- The main sectors contributing to the growth of India’s exports are chemicals and pharmaceuticals, engineering goods, textiles and garments, gems and jewellery.
- Government initiatives and incentives are in place to boost exports
- Commercial banks will continue to play the role of a catalyst in the further growth of Indian exports.
India is moving away from traditional commodity exports towards value-added products and services. Total exports from India, excluding information technology (IT) and IT-enabled services (ITES), have grown from USD18bn in 19921 to almost USD62bn in 2004, representing a three-fold increase in slightly over a decade.
Service sector exports, especially those of IT and ITES, have grown from USD1bn to over USD10bn between 1997 and 20032. Measurement of the growth of Indian exports is reflected in its share of the national gross domestic product (GDP). In 1991, exports represented only 5.7 per cent of GDP. By 2002, exports had increased to 9.1 per cent 3.
Over the past 12 years, India’s trade partners have changed significantly. Today, the major export destinations for Indian goods and commodities are the US, the United Arab Emirates, China, the Hong Kong Special Administrative Region, Japan, the UK, Singapore, Belgium and Italy, accounting for almost 50 per cent of the country’s total exports destinations. Intra-Asian trade has expanded rapidly and the share of India’s exports to Asia and Oceania has risen from 30 per cent to 43 per cent between 1991 and 20034. Over the same period, exports to North American countries have increased by 9 per cent , totalling almost one-quarter of Indian exports. In contrast, exports to European destinations have declined from almost 51 per cent to about 24 per cent .
Source: Economic Survey, Public Information Bureau, 2003-04
The High-growth Sectors
The recent spurt in Indian exports is primarily due to the IT and ITES, chemicals and pharmaceuticals, textiles and garments, engineering goods, gems and jewellery sectors.
Source: Economic Survey, Public Information Bureau, 2003-04
Service Exports (IT/ITES Sector)
Indian IT companies are strategically moving beyond traditional service lines and are winning larger contracts, tapping into new markets and diversifying into new industries such as telecommunications, retail, utilities and healthcare, IT consulting, software implementation and systems integration.
India’s IT software and services export industry recorded revenues of USD10bn in 2003, at a growth rate of 25 per cent over 20025. Some of the major players include Tata Consultancy Services, Infosys Technologies Ltd, Wipro Technologies, Satyam Computer Services and HCL Technologies.
The potential for further export growth in this sector is positive as India has a large technical labour force, reputable engineering institutions, a large English-speaking population and a reliable infrastructure.
Pharmaceuticals
Pharmaceutical products manufactured in India are in high demand overseas; approximately 30 per cent of the total revenues of pharmaceutical companies come from exports. The major local players are Ranbaxy, Cipla, Dr Reddy’s Laboratories, Sun Pharma, Zydus Cadilla and Nicholas Piramal.
Indian pharmaceutical companies are looking forward to 2007, when patents of generic drugs worth USD50bn-60bn expire. Contributing to the growth of Indian pharmaceutical companies is an expert technical labour force, a wide range of products and technology, a large patient base from which to conduct international clinical trials, manufacturing facilities compliant with the standards of the United States Food and Drug Administration and the World Health Organization, a strong base in bulk and patented drug manufacturers and high-end research and development centres.
Textiles and Garments
The textile and garment industry currently accounts for about 20 per cent of India’s total exports6. India is a major sourcing hub for ready-made garments for global companies like Gap, Appalachian Mountain Club, JCPenny and Tommy Hilfilger. The major local players are Alok Industries, Arvind Mills, the Nahar Group, the Vardhaman Group, Bombay Dyeing, Raymonds and Gokaldas Exports.
The textile sector is expected to expand even further following the expiration of the global textile and apparel quota system in December 2004. India expects to capitalise on its strong multi-fibre base, large production of cotton, low-cost manpower, and presence across the entire value chain of the textile and apparel industry. It also has a focus on value-added products. The challenge is to consolidate the industry, which will result in economies of scale and resources becoming available for capital investment with which to upgrade plants and machinery.
The Indian government has abolished excise duty on textiles with the aim of increasing investment in the textile sector and has proposed the establishment of the National Manufacturing Competitiveness Council to prepare a strategy for growth.
Engineering and Automobile Sector
India’s engineering industry is constantly upgrading its technology base and diversifying its manufacturing range in line with global market requirements. More than 2,500 firms from the engineering sector have acquired ISO 9000 accreditation in areas such as casting and forging, automobile assembly, auto ancillaries, machine tools, electrical machinery, primary iron and steel products, industrial machinery, integrated circuit engines, pumps and textile machinery. Simultaneously, Indian exporters are proactively adopting eco-friendly manufacturing techniques.
A large portion of recent industrial growth is attributed to the growth of automobile exports coming from leading industry players like Hyundai Motors, Tata Motors, Maruti Udyog, Ford Motors and Ashok Leyland.
Gems and Jewellery
Over the past three decades, the gems and jewellery sector in India has undergone a major transformation, becoming a modern, organised industry, currently worth over USD10bn in exports7. Today, with its cut and polished diamonds, coloured gemstones, gold jewellery, pearls, non-gold jewellery and fashion jewellery, India holds almost 50 per cent of the international market8.
Government Regulation, Initiatives and Incentives
The rise of Indian exports has been largely attributed to the combined efforts of both the Indian government and the Reserve Bank of India (RBI). Both have played a vital role in encouraging export-related agencies and infrastructures to work in tandem to facilitate and support further growth. Today, Indian exports are regulated by:
- The Ministry of Commerce (MOC): through its Directorate General of Foreign Trade (DGFT), the MOC is primarily responsible for formulating India’s foreign trade policy and procedures. It is tasked with the objective of creating a policy framework, which will assist in increasing India’s share of exports in international trade.
