Ajit Ranade: India must diversify its exports of manufactured goods

In comparison, service exports need reconciliation from the banking system and Reserve Bank of India (RBI) before the final numbers can be confirmed. Besides, the delivery of services takes place over a longer time, as contract periods can run into years. Merchandise exports are clocked the moment goods leave the shore. There could be complexities such as pending receivable payments or the return of rejected items due to quality issues. 

The holy grail is to get goods and services trade data in real-time and match it with the data reported by importing countries.

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India’s goods export data for 2024-25 was recently released. Our aggregate export revenue of $437 billion is the same as last year; i.e., there was zero growth. This stagnation is puzzling because the impact of US President Donald Trump’s tariffs won’t show up until later. In calendar year 2024, total world trade grew 3.7%. Exports from Southeast Asia grew 5.8% and from China by 5.4%. So, India’s zero growth calls for introspection. This flat outcome was on top of a fall of 3% in 2023-24. So, it constitutes two years of sluggish performance, even though two years ago, in 2022-23, India clocked its highest-ever export value of $450 billion.

Why did that momentum slacken? Exports constitute a major driver of domestic growth and employment. They are especially important at a time when private investment is not picking up and growth in public capital expenditure is getting constrained. A geopolitical upheaval and a reshaped trade-relations jigsaw can work to India’s advantage. Some diversification and re-alignment of export priorities could be quite profitable for India.

The nil export growth of last fiscal year hides a diverse performance that included large positives and negatives. The most spectacular showing was of the electronics sector, whose exports grew 33%; smartphone exports grew 54%. Apple’s iPhone exports alone were $17 billion in 2024-25, and India has emerged as a top iPhone manufacturing hub. Engineering goods, which include machinery, also rose in double digits, as did exports of auto-components and pharmaceuticals.

So, what explains the aggregate zero growth? One of the main sectors to suffer a steep decline was gems and jewellery, a traditionally strong sector for the country. Their exports declined 17% to a two-decade low, attributable to weak demand from the big luxury markets of the US and China. But it could also be because of competition from newer players in Southeast Asia. There was a time when nine out of 10 uncut diamonds polished in the world went through India, but not anymore. The other big reason could be that artificially-produced machine diamonds and other gems are now of equal quality and offer a steep discount on traditional ones, polishing which was the country’s strength.

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Another big factor is oil. Refined products like petrol and diesel still make up nearly a fourth of India’s exports in dollar terms. In 2024-25, export revenue fell 24%, due to a fall in oil prices of about 8%, even though volumes increased. There was intra-year oil- price volatility too. This is a vulnerability of over-dependence on oil exports for dollar earnings, since oil prices can be quite volatile and its quantity demand is inelastic. Both the diamond polishing and oil refining sectors have low value addition and a high import component.

The last two years of sluggish export performance might also have been adversely affected by a rupee propped up by RBI. For a prolonged period, it chose to defend a stronger exchange rate by selling spot and forward dollars. Since India is a net importer of dollars, the optimum value of the rupee-dollar rate is a matter of intense debate.

The big success has of course been service exports, which grew 12% last fiscal year. Over the preceding four years, this sector’s export growth rates have been 23.5%, 27.8%, 4.9% and 12.4% respectively. Given their relative strength, services might soon overtake our manufacturing exports. The strongest services sub-component has been software and business process outsourcing (BPO), which have been growing robustly. Global capability centres and knowledge process outsourcing (KPO) too clocked impressive growth, and so did two other sub-sectors, consultancy and financial services. It is worth noting that our two biggest dollar earners are software services and remittances.

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Overall, India’s exports including services are estimated to have grown around 4% to $821 billion last year. India can surely double agriculture exports and take advantage of US tariff differentials in favour of India to export more ready-made garments, textiles and footwear. In the same breath, why not increase the supply of soybean, cotton, sugar, buffalo beef and rice to China as it threatens to cut off US imports? India’s trade with both the US and China has risen well. But we have barely scratched the potential of tapping the Chinese consumer market of about $6 trillion. The Chinese seem to be willing to import more from India.

Geopolitics is changing the world’s trade patterns drastically. It is for us to grab the opportunity being opened up and make aggressive inroads both to the west and east of India.

The author is senior fellow with Pune International Centre.