India s Merchandise Exports

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1 ISSN (Online) India s Merchandise Exports Panchanan Behera Reader, Department of Economics, Government Autonomous College, Phulbani, Kandhamal, Odisha, India Abstract: The paper examines the trends, compositions and growth rates of India s merchandise exports in US $ terms. There has been significant acceleration of growth rates in the post reform period. Export composition has moved in favour of manufacture exports. Engineering goods have emerged most significant during the period However, the volatility has also gone up, calling for policy vigilance for stabilization of exports value in the context of persistent trade deficit. Keywords: Merchandise exports, trends, composition, growth rates, volatility 1. Introduction In any analysis of exports, merchandise export draws attention first. The reason is simply because physical goods used to be the usual items of exchange between the residents and non-residents of a country. Before services revolution, the merchandise exports dominated the exports basket, both in terms of number of commodities exported and the value of such exports. Recently, services sector has emerged significant in its contribution to GDP all over the world. In India, services sector contribution to GDP is more than half of its value. As a consequence, services sector has also emerged significant in its contribution to exports value. But merchandise exports still remain dominant. A country relies heavily on merchandise exports for generating finances requiring payments in foreign exchanges. Merchandise export finances most part of merchandise imports. In India, as the trade gap remains a persistent problem, the government has a difficult task of promoting exports through different state actions. An empirical study of exports over a sufficiently long period would help gaining knowledge about the important features of merchandise trade pattern. This would help better policy making. The paper attempts to study the following empirical aspects of Indian merchandise trade after independence, and particularly, after the reforms of Trend and growth in merchandise exports value 2. Composition of merchandise exports and 3. Stability of merchandise exports sector Data have been taken from various issues of Handbook of Statistics on Indian Economy, published by RBI. All these data are time series and in US$ terms. Regression technique is used to compute growth rate. The usual statistical measures, such as, arithmetic mean, standard deviation and coefficient of variation have been used to summarise the time series. 2. Literature Review Post-independence India has seen a lot of studies devoted to trend, composition and diversification of exports. Patel (1959), Singh (1964), Nayyar (1976, 1987), Wadhva and Paul (1973), Wadhva (1977, 1988), Panchamukhi (1978) and Wolf (1982) have analysed India s exports before the economic reforms package of Most of the pre-globalization studies on exports have noted the stagnation in exports, citing controls on trade as causes. According to these studies, protection to domestic industry led to high cost of production because foreign completion was avoided resulting in loss of comparative advantage. A large number of studies after 1991 have examined the impact of liberal trade policies on exports growth and on the balance of payments. Bagchi and Sarkar (1993), Deshpande and Sarkar (1995) and Sarkar (1992, 1995, 1996) found no changes in the trend of exports, imports and balance of trade during the reform period under the study. They have reached to the conclusion that trends were only the continuation from earlier time since 70s. In contrast to this finding, Dash (2009) has found statistical evidence of causality running from exports to output growth. Veeramani (2007, 2008, and 2012) and Virmani (2003) have also noted the significant growth of exports during the reform period. However, Veeramani pointed out that the growth was more due to a buoyant world economy rather than the competitiveness of the Indian industry. Banik ((2001) and Seshadri ((2009) have also found significant trade impact of exports in their studies. INTERNATIONAL JOURNAL OF INNOVATIVE RESEARCH & DEVELOPMENT Page 94

2 3. Trends and Growth Indian merchandise trade was US$1.359 billion in accounting for per cent of total exports including services exports. In , it was US$ billion, and reached to US$ in The share in total exports has come down gradually to per cent in This increasing trend in exports value and a decreasing trend in its share in total exports are given intable.1 Year Merchandise Services Merchandise (Share %) Services (Share %) Table 1: India s Exports in US$ billion It can be seen from the Table 1 that merchandise exports have increased mostly after the initiation of economic reforms in In the first decade of reforms itself, the addition to exports value was US$ billion, but in the next decade the addition was staggering US$ billion. This reflects mostly the impact of trade liberalisation. The same thing is also evident from the growth rates computed. During the period to , the merchandise exports increased at 7.3% per annum, maintaining an average share of 82% with standard deviation of But in the period to , the growth rate has shot up to 13.9%. The average share came down to 71.99% with standard deviation of The higher growth has also resulted in wider fluctuations from year to year as is evident from the higher standard deviation. The details of the growth calculations are given in Table.2 Exports Group to to AVERAGE GROWTH AVERAGE GROWTH S.D. C.V. S.D. C.V. SHARE (%) RATE SHARE (%) RATE (%) MERCHANDISE %(R 2 =0.902) %(R 2 =0.971) SERVICES %(R 2 =0.804) %(R 2 =0.977) TOTAL EXPORT 100 * 7.5%(R 2 =0.899) 100 * 15.0%(R 2 =0.976) Table 2: Growth of Merchandise Exports (US$ billions) Equation Estimated For Growth Rate LNY=a+bt, where t=1,2, 3,... &Growth rate per annum=b% The growth rate in services exports during to has been at a higher l8.1%, resulting in overall growth rate of 15.06% during the same period. One thing that must be noticed is that the fluctuation in services export is much larger than in the merchandise export in both time periods as is reflected in the higher coefficient variation, the coefficients for services sector are 0.22 and 0.23 for to and to respectively, and the corresponding figures for the merchandise sector being 0.05 and However, both variables show larger fluctuation during the reform period compared to the pre-reform period, as is evident from the larger standard deviation in the reform period (Table 2). 4. Composition The first breakdown of merchandise exports is between oil and non-oil exports. This division is more appropriate for merchandise imports where the intention might be to have a control on oil imports, where the oil expenditure is a large proportion of the total exports, but for exports, it shows the progress of the country towards higher degree of oil sufficiency. There has been increasing exports of oil, both in terms of value and contribution to the value of merchandise exports. The oil exports in was US$0.0113billion, which was only 0.56% in total merchandise exports of US$ billion. The oil exports rose to US$0.5227billion in 1990, accounting for 2.88%. The value of oil exports in has been fixed at US$ billion, which comes out to be 20.09%. The non-oil exports have risen from US $ billion in to US$ billion in The share of non-oil exports to total merchandise exports has come down gradually from 99.44% in to 97.12% in and 79.91% in This is quite a large proportion. The development of the division can be seen in the Table 3. INTERNATIONAL JOURNAL OF INNOVATIVE RESEARCH & DEVELOPMENT Page 95

