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PGDM Term IV (2021-23) Batch
Academic Year- 2022-23
EC505- INTERNATIONAL BUSINESS
Group members
Name Roll Number Signature
1 Debajyoti Nag 21PGDM-BHU024
2 Maitreya Sengupta 21PGDM-BHU048
3 Soumyajit Karmakar 21PGDM-BHU102
4 Tanmoy Kolay 21PGDM-BHU112

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INDIA’S EXPORT POTENTIAL
Introduction:
The world economy has been significantly impacted by "trade" over the past two centuries.
Countries have seen continuous economic development because of globalization, which has
dramatically changed not just how products and services are produced but also how people live
their lives. Global integration has increased because of competition, economies of scale,
experiential learning, innovation, etc. It has long been known that increased commerce is
closely tied to economic growth. Studies by Frankel, Romer (1990) and Alcala, Ciccone (2004)
using long-run macroeconomic data concluded that there is a causal link between trade and
growth and that trade is one of the elements promoting economic growth. Trade growth rates
have often been greater in nations with strong GDP growth rates.
India has also gone through this. India's commercial situation has improved since trade
liberalization took place in 1991. India is more open than many other emerging countries due
to lower tariff rates, non-tariff obstacles, and a liberal investment strategy. However,
restrictions have been imposed by factor market rigidities and the failure to draw large
international investments. Furthermore, some economic shocks have a tendency to spread
across the economy. Exports and growth rate have been impacted by the shocks (both good
and negative) of liberalization, the East Asian crisis, the global financial crisis, the slowdown
in international trade caused by the US-China trade war, and China's new trade strategy.
According to the Department of Commerce's most recent statement, "India's total exports
(goods and services combined) are projected to reach USD 397.48 billion from April through
December 2019-20*, representing an increase of 0.93% over the same time last year. The
anticipated total imports for April through December 2019–20* are USD 455.14 billion,
representing a decline of 5.82% from the same time last year." Over time, the trade gap
increased and was recorded at USD 184 billion in 2018–19. The current account deficit
increases as the trade imbalance increases, placing severe strain on the foreign exchange
reserves. The IMF recently predicted an 11-year low growth rate of 4.8% for the year 2019–
20. The growth rate in 2018-19 was 6.8. After the initial years of the decade, both merchandise
and service exports grew at a single digit. Data on quantum index number of exports of

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commodities (base year 1999-2000) shows that growth has declined from 15.2% in 2010-11 to
2.9% in 2017-18.
India's share in value of world exports is a mere 1.7% although a whopping 96.5% of the
world’s traded items are exported. But when looked from a global point of view, India has
performed better than the world average growth of exports before 2018. The reason, as stated
by Prof. Nag of IIFT, is due to India's exports to most developing countries. The lack of global
demand for goods has slowed down not only for India but for other Asian giants like China and
South Korea as well. From a bird's point of view, low share of manufacturing sector, followed
by a sudden jump in services and a stagnant agricultural sector are the main causes. Looking
at China forty years ago, no one would have foreseen China's epic rise in taking the world
export market, but this was made possible by the adoption of export-oriented growth,
identifying and specializing industries with high export potential, focus on SEZs and enhancing
infrastructure capability. On the other hand, India has been slow to move up in the global value
chain.
Factual Analysis:
According to the most recent report from the Ministry of Commerce and Industry, "Indian
exports decreased 1.8% year-on-year to USD 27.36 billion in December 2019, declining for
the fifth consecutive month despite increases in sales of electronic goods (30.4%), drugs &
pharmaceuticals (13%), marine products (7.8%), readymade garments (2.4%), and cotton yard
(0.4%)." To gain a broad picture of India's present situation, we look at exports, imports, trade
openness, trade balance, currency rate, and various more visualizations and descriptive
statistics in this part.
Exports and Imports of Goods and Services 1990 onwards:

