What is Exports?
Export means the transferring of any good from one country to another country in a legal way for the purpose of trade. Export goods are provided to the foreign consumers by the domestic producers.
Indian Exports: A History
The history of Indian exports is very old. During ancient times India exported spices to the other parts of the world. India was also famous for its textiles which were a chief item for export in the 16th century. Textiles and cotton were exported to the Arab countries from Gujarat. During the Mughal era India exported various precious stones such as ivory, pearls, tortoise stones etc. But during the British era, Indian exports declined as the East India Company took control of foreign trade.
Markets
Though India has seen some product diversification in its export basket, it has not expanded significantly in the two big markets-Africa and Latin America. India's business with South Asian countries is also negligible. This region has not been integrated with the global economy, though political and economic initiatives have been taken in the recent past in this direction.
Exporters India
1: Agriculture
Agro Products
Food Grain
Agriculture Equipment
2: Apparel & Fashion
Fashion Accessories
Women's Clothing
Men's Clothing
3: Automotive & Auto Parts
Auto Parts
Automotive Accessories
Auto Electrical System
4: Chemicals
Industrial Chemicals
Polymers
Dyes & Pigments
5: Handicrafts & Gifts
Wood Handicrafts
Gifts
Paintings & Sculptures
6: Industrial Supplies
Fasteners
Cables & Wires
Measurement Instruments
7: Jewelry
Gemstones
Beads
Silver Jewelry
8: Natural Stones
Marble
Granite
Sandstone
9: Tools & Equipment
Hand Tools
Laboratory Equipment
Fluid Handling Equipment
During FY97 to FY07, India's contribution to world trade has gone up considerably from 0.5% to around 1.1%, underlined by several milestones. India's merchandise exports started accelerating since FY03 (in US dollar terms) and grew at a CAGR of 24.9% during FY04-08; in fact, this growth rate was much higher than the global merchandise export growth of 16.1%. The Indian government plans to raise its merchandise exports to US$ 200 billion by FY09 from US$ 155.5 billion in FY08, which translates into a growth of 28.6%.
Foreign direct investment (FDI) has also been playing a role in the country's buoyant merchandise exports. FDI reached US$ 20.1 billion during Apr-Feb 2007-08, as against US$ 11.9 billion in the same period during the previous year. These foreign funds invested heavily in sectors such as telecom, power, seaport, road, airport development to ensure quality infrastructure for better export performance. The cumulative FDI inflows since April 2000-February 2008 in few infrastructure development sectors was as follows: telecom - US$3.8 billion, power - US$1.7 billion, construction activities - 1US$ 3 billion, seaports - US$ 0.8 billion, and air transport - 2US$ 0.21 billion.
India's exports are expected to accelerate in future, taking into account the growing numbers of approved, in-principle and notified SEZs in the country. As on March 27, 2008, there were 453 (of which 246 valid approvals) approved SEZs, 136 in-principle and 207 notified SEZs, which once operational are expected to boost India's merchandise exports. It is to be noted that in FY07, exports from 19 functional SEZs stood at Rs 347.9 billion and during April-December 2007-08 they reached Rs 400 billion. It is estimated that exports from SEZs would reach Rs 1,246.8 billion by FY09.
Leading Export Items of India
In the past ten years, Indian exports have grown at a rate of nearly 22%. Some commodities have enjoyed faster export growth than others. Some of India's main export items are cotton, textiles, jute goods, tea, coffee, cocoa products, rice, wheat, pickles, mango pulp, juices, jams, preserved vegetables etc. India exports its goods to some of the leading countries of the world such as UK, Belgium, USA, China, Russia etc.
