost decade between the 2008 crisis and the pandemic. Overall exports, in fact, have shown remarkable resilience in the aftermath of Trump tariffs too, despite the US being India’s largest merchandise export market.
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  But the post-pandemic recovery is led by high-tech commodities…

  This is among the most important, and often unnoticed aspects of India’s post-pandemic export recovery. The growth in value terms has been led by commodities which are high tech in nature. Comparing sub-category wise export values indexed to what they were in 2008-09, the year when the 2008 crisis hit, gives a good idea into this. Exports such as electronics – they would include iPhones for example – have grown by 600% compared to their 2008-09 values whereas labour intensive exports such as ready-made garments and leather products show a much smaller growth.
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  And a loss in importance of labour-intensive sectors

  While India’s onward march in high-value-added exports such as electronics is a welcome development, it has also meant that the current phase of export growth has been accompanied by a fall in share of labour-intensive exports in the overall export basket. Categories such as ready-made garments and leather products, put together, have a share of less than 5% in India’s overall merchandise exports today. To be sure, the fall in share of these products is not really a recent phenomenon and has been in the works through most of the reform period.