3 Year Oil Merchandise Us$ B Share Ofoil in Share of In Net Addition in Oil Net Addition In Table 3: Oil and exports Net Addition in Merchandise It is more fruitful to breakdown merchandise exports into broad commodity groups. The exports of primary sector and manufacturing sector are more important from the point of policy making. Starting from the primary goods exporting to exporting a large variety of modern manufactures, India has travelled a long distance. The share of primary sector exports has come down. This change in composition reflects diversification of exports. The country is no more solely dependent on agricultural and mineral exports. The export values of primary products and manufactured goods were US$ 4.32 billion and US$ 13 billion respectively in total merchandise exports of US$18.15 billion for the year In , the corresponding values were US$ 7.13billion and billion. Export values have risen to US$32.84billion for primary products and US$157.99billion for manufactured goods in For , these have been fixed at US$ billion and US$ billion out of total merchandise exports of US$312.65billion. For the period from 1987 to , the average shares of the primary products and manufactured goods have stayed at 18.75% and 71.25%. The manufactured goods have witnessed larger fluctuation. The share of ores and minerals has been modest 7.47% with a very large standard deviation of 6.96 over the same period. The growth rates over the period are given in Table 4. COMMODITY GROUPS\GROWTH GROWTH RATE=b%, where, LNY=a+bt+ε PRIMARY PRODUCTS 10.6%(R 2 =0.935) MANUFACTURED GOODS %(R 2 =0.983) PETROLEUM PRODUCS 23.8%(R 2 =0.738) OTHERGOODS 18.5%(R 2 =0.902) TOTAL 12.9%(R 2 =0.969 Table 4: Growth rates of Commodity Groups The details of average shares and growth rates of the items constituting the agricultural goods are given in the Table 6. Marine products contributed highest share of 16.24% followed by rice and oil-meals at13.29% and 10.30% respectively. Wheat has the least share of 1.52%. Over the period to , the growth rates have varied between 2% and 17%. Tea has witnessed the lowest growth. The highest growth rate of 17.1% is seen for Sugar and Molasses. The growth of meat and meat preparations has been 15.6%. The overall growth of the agricultural goods has been 10.3% per annum The manufactured goods group has seven sub-sectors. They are (1) Leather and Manufactures, (2) Chemicals and Related Products, (3) Engineering, (4) Textile and Textile Products, (5) Gems and Jewellery, (6). Handicrafts (excluding Handmade Carpets) and (7) Other Manufactured. Of these sectors, Textile and textile products group contributed most during the period to , accounting for 27.38% followed by Engineering at 24.55%. There has been wide fluctuation in the composition from year to year. This has been widest in the case of engineering goods followed by Textile and textile products. The shares of Engineering goods show increasing trend, while Textile and textile products is witnessing a decreasing trend over the recent past. INTERNATIONAL JOURNAL OF INNOVATIVE RESEARCH & DEVELOPMENT Page 96