Emerging destinations
India's 21 emerging exporting countries have been listed in the table below. These countries have been growing strongly in the last five years and their share in India's merchandise exports has gone up from 23.5% in FY02 to around 27.8% in FY07. Of all the 21 countries, India's exports to Yemen Republic have seen the most impressive growth of more than 100% in FY07 as compared to last year. Even exports to Pakistan grew phenomenally at a y-o-y growth rate of almost 96%, driven by sugar, organic chemicals and cotton exports, which together constituted over 62% of the total exports to Pakistan. Kenya was another country that showed a tremendous growth in imports from India. Kenyan imports of mineral fuels, mineral oils and waxes (Under the HS Code 27) comprised almost 63% of India's total exports to Kenya in FY07, which increased by around 26% y-o-y. Moreover, the Indian government has identified certain sectors such as agriculture, handlooms, handicraft, gems and jewellery, leather, marine, electronics and IT hardware manufacturing industries and sports goods and toys sectors for special focus and initiatives.
Restriction on the Exports of Items
However there are some restrictions on the export of goods. Under sub section (d) of section 111 and sub section (d) of section 113, any good exported or attempted to be exported, contrary to any prohibition imposed by or under the customs act or any other law is liable for confiscation.
Export Trends
If the Indian economy grows at the same pace, India would most definitely export goods worth US $500 billion by 2013 and may supersede the exports of other large developing countries like Brazil.
Problems of the Indian Export Sector
There are few problems which need to be solved before India makes a mark for itself in the export sector. The Indian goods have to be of superior quality. The packaging and branding should be such that countries are interested to export from India. At the same time India must look for potential market to sell their goods. The government should frame policies which gives boost to the exports.
Directional Change In Exports
India has seen massive directional change in the context of origin of demand for Indian products. Till 2001-02 North America and the EU markets shared nearly 21% and 23.2 % respectively of total exports and the remaining to the rest of the globe. By 2006-07, North America had a share of only 16% of the total exports and the EU's share was 21.2%.
Promising commodity groups for exports
The table below indicates commodity-wise imports of the 15 emerging countries. These commodities' combined imports of US$ 1,756.8 billion (in all the 15 emerging countries) accounted for almost 14.2% of the total global imports in 2006. Hence, India has ample opportunity to exploit these groups.
India has enormous potential to export certain commodities in the 21 emerging countries, as its export share in these countries is relatively low in the selected commodities. [India's share in some of these commodities is as follows: electrical machinery, equipment, sound recorder (1.3%); nuclear reactors, boilers, machinery and mechanical appliances (1.5%) and vehicles other than railway tramway railway stock (1.6%).]
The total import of mineral fuels, oils, waxes, bituminous by the emerging countries constituted around 22.7% of the total imports of 18 emerging commodities in 2006. Korean Republic was the largest importer in this commodity group with a share of 21.7%.
In 2006, nuclear reactors, boilers, machinery and mechanical appliances constituted almost 19.6% of the total commodities imported by these emerging countries. Out of all the emerging countries, France was the major importer. However, India's export to France in this category was at a negligible 0.12%.
In 2006, electrical machinery, equipment, sound recorders, television image comprised almost 17.8% of the total imported commodities. Of all the emerging countries importing this commodity, Korean Republic was the leader, as it was the largest importing country with a share of around 16.8%. However, India's share in Korea's imports in these segments was a negligible 0.03%.
Vehicles other than railway tramway railway stock, parts and accessories accounted for almost 13% of the total commodities imported by the emerging countries during the year. Canada was the largest importer of these commodities with a 26.2% share. India's share in Canada's imports of these commodities was barely 0.02% in 2006, underlining the huge potential that is unexplored in these countries.
Heckscher-Ohlin model
In the early 1900s an international trade theory called factor proportions theory emerged by two Swedish economists, Eli Heckscher and Bertil Ohlin. This theory is also called the Heckscher-Ohlin theory. The Heckscher-Ohlin theory stresses that countries should produce and export goods that require resources (factors) that are abundant and import goods that require resources in short supply. This theory differs from the theories of comparative advantage and absolute advantage since these theory focuses on the productivity of the production process for a particular good. On the contrary, the Heckscher-Ohlin theory states that a country should specialise production and export using the factors that are most abundant, and thus the cheapest. Not to produce, as earlier theories stated, the goods it produces most efficiently.
