A quantum leap forward

In the last two articles, we have discussed how India’s exports and imports and invisibles trade performed through the five-year plans. We also saw the changes in the current account deficit. In this article we will discuss the pattern and direction of India’s trade: how it has changed through the plans, which new commodities and new geographies have been added and which have fallen in significance.

Pattern of trade

At the time of independence, India’s trade pattern and structure was one of a typically colonial country: exports comprised raw materials and primary commodities like tea, cotton, jute and raw silk; and imports comprised mostly finished and manufactured products, capital goods and food grains. We saw in the last two articles that India’s trade policy was driven by an overall thrust on import-substitution, rather than export promotion. Accordingly, whatever steps on export promotion were taken were basically to ensure sufficient foreign exchange to pay for the necessary imports such as capital goods and crude oil. This was mostly the case in the first three decades. India struggled with high import bills mainly on account of frequent rise in prices of crude (the four-fold rise in 1973-74 on account of the Israel-Arab wars and again a doubling of prices in 1979-80 on account of the Iranian revolution), high prices of fertilisers and regular import of food grains. In the 1980s, the effects of the drought of 1979 and the oil price shock of 1979 continued to be felt. After the 1984 elections, the Congress government again took guard under Rajiv Gandhi, which pursued the policy of liberalisation, and made extensive use of technology in all areas including telecommunications, agriculture, oilseeds etc. — leading to a sharp rise in the import bills and high trade and fiscal deficits till the 1991 economic crisis hit us. After 1991, India progressively integrated into the world economy and the focus shifted from import substitution to export promotion slowly. A number of new products entered India’s export list, including readymade garments, engineering goods, pharma, gems and jewellery, cotton yarn and manufactures and leather and leather garments. Traditional exports such as tea, coffee, jute and tobacco, became relatively less important.

Another significant feature of India’s exports has been the rise of services exports in the last three decades. After the reforms of 1991, tariff barriers fell and there were technological advances in telecommunications and IT, which led to a rise in the importance of services in GDP as well as exports. India’s services sector contributed 50 per cent of GDP in 1990, which has risen to 60 per cent since the early 2000s. India’s service exports touched a high of USD 254 billion in 2021-22, which was about 40 per cent of total exports. In 1990, services exports were USD 7 billion and rose to USD 25 billion in 2002. Another feature of India’s exports recently has been the push they have received from the Production-Linked Incentive (PLI) schemes. The most successful example of this has been the sharp rise in the manufacture and export of Apple iPhones from India in the last couple of years.

The principal imports of India have been:

* Food grains: It was mainly during the first five five-year plans, but declined after the green revolution took root in the 1970s. From the 1990s, the import of cereals became negligible, but import of edible oil rose in the decade of 2000s.

* Capital goods and machinery: Capital goods and machinery imports have been a constant in the principal imports of India. In the first three decades, this was on account of the policy of creating a heavy industrial base. In the decade since the 1990s, both electrical and non-electrical machinery as well as transport equipment imports have risen sharply. Machinery imports rose from Rs 1,350 crore in 1980-81 to Rs 3,70,000 crore in 2013-14.

* Fuel imports: These have also consistently risen since independence because of a sharp rise in consumption, and our domestic production being far less than our requirements. In value terms, the rise has been because of hefty price rises. In 2013-14, these imports went up to Rs 1,00,064 crore, which was about 37 per cent of total imports.

* Metals: The import of both ferrous and non-ferrous metals have increased massively after the 2000s because of the expansion of industry, hydro-electric projects and railways. From a low of Rs 54 crore in the first plan, these went up to Rs 1,330 crore in 1980-81 and Rs 2,75,166 crore in 2013-14.

* Precious stones, gems and jewellery: These imports rose only after the 1990s when they were needed as inputs for the exports for ornaments and other jewellery. Starting with imports of Rs 417 crore in 1980-81, these shot up to Rs 22,100 crore in 2000-01 and Rs 1,44,557 crore in 2013-14.