4 Export Items\Measures Average Standard Coefficient of Growth Rate Per Share Deviation Variation Annum Tea %(R 2 =0.276) Coffee %(R 2 =0.606) Rice %(R 2 =0.883) Wheat %(R 2 =0.40) Cotton Raw including Waste %(R 2 =0.435) Tobacco %(R 2 =0.852) Cashew including Cashew Nut Shell Liquid %(R 2 =0.891) Spices %(R 2 =0.846) Oil Meals %(R 2 =0.732) Fruits and Vegetables %(R 2 =0.598) Processed Fruits, Juices, Miscellaneous Processed Items (R 2 =0.865) Marine Products %(R 2 =0.915) Sugar and Molasses %(R 2 =0.543) Meat and Meat Preparations (R 2 =0.950) Other Agriculture and Allied Products %(R 2 =0.940) TOTAL 100 * * 10.3%(R 2 =0.919) Table 5: Agricultural The Engineering Group in the Manufactured Good witnessed the largest growth over the period to Highest contribution has been from machinery and instrument (24.05%) followed by transport equipment (20.02%) and manufactures of metal (19.27%). The details are in Table 8. Iron & Steel Manufactur e of Metals Machinery and Instruments Transport Equipment Electronic Other Engineering Engineering Year/ Commodity AVERAGE SHARE (%) * S.D * C.V * GROWTH RATE (%) 19.2%(R 2 =0. 910) 14.8%(R 2 =0. 980) 15.3%(R 2 =0. 953) 17.7%(R 2 =0. 939) 16.2%(R 2 = %(R 2 = Table 6: Engineering 16.2%(R 2 =0. 971) 5. Conclusion From the analysis it is evident that Indian exports have witnessed fundamental changes, in the following aspects. 1. Overall growth rate as well as growth rates for all groups of commodities have accelerated after The composition has also changed in favour of services and manufactured exports Along with changes in the growth rates and composition of exports, the volatility has also grown as measured in terms of standard deviation of average shares for pre- and post- reform period. Whether these are reflections of liberal exports and FDI policies pursed since July 1991 is an issue for continuing debate. Dash has argued that these are the outcomes of export- led growth process working in India. He does not subscribe to the growth-led hypothesis. To him causality runs clearly from exports to growth not vice versa. The argument of Sarkar seems contradictory to the results found here. One thing is certain that in terms of growth rates, exports have performed much better during the post globalization period. But the challenges remain ever present in the world context dominated by uncertainty and volatility. INTERNATIONAL JOURNAL OF INNOVATIVE RESEARCH & DEVELOPMENT Page 97

5 6. References i. Bagchi,A.K. and Prabirjit Sarkar (1993) ii. Banik,Nilanjan (2001) iii. Dash,Ranjan Kumar (2009) iv. Dshpande,Ashwini and Prabirjit Sarkar(1995) v. Manmohan Singh (1964) vi. Nayyar, Deepak (1976) vii. -(1987) viii. Panchamukh,V. R (1974) ix. S.J.Patel (1959) x. Sarkar, Prabirjit (1992) -(1995) -(1996) xi. Sarkar, Prsabirjit (1996) xii. Seshadri,V.S (2009) xiii. Veeramani, C. (2007) -(2008) -(2012) xiv. Veeramani, C. (2008) xv. Veeramani, C. (2012) xvi. Wadhva,Charan and Samuel Paul (1977) xvii. Wadhva,Charan (1977) -(1988) xviii. Wolf, Martin (1982) -Trade and Exchange Rate Policy for India, EPW,Sept.18 -An Analysis of India's Exports during 1990s, Economic and Political Weekly, Nov.3 -Revisited Export-led Growth Hypothesis-An Empirical Study on India -Structural Adjustment in India-A Critical Assessment, EPW,Dec. 9 - India s Export Trends and the Prospects for Self-sustained Growth: Oxford, Clarendon Press -India s Export and Import Policies in 1960s, Cambridge: Cambridge University Press - India's Export Performance, : Underlying Factors and Constraints, Economic and Political Weekly, Annual Number, May -A quantitative Analysis of Trade Policies in India in J.C. Sandesara(ed.), The Indian Economy: Performance and Prospects(Papers and proceedings of the Golden Jubilee Seminar of the Department of Economics, University of Bombay -Export Prospects and Economic Growth: India, Economic Journal, Vol.LXIX pp Rupee Depreciation and India s External Trade and Payments since 1971, EPW, June Indian Economy Since Independence-Trade Price and Exchange Rate Behaviour, EPW, May20, -Crisis of the Indian Economy-Is there a Recovery under the New Economic Policy, EPW, March2, -Crisis of the Indian Economy-Is there a Recovery under the New Economic Policy, EPW, March 2. - The Changing Face of India s External Trade, EPW, Aug.29 -Sources of India's Export Growth during the Pre- and Post-Reform Periods, Economic and Political Weekly, Jun. 23, - Impact of Exchange Rate Appreciation on India's Exports, Economic and Political Weekly, May31 - Anatomy of India's Merchandise Export Growth, to , Economic and Political Weekly, Vol. XLVII,No.1, Jan. 7 -Impact of Exchange Rate Appreciation on India's Exports, Economic and Political Weekly, May31 -Anatomy of India's Merchandise Export Growth, to , Economic and Political Weekly, Vol. XLVII,No.1, Jan. 7 -The Dollar Devaluation and India's Balance of Payments, Economic and Political Weekly, March 10 - India s Export Performance and Policy : and Planning for the Future up to 1981, in C.D.Wadhva(ed.), Some Problems of India's Economic Policy,2e,New Delhi: Tata McGraw-Hill Publishing Co. Ltd -Import and Export Policy : A Provisional Appraisal, Economic and Political Weekly, Jun. 2 -India's Exports, New Delhi: Oxford University Press INTERNATIONAL JOURNAL OF INNOVATIVE RESEARCH & DEVELOPMENT Page 98