The theory argues that the pattern of international trade is determined by differences in factor endowments. It predicts that countries will export those goods that make intensive use of locally abundant factors and will import goods that make intensive use of factors that are locally scarce. Empirical problems with the H-O model, known as the Leontief paradox, were exposed in empirical tests by Wassily Leontief who found that the United States tended to export labor intensive goods despite having a capital abundance.
The H-O model makes the following core assumptions:
Labor and capital flow freely between sectors
The production of shoes is labor intensive and the production of computers is capital intensive
The amount of labor and capital in two countries differ (difference in endowments)
Free trade
Technology is the same across countries (long-term)
Tastes are the same.
Reality and Applicability of the Heckscher-Ohlin Model
The Heckscher-Ohlin theory is preferred to the Ricardo theory by many economists, because it makes fewer simplifying assumptions. In 1953, Wassily Leontief published a study, where he tested the validity of the Heckscher-Ohlin theory. The study showed that the U.S was more abundant in capital compared to other countries, therefore the U.S would export capital- intensive goods and import labour-intensive goods. Leontief found out that the U.S's export was less capital intensive than import.
After the appearance of Leontief's paradox, many researchers tried to save the Heckscher-Ohlin theory, either by new methods of measurement, or either by new interpretations. Leamer emphasized that Leontief did not interpret HO theory properly and claimed that with a right interpretation paradox did not occur. Brecher and Choudri found that, if Leamer was right, the American workers consumption per head should be lower than the workers world average consumption.
Export of Goods and Services, [RBI (Exchange Control Department)]
In exercise of the powers conferred by clause (a) of sub-section (1) and sub-section (3) of Section, 7, sub-section (2) of Section 47 of the Foreign Exchange Management Act, 1999 (42 of
1999) and in partial modification of its Notification No. FEMA 23/2000-RB dated 3rd May 2000, Reserve Bank of India makes the following amendments in the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000, as amended from time to time, namely:-
1: (i) These Regulations may be called the Foreign Exchange Management (Export of Goods and Services) (Amendment) Regulations, 2001. (ii) They shall come into force with immediate effect.
2: In the Foreign Exchange Management (Export of Goods and Services) Regulations, 2000, (hereinafter referred as to "the said Regulations"),
(i) in Regulation 4,
(a) in clause (i), after the words "Export Processing Zones", the words "Electronic Hardware Technology Parks, Electronic Software Technology Parks" shall be inserted;(b) after clause (i), the following clause shall be inserted, namely:-
"(ia) goods listed at items (1), (2) and (3) of clause (i) to be re-exported by units in Special Economic Zones, under intimation to the Development Commissioner of Special Economic Zones / concerned Assistant Commissioner or Deputy Commissioner of Customs," (c) after clause (j), the following clauses shall be inserted, namely:-
"(k) goods sent outside India for testing subject to re-import into India; (l) defective goods sent outside India for repair and re-import provided the foods are accompanied by a certificate from an authorised dealer in India that the export is for repair and re-import and that the export does not involve any transaction in foreign exchange (m) exports permitted by the Reserve Bank, on application made to it, subject to the terms and conditions, if any, as stipulated in the permission."
(ii) in Regulation 6 of the said Regulations, in sub-regulation (3), for clause (i), the following clause shall be substituted, namely:-
"(i) The declaration in Form SOFTEX in respect of export of computer software and audio/video/ television software shall be submitted in triplicate to the designated official of Ministry of Information Technology, Government of India at the Software Technology Parks of India (STPIs) or at the Free Trade Zones (FTZs) or Export Processing Zones (EPZs) or Special Economic Zones (SEZs) in India."