* Others: the other major imports have been drugs and medicines as well as inputs into making them (API) and fertilisers.

Our export pessimism continued till the 1980s. Only after the 1990s reforms did exports become a priority and came to be considered as an essential ingredient for high GDP growth. The principal exports were:

* Engineering goods: The export of these goods is a post-1990 phenomenon. In 1980-81, these exports were only Rs 727 crore, but rose sharply to Rs 3,877 crore in 1990-91, Rs 31,150 crore in 2000-01, and Rs 4,18,423 crore in 2013-14.

* Handicrafts, including gems and jewelry: This is again an item that began to be exported in large numbers after the reforms of 1990-91. From a low of Rs 894 crore in 1980-81, these exports rose to Rs 36,756 crore in 2000-01 and Rs 2,56,434 crore in 2013-14.

* Readymade garments: These exports have shown impressive gains only after 2000-01. From Rs 4,000 crore in 1990-91, these rose to Rs 25,441 crore in 2000-01 and Rs 90,402 crore in 2013-14.

* Cotton yarn and manufactures: While cotton yarn was exported in the early years, these declined after the 1960s on account of obsolete machinery and high costs. Only after 2000-01, these picked up pace because of considerable investment in modern machinery. These exports were Rs 2,100 crore in 1990-91, and rose to Rs 15,819 crore in 2000-01 and Rs 53,914 crore in 2013-14.

* Leather and leather manufactures: Like cotton yarn and manufactures, these exports also showed a rising trend only after 2000-01 and rose from Rs 2,566 crore in 1990-91 to Rs 8,883 crore in 2000-01, and Rs 34,517 crore in 2013-14.

Direction of India’s trade

India’s trade is generally classified as being with four broad regions: Americas (including the USA, Canada and Latin America), Europe, Asia and Oceania, and Africa. During the first three decades after independence, the USA and Europe were dominant trading partners for both exports and imports, accounting for more than 60 per cent of exports and imports of India. The other important trading partners in the Asia & Oceania region were Australia and Japan. After the 1970s, the share of the USA fell, but that of the Soviet Union and Eastern Europe started to rise.

After the 1990s, our structure of trade changed as did our trading partners. With services exports gaining in importance, the USA again became an important destination of our exports, accounting for about 20 per cent of our exports and 10 per cent of imports in the early 1990s. This share fell to 13 per cent of exports and 5 per cent of imports by 2014-15. The European Union continued to be important and accounted for 25 per cent of exports and 33 per cent of imports in the early 1990s. These numbers fell to 16 per cent and 11 per cent in 2014-15.

The new trading partner in the last decade has been the UAE, whose share in India’s exports rose to 11 per cent in 2014-15, and imports to 6 per cent. China also emerged as a large trading partner of India, accounting for about five per cent of its exports and 16 per cent of its imports in 2020.

Conclusion

The pattern and direction of India’s trade has changed over the years. As we saw above, India’s exports of goods now include manufactures and engineering goods, which is a big jump from the primary commodities that were exported in the 1950s and 1960s. There has also been a thrust on exports as an important ingredient of GDP growth after the 1990s. Services exports have also gained in importance and volume since the 1991 reforms. In the past decade or so, the component of services exports has also changed: there is a move up the value chain. More and more digitisation has led to the export of many professional and business services, in addition to the IT/ITeS services, which were hitherto the dominant services exports. In the coming years, India’s exports are poised to grow fast, because of a fast-changing global scenario. In particular, US-China détente has led to the ‘China + 1’ policy and ‘derisking’ away from China among many global companies. India has responded with policies such as Production-Linked Incentives (PLI) in a number of areas including electronics, automobiles, white goods and textiles, among others. India has also made a big push for fabrication of semiconductors in the country. These policies, among others, will surely help India reach its export target (both goods and services) of USD one trillion by 2030.

The writer is Addl. Chief Secretary, Dept of Mass Extension, Education and Library Services, Govt of West Bengal.