India's Export Dependency on the US
India's increasing reliance on the United States for its merchandise exports raises concerns about vulnerability to reciprocal tariffs introduced by the US President.
- The US share in India's merchandise exports has surged from 10.1% in 2010-11 to 19.3% during April-February FY25.
- This is a reversal from a decline in the US's share of India's exports, which fell from 21.7% in 1998-99 to 10.1% in 2010-11.
- The US remains India's largest merchandise export destination, with shipments growing at a rate of 9.1% to reach $76.4 billion during April-February FY25.
Need for Diversification in Export Markets
A Parliamentary Standing Committee on Commerce suggested that India should expand its focus beyond "conventional markets" and leverage its competitive edge by exploring new areas.
- Emphasis on trade diversification beyond traditional partners by exploring non-traditional markets such as Latin America, Africa, and Oceania.
- Development of a strategic approach to enhance trade performance by identifying products with significant export potential and countries with high demand for these products.
Concerns Over Concentrated Apparel Exports
The committee noted India's apparel exports are heavily concentrated in a few markets and recommended diversifying through Free Trade Agreements (FTAs).
Strategies for Optimizing Export Potential
- Monitoring export performance in key markets.
- Exploring new markets for diversification.
- Identifying potential products or sectors for expansion based on comparative advantages, trade intensity, and global demand dynamics.
Analysis of Global Demand and India's Export Share
In 2021:
- 1,328 items made up 20.54% of the world's import basket, yet India's supply was only 2.57% of world demand for these items.
- 4,271 items constituted 70.79% of the global import basket, with India’s export share at merely 0.29% for these sectors.
- Overall, these 5,599 items represent 91.34% of the world’s imports, while India’s export share is only 0.81% of the world's demand.
Efforts for Export Diversification
India has been actively working towards diversifying its exports.
The 2017 vision statement, during the mid-term review of the 2015-2020 foreign trade policy, highlighted the importance of market and product diversification, which have been beneficial during global economic downturns.