(iii) in Regulation 9 of the said Regulations,
(a) the existing Regulation shall be numbered as "(I)";
(b) after sub-regulation (I) as so numbered, the following sub-regulation shall be inserted, namely:-
"(2) (a) Where the export of goods or software has been made by a unit situated in a Special Economic Zone, then notwithstanding anything contained in sub-regulation (I), the amount representing the full export value of goods or software shall be realized and repatriated to India within twelve months from the date of export. Provided that the Reserve Bank may for a sufficient and reasonable cause shown, extend the said period of twelve months.
(b) The Reserve Bank may for reasonable and sufficient cause direct that the unit shall cease to be governed by sub-regulation (2); Provided that no such direction shall be given unless the unit has been given a reasonable opportunity to make a representation in the matter. (c) On such direction, the unit shall be governed by the provisions of sub-regulation (1), until directed otherwise by the Reserve Bank." (iv) in the Schedule to the said Regulations, for the "Software Export Declaration (SOFTEX) Form", the Form shall be substituted, by the form as set out in the Annexure.
Export Promotion Schemes:
Details of schemes in operation are:
1: Duty Exemption and Remission Schemes
(a): Advance Licence Scheme to allow duty free import of inputs, which are physically incorporated in the export product (making normal allowance for wastage) with a specific export obligation in terms of value and quantity.
(b): Export Promotion Capital Goods (EPCG) Scheme to allow import of capital goods for pre-production, production and post-production (including CKD/SKD thereof as well as computer software systems) at 5% customs duty subject to an export obligation equivalent to 8 times of duty saved on capital goods imported under the Scheme to be fulfilled over a period 8 years reckoned from the date of issuance of licence. Relaxation in export obligation has been allowed for specific categories such as Units pertaining to agro, SSI, BIFR etc.
(c): Duty Free Replenishment Certificate (DFRC) is issued for import of inputs used in the manufacture of goods without payment of basic customs duty after completion of exports.
(d): Duty Entitlement Passbook (DEPB) Scheme to neutralise the incidence of customs duty on the import content of the export product and the exporter is entitled for a duty credit as a specified percentage of FOB value of exports, made in freely convertible currency.
(e): Schemes related to Gems & Jewellery sector such as Replenishment Licence, Advance Licence, Diamond Imprest Licence etc.
(f): Deemed Export Duty Drawback and Terminal Excise Duty Refund Scheme for those transactions in which the goods supplied to specific categories of beneficiary, do not leave the country and the payment for such supplies is received either in Indian Rupees or in Free Foreign Exchange.
2: Special Economic Zone is a specifically delinked duty free enclave and are deemed to be foreign territory for the purposes of Trade Operations and duties and tariffs wherein these units can import/procure from the DTA all types of goods and services without payment of duty.
3: Export Oriented Unit (EOU) Scheme, Electronics Hardware Technology Park (EHTP) Scheme, Software Technology Park Scheme or Bio-Technology Park Scheme to operate under duty-free regime for import/procurement of all types of goods including capital goods without payment of duty for manufacture of goods for export.
4: Free Trade and Warehousing Zone (FTWZ) Scheme to create trade related infrastructure to facilitate the import and export of goods and services with freedom to carry out trade transaction in free currency.
5: Served from India Scheme to allow duty free import of capital goods including spares, office equipment and professional equipment, office furniture and consumables related to the main line of business against exports of services.
6: Target Plus Scheme for the status certificate holder to allow duty free credit based on incremental exports to import any inputs, capital goods including spares, office equipment, professional equipment and office furniture.
7: Vishesh Krishi Upaj Yojana Scheme to allow duty free import of inputs or goods including capital goods (as notified) against export of certain agricultural and their value added products.
8: Assistance to States for Infrastructure Development of Exports to encourage the state government to participate in promoting exports from their respective states for developing infrastructure etc.
9: The Market Access Initiative (MAI) Scheme to provide financial assistance for a whole range of activities as a Medium Term Export Promotion efforts with a sharp focus on a country and product.
