Success in exporting goods

Context: Firms in India have much to gain by prioritising the export sector, either directly by exporting or by selling to exporting firms.

Trends in India’s exports to the US: Starting from 1987

• India’s share was going up by 0.0016 percentage points per month. 
• There was the first structural break in December 2001. After this, India’s share started going up at a faster pace, with a gain of 0.0037 percentage points per month. 
• Finally, there was a second structural break in December 2009. After this, India’s share has been rising at the rate of 0.0059 percentage points per month.

Issues with Indian exports:

• Skewed towards services: Investors and managers often dare to dream when it comes to services exports from India but tend to be sceptical about business plans that involve the export of goods.
• The evidence suggests a certain rethink of these stereotypes is called for.

Three main elements to India’s success in exports:

• Removing barriers to imports: When customs duties and non-tariff barriers are reduced, raw materials in India become cheaper. This made exports competitive.
• Removing barriers to capital flow: Foreign companies utilised FDI liberalisation to build operations in India and export from India.
  • The reduction of capital controls made capital (both equity and debt) available to Indian companies at a lower price, which made them more competitive and able to export.
• Improvements in infrastructure: Helped India connected to global value chains and made it possible for producers in India to go into the hinterland in search of cheaper labour.

•  From October 2017 onwards, China’s goods exports have lost ground in the US to the extent of 6.5 percentage points, while India has gained 0.4 percentage points.
• If we define December 2019 as the pre-pandemic month and compare this against the latest value of May 2021, Indian goods exports to the US were up by 41%.

Conclusion: The world economy is recovering well, reflecting strengths in fiscal capacity and vaccination. Firms in India have much to gain by prioritising the export sector, either directly by exporting or by selling to exporting firms.