A Comprehensive Approach Could Boost India’s Exports

India’s trade figures for 2023-24 reveal a trade deficit with nine of its top 10 trading partners, with the US being the only exception. These figures have sparked a need for a comprehensive analysis of structural, policy, and market factors to address the root causes of this trade imbalance.

Understanding India’s Trade Deficit:

• Introduction to the Issue:India has registered trade deficits with China, the UAE, Russia, Saudi Arabia, Singapore, Iraq, Indonesia, Hong Kong, and South Korea, with a surplus only with the US, where exports exceeded imports by $36.7 billion in 2023-24. These top ten countries account for 52% of India’s total trade, making this data critical for analysis.
• Causes and Implications of Trade Deficit:A trade deficit can be an effect of various causes, such as increased import of raw materials or cheaper foreign products. While it can indicate increased purchasing power, it can also point to competitiveness issues at home.
• Persisting Trade Deficits:Trade deficits persist due to multiple reasons. Factors such as inverted duty structures and asymmetric tariff rates can hinder domestic manufacturing by incentivizing imports.

Boosting India’s Manufacturing Capabilities:

• Identifying Efficiently Produced Products:It’s crucial to assess our capacities to identify which products can be efficiently produced locally and traded globally. For instance, a substantial portion of India’s exports to the US in 2023-24 were in the category of electrical machinery and equipment.
• Emphasis on Manufacturing:In recent years, there has been an emphasis on boosting manufacturing with the vision of making India self-reliant. Initiatives like the Production Linked Incentive scheme, the introduction of GST, and measures related to the ease of doing business have given this sector the right impetus.
• Strategic Mapping of Manufacturing Capacities:Strategic mapping of India’s manufacturing capacities at a regional level will be a crucial exercise to attain greater self-reliance.

Diversifying India’s Export Basket:

• Need for Diversification:One key effort that lies ahead is diversifying our export basket and markets. Trade policy experts have acknowledged a welcome change in India’s export basket, which has seen a shift towards engineering and electronic goods.
• Shift to High-Value Goods:A shift to high-value goods reflects a move up the value chain and speaks of our competitiveness. India saw its electronic goods exports increase by around 54.8% in February 2024 compared to February 2023.
• Focus on Policies:Our focus should be on policies that make our manufacturing firms globally competitive. Thoroughly evaluating import-export figures, mapping our competitive advantage with each trade partner, and understanding how boosting manufacturing is a must to make India a global export hub.

UPSC Mains Questions:

Q. Analyze the need for diversifying India’s export basket. How can a shift to high-value goods and a focus on policies that make our manufacturing firms globally competitive help India become a global export hub?