10: The Marketing Development Assistance (MDA) Scheme to provide financial assistance for a range of export promotion activities such as participation in trade fairs and buyer seller needs abroad or in India, export promotion seminars etc
11: Other schemes to promote activities such as Brand Promotion and Quality Improvement etc.
Indian Trade Partners
India is in a recovery mode from the hugely impacted global financial meltdown surfaced in mid-September 2008. An advance estimate of the Central Statistical Organization indicates to 7.2 percent GDP growth during the current fiscal year ( 2009-10), though the government expects it may even surpass the CSO estimates. Coupled with this, the industry is sending encouraging feeler to fuel the hope for a better revival of the economy from the onslaught of the meltdown that had impacted among others India's exports like most of other countries around the world. The cumulative growth for the period April-December 2009-10 stands at 8.6 percent.
India's exports during the first 10 months ( April-December, 2010) of the current fiscal (2009-10) stood at US$ 117.58 billion signifying 20.3 percent decline from US$ 147.56 billion earnings achieved during the comparable period in previous financial year. India's exports during December, 2009 were valued at US $14606 million (Rs. 68107 crore) which was 9.3 per cent higher in dollar terms (4.8 per cent in Rupee terms) than the level of US $ 13368 million (Rs. 65015 crore) during December, 2008. Cumulative value of exports for the period April- December, 2009 was US $ 117587 million (Rs 563304 crore) as against US $ 147569 million (Rs. 652919 crore) registering a negative growth of 20.3 per cent in Dollar terms and 13.7 per cent in Rupee terms over the same period last year.
Top ten largest trading partners of India (2008-09)
(In Rs, Crore)
Country
Total Trade
Trade Balance
China PRP
163,202
-92,676
USA
155,353
12,254
United Arab Emirates
152,668
-1934
Saudi Arabia
105,602
-64303
Germany
67,602
-19497
Singapore
63,280
2934
UK
50114
524
Hong Kong
50,129
1772
Belgium
41552
-5294
Netherland
33099
19049
Source: Federal Ministry of Commerce, Government of India
As part of market expansion policy,India has signed a Comprehensive Economic Partnership Agreement with South Korea which will give enhanced market access to Indian exports. Besides India has also signed a Trade in Goods Agreement with ASEAN which will come in force from January 1, 2010, and will give enhanced market access to several items of Indian exports. These trade agreements are in line with India's Look East Policy. India has also signed Preferential Trade Agreement with Mercosur.
India's Foreign Trade (2008-09)
(In US$ million)
April 2008 - March 2009
EXPORTS (Including re-exports)
2007-08
163132
2008-09
168704
Year-on change over 2006-07
3.4
IMPORTS
2007-08
251654
2008-09
287759
Year-on change over 2007-08
14.3
TRADE BALANCE
2007-08
--88522
2008-09
-119055
Source: DGCI&S
* India's fiscal year is March to April
Source: Federal ministry of Commerce, Government of India
India's Commerce and Industry minister Anand Sharma has told the Cairns group (a coalition of 19 agricultural exporting countries promoting free trade in agriculture) India is committed to the successful conclusion of the Doha process through a constructive engagement.
"India is committed for the early resumption of the WTO Doha round negotiations, as there is a need to have a rule-based multilateral global trading system and the government will continue to take inputs from various stakeholders in the country", the Commerce minister told the industry body Confederation of Indian Industry (CII).
Impact on BOP (Balance of Payment) of Indian Export:
A balance of payments (BOP) sheet is an accounting record of all monetary transactions between a country and the rest of the world. [1] These transactions include payments for the country's exports and imports of goods, services, and financial capital, as well as financial transfers. The BOP summarizes international transactions for a specific period, usually a year, and is prepared in a single currency, typically the domestic currency for the country concerned. Sources of funds for a nation, such as exports or the receipts of loans and investments, are recorded as positive or surplus items. Uses of funds, such as for imports or to invest in foreign countries, are recorded as a negative or deficit item.
