Trade

Tapping export destinations for growth

  • Blog Post Date 09 July, 2018
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Sharmila Kantha

Confederation of Indian Industry

sharmila.kantha@cii.in

The trade environment today is becoming increasingly murky and stormy, despite a strengthening global economy. India’s position – never very remarkable – is being further battered, and its embattled manufacturers and exporters face a risky external marketplace. Against this backdrop, Sharmila Kantha assesses which markets India should tap to intensively promote its exports in a targeted manner.

With a range of measures and counter-measures, accusations and disputes being flung around indiscriminately by major global trading nations, the trade environment today is becoming increasingly murky and stormy, despite a strengthening global economy. India’s position in global trade – never very remarkable – is being further battered, and its embattled manufacturers and exporters face a risky external marketplace.

India’s share in global exports stood at 1.65% as of 2016 compared to 1.45% in 2008 when the global economic crisis hit. While its exports rose about 10% over the past fiscal year to US$303 billion, it remains below the value of US$314 billion for 2013-14, largely owing to flat global demand conditions. The country ranks 20th among exporting nations, a position not aligned to its 6th rank in GDP (gross domestic product). Prime Minister Modi has called for doubling India’s share in global exports to 3.4% as an instrument to drive India’s GDP growth to double-digit rates.

Identifying most promising markets to promote India’s exports

Within the fractious global trade environment, it is useful to take a look at which markets India can tap for intensively promoting its exports. The largest importing nations would be the first place to start.

In Table 1, I have taken the top 25 importers (barring India) as of 2016 . These 25 countries account for US$12.4 trillion or 77% of total global imports. India contributes US$179.2 billion to this total, which is about 1.44%. India’s exports to these markets account for a significant 69% share of its total exports.

Table 1. Top 25 importing nations and India’s exports to them, 2016

Rank Country Imports, US$ billion India's exports, US$ billion Share (%)
1 USA 2,275 42 2.1
2 China 1,588 9 0.7
3 Germany 1,061 7.2 0.8
4 UK 636 8.5 1.4
5 Japan 607 3.8 0.8
6 France 560 4.9 0.9
7 Hong Kong 547 13 2.2
8 Netherlands 505 4.9 0.8
9 South Korea 406 3.5 1
10 Italy 405 4.5 1.2
11 Canada 403 2 0.8
12 Mexico 387 3.4 1.1
13 Belgium 373 5.4 1.3
14 Spain 303 3.4 1.3
15 Singapore 283 7.4 2.1
16 UAE 271 30 6.2
17 Switzerland 269 1 0.6
18 Taipei 231 1.8 0.9
19 Turkey 199 4.5 2.9
20 Thailand 196 3 1.3
21 Australia 189 2.9 1.7
22 Poland 189 1.1 1.1
23 Russia 182 1.8 1.3
24 Vietnam 175 6 1.6
25 Malaysia 168 4.2 1.1
Total of top 25 12,408 (77%) 179.2 (69%) 1.4

Only in three of these economies, the US, Hong Kong, and UAE, was India able to cross double-digit export value in 2016.

Among these top 25 nations, India’s share in their imports is highest for UAE where it accounts for 6.2% of the country’s total purchases from the world. Turkey, Hong

Kong, the US, and Singapore are other countries where India’s share amounts to more than 2% of their imports.

Unfortunately, some of the highly globally integrated economies such as China, Germany, France, and Japan, buy less than 1% of their goods from India. It needs to be further studied why India has not been able to crack these important markets, whether because of non-tariff barriers or lack of competitiveness. The fact that in several advanced nations such as the US, Hong Kong, Australia, and the UK, India has made inroads into markets implies that the country enjoys the capability to cater to their demand. Therefore, there is certainly scope for it to tap other advanced markets. A closer examination of the product profile of India’s exports to these countries would provide a more nuanced picture.