- The Ministry of Finance (MOF): together with the RBI, the MOF is primarily responsible for managing foreign exchange (FX) policies and procedures, managing India’s balance of payment position, and creating and facilitating a financial infrastructure in which exporters can avail themselves of adequate export finance at competitive rates.
The government actively encourages growth in exports by providing various incentives to exporters. Some of these incentives include the Duty Drawback, a cash rebate on duty paid and an advance licence for importing duty-free raw materials; and the Duty Entitlement Pass Book Scheme, an incentive for importing commodities.
Indian Government Initiatives to Increase Exports
Following are some of the government and RBI’s major initiatives designed to support and increase Indian exports.
Special Economic Zones and Software Technology Parks
While companies set up anywhere in India (i.e. within the domestic tariff area) can export goods and services and are eligible for several import benefits based on the volume of their exports, companies located in select zones, such as the special economic zones (SEZ) and the software technology parks (STP) enjoy additional special privileges.
SEZs are areas where export processing takes place free from the usual constraints of rules and regulations. Companies operating in these zones benefit from the unrestricted movement of goods to and from ports and the SEZs, as well as imports of duty-free capital goods and raw materials. In exchange these companies have to comply with a special requirement, they must export their entire production. The first two SEZs are being set up at Positra in Gujarat and Nangunery in Tamil Nadu. In parallel, several promotion zones (Santacruz Electronic Export Promotion Zone, Kandla Export Promotion Zone, Vizag Export Promotion Zone and Cochin Export Promotion Zones) have been converted to SEZs.
STPs are set up under a special scheme under the Ministry of Information Technology. They offer zero import duty on the import of all capital goods, special 10-year income tax rebates and the availability of infrastructure facilities such as high-speed data communication links. Currently, STPs are located at Noida, Navi Mumbai, Pune, Gandhinagar, Hyderabad, Bangalore, Chennai, Bhubaneshwar, Jaipur, Mohali and Thiruvanathapuram, providing wide coverage across India.
Free-trade Agreements
In order to promote free bilateral trade, India has signed free-trade agreements with Sri Lanka and Thailand. These agreements aim to reduce existing tariff barriers and promote Indian exports. To continue this effort, there are about 10 other similar agreements in the pipeline with countries including Argentina, Brazil, China, Mauritius, Paraguay, Singapore and Uruguay.
Using E-commerce
With a view to help exporters file applications and to impart greater transparency, the DGFT has taken several e-commerce initiatives such as the introduction of digital signatures, web-based modules for export promotion schemes, an online chat forum on policy issues, and electronic funds transfer facilities.
Export Promotion Councils
The MOC has set up export promotion councils and commodity boards for each of the major sectors to focus on specific strategies. Strategies include enhancing export infrastructure, organising trade fairs and exhibitions, simplifying export procedures, bringing down export transaction costs, promoting investments to build up capacities, forging strategic alliances overseas, setting up various export zones, building research centres and international convention centres in the country, and setting up warehouses overseas.
The Role of the Reserve Bank of India
The RBI continues to take a proactive approach towards helping the export community by formulating favourable FX and credit policies. These policies enable exporters to not only hedge their FX risk but also to raise appropriate export financing from the commercial banking system.
The RBI’s specific policy includes a mandatory requirement for commercial banks to ensure that at least 12 per cent of their total advances are made to the export sector at low interest rates. This regulation ensures that adequate inexpensive financing is available for the exporting community. Recently, the RBI launched the Gold Card Scheme, where each commercial bank has been requested to provide a committed line of credit to a select group of exporters over a period of three years at concessionary rates and with relaxed credit appraisal norms. Exporters may choose to obtain financing in local or foreign currency, at competitive local and international rates, which can be fully or partially hedged if required. The RBI has delegated commercial banks to appraise project and service export proposals up to an amount of USD100m, with a view to providing a clearance to promote exports. Furthermore, exporters are permitted to open foreign currency accounts in India or abroad based on business needs.
Commercial Banks in India – Catalysts for Export Growth
In this environment of rapidly expanding exports, commercial banks have important roles to play as intermediaries of import and export flows, not just as facilitators of trade transactions but also as partners with their customers. Banks have invested in extensive branch networks and technology to cater to customer needs, handle transactions efficiently and provide customers with multiple products and service delivery channels.
Commercial banks may offer customised and structured trade solutions to exporters, such as letter of credit advising and confirmation, negotiation and collection of documents, factoring, forfeiting, pre-shipment and post-shipment finance, etc. They may also offer an advanced electronic platform, which supports the automation of a company’s entire trading cycle, includes documentation and data, and provides electronic communication with suppliers, clients and relevant government bodies.
Conclusion
India’s commendable performance in exports is attributed to the recovery of the global economy and world trade, productivity increases in the manufacturing sector, continued trade promotion efforts by the Indian government, domestic reforms and the growth of commercial banks. With an increased focus on the manufacturing sector and growing public and private sectors, India is set to achieve 1 per cent of world merchandise trade by 2007.
1 and 4. Centre for Monitoring Indian Economy
2, 5, 7 and 8. Ministry of Commerce and Industry, Department of Commerce
3 and 6. National Association of Software and Service Companies
9. Gems and Jewellery Export Promotion Council