Exports for October 2008 contracted by 15% on a year-on-year basis. This should not surprise as the OECD economies that account for over 40% of India's export market have been slowing for months. A decelerating export growth has implications for India, even though our economy is far more domestically driven than those of the east Asia. Still, the contribution of merchandise exports to GDP has risen steadily over the past six years - from about 10% of GDP in 2002-03, to nearly 17% by 2007-08. If one includes service exports, the ratio goes up further. Therefore, any downturn in the global economy will hurt India. There also seems to be a positive correlation between growth in exports and the country's GDP. For instance, when between 1996 and 2002 the average growth rate in exports was less than 10%, the GDP growth also averaged below 6%.
A slowdown in export growth also has other implications for the economy. Close to 50% of India's exports - textiles, garments, gems and jewellery, leather and so on - originate from the labour-intensive small- and medium-enterprises.
A sharp fall in export growth could mean job losses in this sector. This would necessitate government intervention. A silver lining here, however, is the global slowdown will also lower cost of imports significantly, thereby easing pressures on the balance of payment. The impact of oil and other commodity prices, halving over the past few months, will reflect in the import data for the second half of 2008-09. Oil import bill, earlier projected to cross $100 billion in 2008-09 with prices surging to $140 per barrel, could easily shrink by about $20 billion. The fall in imports may exceed the decline in exports in the latter half of 2008-09. This would also help soften the current account deficit.
Following on figures pointing to a robust recovery in GDP growth, the evidence that India's month-on-month export growth has returned to positive territory after 13 months has generated much optimism. The value of aggregate merchandise exports during November 2009 stood at $13,199 million (Rs 61,462 crore), which was 18.2 per cent higher than its level in November 2008.
These inflows were far in excess of India's current account deficit financing needs, the consequence was the accumulation of reserve assets. India's reserve assets abroad, which had fallen from $312.1 billion at the end of June 2008 to $252 billion by the end of March 2009, have risen by $29.3 billion to $281.3 billion over the six months ending September 2009. It is well known that since Reserve Assets consist of liquid and safe instruments, the return they yield is much below than that earned by foreign investors in the country's financial markets, resulting in a cost borne in foreign exchange.
It is indeed true that a substantial part of the increase in Reserves during the April-September period was on account of gains from valuation changes following the depreciation of the dollar vis-à-vis other currencies in which reserves are held. But with net capital account inflows exceeding current account financing requirements by $9.5 billion, these inflows too played a role in inflating the value of reserves.
Conclusion
India's total trade of merchandise goods, including import and export, reached almost US$ 400 billion in FY07, accounting for 1.5% of world trade. In recent times, the total trade in goods and services constituted around 44% of India's GDP, which was a milestone in India's recent economic progress. Over the last four years, booming trade has generated around 13.6 mn employment opportunities in the country. However, in order to achieve higher trade activities, the Indian government needs to take initiatives to boost indigenous capabilities through high R&D investments and through development of information and technology, knowledge corridors etc.
Moreover, the country needs to face some challenges that could erode India's impressive growth in the global market. Continuous Rupee appreciation against the US dollar is one such challenge; in fact, the Rupee grew by 7.33% (during April 03, 2007 to March 31, 2008), which is substantial. The challenge seems more noteworthy as majority of our external trade is invoiced in US Dollar and any fluctuation in exchange value has an impact on exporters, importers, borrowers, lenders etc. Besides, inadequate infrastructure (road, seaport, air transport), is another key constraint for booming trade, especially because seaports handle more than 95% of India's trade (in volume terms).
References
1: www.exportersindia.com
2: www.rbidocs.rbi.org.in
3: www.indiainbusiness.nic.in
4: www.en.wikipedia.org
5: www.tradechakra.com
6: www.commerce.nic.in
7: www.dnb.co.in
8: www.thehindubusinessline.com
9: www.toostep.com
