Notwithstanding India’s efforts to diversify its merchandise exports, the country’s dependence on the US for its outbound shipments has increased over the past 12 years by 7 percentage points to touch 17.4 per cent share in 2022-23 (FY23).
In contrast, the share of the US in India’s total exports has continuously declined from a high of 21.7 per cent in 1998-99 to a low of 10.1 per cent in 2010-11, reveals India’s Department of Commerce data. During the pandemic years of 2020-21 and 2021-22, the export share of the US was even higher than the FY23 levels.
In its vision statement released during the mid-term review of the 2015-2020 foreign trade policy in 2017, the Ministry of Commerce said the policy of market diversification that has stood India in good stead during the global economic downturn will continue to be a key determinant of the country’s trade policy, together with product diversification.
“To put exports on a high-growth trajectory, India needs a market diversification strategy based on the changing dynamics of growth in the world economy,” it said.
“So far, India’s bilateral trade engagement has been mainly with the industrial powers. In future engagements, India will engage with regions and countries that are not only promising markets but are also major suppliers of critical inputs and have complementarities with the Indian economy,” it added.
Jawaharlal Nehru University Professor Biswajit Dhar says India’s widening bilateral trade surplus could come up for discussion during Prime Minister Narendra Modi’s upcoming state visit to the US.
“The diaspora provides a large market. It’s an easy market for Indian businesses to tap into. Any successful diversification has to be carried out by the industry. We are playing straight into the hands of Americans. As the trade surplus increases, the voices get shriller in the US. India’s inability to increase imports from the US could very well come up for discussion during Prime Minister Narendra Modi’s visit,” he says.
Between 2011-12 (FY12) and FY23, the US share in India’s import basket rose from 4.8 per cent to 7 per cent.
However, Ajay Sahai, director-general and chief executive officer of the Federation of Indian Export Organisations, says exports to the US have gone up because exports in some of the sunrise sectors, such as drug and pharmaceutical, electronics and automotive components have increased as well as in some labour-intensive sectors.
“Despite this increase, our share in the US imports is about 2 per cent only. This shows we have not tapped into the major segments where US imports are happening. We should look into further increasing our share because the US is an economy where huge imports are happening,” he adds.
The Department of Commerce data shows that the share of the US in total exports of electronic components, agrochemicals, iron and steel products, among others, increased significantly between FY12 and FY23.
Dhar says the rising share of the US also shows India’s free-trade agreements (FTAs) have not worked to India’s advantage.
“While the Association of Southeast Asian Nations (Asean) entered into an FTA with India (in 2009), it also signed a trade deal with China. We lost our market share to Asean compared to the pre-FTA years because we couldn’t compete with Chinese exports. Unless something dramatic happens with the production-linked incentive scheme and we gain some competitive advantage, export diversification is not going to happen,” he adds.
Sahai agrees that India’s existing FTAs have not worked in the country’s favour.
“That’s why the focus is now on signing trade deals with major markets and complementary economies such as the United Arab Emirates, the UK, and Australia. Japan, South Korea, and the Asean are strong at manufacturing. That’s why we have seen more imports happening than exports. These countries are also more integrated with the global value chain. Since the US is making a conscious effort to develop a new global value chain bypassing China, India can benefit by playing a significant role there,” he adds.
To read the full story, Subscribe Now at just Rs 249 a month