Exports show signs of a shift to higher value-added products

Electronics, engineering and pharmaceutical products that fetch higher foreign exchange than earlier are claiming a larger share of India’s overall export basket, edging out traditional shipments of textiles, footwear and jewellery and signalling a crucial shift aligning with India’s global ambitions.

The trend indicates that the government’s efforts to increase the production of value-added products by rolling out incentives, calibrating import tariffs, and cutting red tape in cross-border trade may finally be paying off.

The Union government’s production-linked incentive schemes for various sectors and free trade agreements to encourage trade and investments have helped increase the sophistication and diversification of manufacturing exports, said Rumki Majumdar, economist at Deloitte India.

“This positive trend bodes well for India as it aims to strengthen its integration into the global value chain and increase India’s exports to $2 trillion over the next six years," Majumdar toldMint. “Growth in the traditional basket of exports (comprising agriculture and allied products, gems and jewellery, and textiles) declined on the other hand."

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Exports of electronic goods, which primarily involve their final assembly, surged nearly fivefold in value terms to $29 billion in 2023-24 from the level seen in 2017-18, show data available with India’s commerce ministry.

Exports of engineering goods increased from $78.65 billion in value terms in FY18 to $109.22 billion in FY24, while that of drugs and pharmaceutical products climbed from $17.27 billion to $27.82 billion in that period.

“Indian exports are undergoing structural changes," said Ajay Srivastava, founder of the economic think tank Global Trade Research Initiative. “We are losing competitiveness in traditional export products like gems and jewellery, textiles and garments, leather footwear, and marine products. (But) in new sectors like electronics we are doing well."

“Gradually, we should hope to increase value addition in new sectors," he said.

Surging through a pandemic

The share of engineering goods, the largest segment in India’s export basket, has remained range-bound despite global supply chain disruptions due to the pandemic and geopolitical factors.

If a longer time period of a decade is considered, the share of engineering goods has staged a strong performance—building up from 18.8% in FY13 to 25.21% in FY24. It was at 26.17% in FY18.

The share of electronics goods in India’s export basket increased from 2.13% in FY18 to 6.72% in FY24, and that of drugs and pharmaceuticals from 5.75% to 6.42%.

On the other hand, the share of gems and jewellery in India’s overall exports slumped from nearly 14% in FY18 to 7.5% in FY24, and that of textiles from nearly 12% to 8%. A similar trend of decline is evident in exports of leather and marine products, too.

A focus on value addition

Federal policy think tank NITI Aayog on Wednesday said India’s electronics sector had recorded a significant 5.32% share of India’s total merchandise exports in FY23. Per India’s trade ministry data, this was 6.7% in FY24.

The think tank is scheduled to release a roadmap on 18 July on India becoming a “manufacturing powerhouse in the electronics sector".

“The sector’s export performance highlights its competitiveness in the global market and its ability to capitalize on international demand. It has also enhanced India’s position in the global electronics landscape," NITI Aayog said in an announcement about the report. “The electronics sector is very high in terms of global value chain participation."

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NITI Aayog added that 70% of international trade takes place through global value chains, emphasising the critical need for India to enhance its participation in it.

“This can be achieved by prioritising sectors such as electronics, semiconductors, automobiles, chemicals, and pharmaceuticals, which play a significant role in the global value chain landscape," NITI Aayog said.

That said, the think tank acknowledged that while global brands and design firms are increasingly outsourcing assembly, testing, and packaging tasks to electronic manufacturing services companies in India, the domestic ecosystem for design and component manufacturing is nascent.

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The manufacturing sector will play a crucial role in India’s journey towards becoming a developed country, NITI Aayog said.

“India should prioritise component manufacturing to increase value addition," Srivastava of Global Trade Research Initiative. “There should be specific production-linked incentive schemes for specific component manufacturing."

Through choppy waters

India’s trade performance in 2023-24 was influenced by global events such as the Houthi attacks on ships in the Red Sea, which led to higher freight rates and disrupted supply chains.

The continuing Russia-Ukraine war, US-China trade tensions, and the European Union’s proposed carbon tax and forest regulations too have affected global trade.

In FY24, India’s merchandise exports stood at $437.06 billion, down from $451.07 billion in the previous fiscal year. Goods imports fell to $677.24 billion from $715.97 billion.

India’s service exports, though, improved to $339.62 billion in FY24 from $325.33 billion in the previous fiscal year, while imports fell to $177.56 billion from $182.05 billion.

Spokespersons of the commerce and finance ministries and the director general of foreign trade didn’t respond to queries emailed on Tuesday.