Challenges in accessing export markets

Apart from multiple internal factors such as gaps in trade infrastructure, challenges in trade facilitation, and issues in overall investment climate, Indian exports face several external challenges in accessing overseas markets. While the US has changed track from trade openness to erecting tariff barriers, other countries too have long been imposing various restrictions. Standards in advanced countries are expanding to go beyond just quality to include environmental, health, and social parameters, while inspection, labelling, and other requirements add to woes of Indian exporters. In Chinese markets, products of India’s interest have been kept out through various non-tariff barriers , leading to a ballooning trade deficit which came in at six times India’s exports to China in 2017-18.3

It is also notable that India has not entered into bilateral or regional trading agreements with most of the countries on this list. It has signed comprehensive economic cooperation agreements with Japan, South Korea, Singapore, and Malaysia, and is also an FTA (free trade agreement) partner of the 10-member ASEAN grouping (Association of South East Asian Nations), but the results are mixed.

Export destinations of countries are dependent on multiple factors (Redding and Venables 2004). For example, geography is a strong determinant of trade, and so is a nation’s industry and export infrastructure profile. Trade with neighbours and proximate countries can be expected to figure high in exports of a particular country, provided favourable political conditions exist. Some countries are large exporters of commodities, while others are dependent on certain commodities from overseas. Hence, not all countries can be equally considered as export destinations, purely in terms of comparative advantage.

To see how far India’s exports match with the largest global importers, I look at its top 25 export destinations in Table 2. These 25 markets account for 74% of its total exports.

Table 2. India’s 25 top export destinations, 2016

Rank Country Exports, 2016, $ billion
1 USA 41.2
2 UAE 30.0
3 Hong Kong 12.2
4 China 9.0
5 UK 8.6
6 Singapore 7.4
7 Germany 7.2
8 Vietnam 6.0
9 Bangladesh 5.7
10 Belgium 5.4
11 Saudi Arabia 5.0
12 Netherlands 4.9
13 France 4.9
14 Nepal 4.5
15 Turkey 4.5
16 Italy 4.5
17 Malaysia 4.2
18 Sri Lanka 4.1
19 Japan 3.8
20 South Korea 3.5
21 Mexico 3.4
22 Spain 3.4
23 South Africa 3.2
24 Indonesia 3.1
25 Thailand 3.0
  Total of top 25 markets 192.7
  Share of top 25 markets 74%

Comparing the two lists, it is seen that 19 of the 25 largest importing nations figure in India’s top 25 export markets. However, the respective positions of these countries within the two lists vary. For example, Japan which ranks 5th as an importer figures at 19th in importance for India, and similarly, Netherlands and France also come in low. Concomitantly, countries such as UAE and Singapore are disproportionately high in India’s rankings.

Countries which are large importers but are missing in India’s export list include Canada, Switzerland, Taipei, Australia, Poland, and Russia. These are replaced by neighbours – Bangladesh, Nepal, and Sri Lanka – as also countries in India’s proximate sphere, Saudi Arabia, South Africa, and Indonesia.

A market-led trade strategy

Given that the top importers of the world comprise over three-fourths of the global market, India would do well to build up its exports to these destinations. In general, India’s endeavour in its various foreign trade policies has been to address domestic barriers and provide incentives for exporters. An intensive and focussed market promotion effort targeting key identified countries has been lacking. One way of identifying which countries can present lucrative opportunities for Indian exporters is to shortlist them as per their GDP, population, and export performance which would reflect their potential as markets and their integration with global value chains.

Unlike many other trading nations, India has not institutionalised a dedicated trade promotion body, preferring instead to set up sectoral export promotion councils and boards, many of which are for products that have low relevance in global trade and in its own exports, such as sports goods or cashew nuts. While India posts commercial officials in some embassies and missions overseas, they are tasked with handling bilateral policy issues including trade barriers, connectivity, and so on. Marketing and branding professionals should be placed in situ to organise regular events for focus products, engage at the regional level, and network with importers under a single ‘Brand India’ banner.

To ensure that exports emerge as a stronger instrument for growth, not only must India address internal challenges but also systematically promote its goods in major export destinations. This would require identifying the most promising markets as well as the products with the maximum potential in these markets, matching their import demands with India’s comparative advantages.

Notes:

  1. Export Import Data Bank, Department of Commerce, Ministry of Commerce and Industry, India
  2. All data except where mentioned is from Intracen (International Trade Centre). Imports from country A by country B are slightly different from exports by country A to country B. Data for 2016 has been used since the 2017 data may not be fully complete.
  3. Export Import Data Bank, Department of Commerce, Ministry of Commerce and Industry, India

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