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Chart 1
Chart 1
The rising trend of both exports and imports are encouraging but the value is low compared to
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most of the major economies of the world (charts 1 & 2). India ranks 19th in the list of
exporters. The recent period is categorized by sudden shocks as against a smooth linear
movement witnessed in the period 1998-2008. The failure to increase the share in the value of
total exported goods has resulted in a deterioration in the trade balance (chart 3).
Chart 2
The increase in trade deficit in recent years can be seen clearly through an analysis of the above
and below graphs. The rising current account deficit which can be attributed to the deficit in
the trade balance has put pressure on the foreign exchange reserves (chart 4).
Chart 3
During this period, the rupee-dollar exchange rate has exhibited a depriciating trend (chart 5).
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In 2018-19 India’s exchange rate hit a more than 5-year low to Rs 71.26.
Chart 4
Exchange rate affects India’s net barter terms of trade index, as a fall in the value of a country's
currency affects its imports ' domestic prices but may not directly affect the commodity prices
it exports. (Net Barter Terms of Trade index (2000 = 100) is ratio of the export price index to
the corresponding import price index measured relative to the base year). Improving the terms
of trade a nation benefits the country since more goods can be bought for any given export
price.. Therefore, the improvement in terms of trade, post 2009 crisis, is visible in chart 6.
Although the index has started to fall in recent years, with the latest value being below the base
year index.
Chart 5

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India’s performance from a global macro view point is highlighted in charts 7 and 8.
The above curve exhibits non-linearity and an inverted U-shaped relationship in particular
(chart 7). Trade openness, taking only goods, is enhanced by an increase in GDP per capita,
even though beyond a threshold point, any increases in economic growth dampen openness.
Chart 6
The share in the world market in the last decade has been more or less hovering around 1.5 to
1.6 percent (chart 8).
India’s performance in the world market is analysed in the following paragraphs (charts 9 and
10).
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Chart 7
Chart 8
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Geographical Orientation of Exports
United States of America United Arab Emirates China Hong Kong, China
Singapore United Kingdom Germany Bangladesh
Netherlands Nepal Belgium Viet Nam
Malaysia Saudi Arabia Italy Turkey
France

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The pie-chart clearly shows that nearly half of India’s exports go to just ten countries (chart
10). This indicates concentration of exports in terms of destination countries.
Chart 9
Both the diversity indices of market and product (at HS-2 level) are at moderate levels as
compared to the BRICS countries. There has been a marginal increase in the market diversity
index (chart 11).
Whereas the product diversity index is at a higher level than it was in 2009. The index has
shown a steady trend after reaching a high in 2015 (chart 12).
Chart 10
From the foregoing analysis it can be seen that though India’s exports have grown in terms of
value, the share in world exports has remained stagnant. Juxtaposed against a sharper increase
in imports, this has resulted in a widening of trade deficit. With this backdrop, the following
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sections (sections IV and V) construct a gravity model for India to identify the variables that
play a key role in determining our exports. Section IV lists the data sources and methodology
which is followed by the empirical construct in Section V.
List of Top 14 Export Potential Countries and their respective Product-wise Tables:
United States of
America
United Arab
Emirates
China Hong Kong Singapore
United
Kingdom
Germany Bangladesh Netherlands Nepal
Belgium Vietnam Malaysia Saudi Arabia
United States of America
Trade in products and services between India and the US increased from $68.4 billion to $142
billion at an average annual growth rate of 7.59 percent. if the agreement is accepted.
Additionally, the US ($3.13 billion in 2018–19) is the greatest source of FDI and a significant
investor. A trade agreement can be followed by an investment agreement. India has to create
more jobs, which can only be done by expanding manufacturing and exports. Future-oriented
commitment to establishing positive bilateral economic ties between the US and India must
begin immediately.
United Arab Emirates
The centuries-old ties between the two nations are in the midst of a golden period. The bilateral
relationship has grown and evolved into a comprehensive strategic partnership, according to
India's ambassador to the UAE, as both nations continue to seek deeper collaboration in new
sectors. After the US and China, the UAE surpassed $60 billion in bilateral trade during the
2018–19 fiscal year, making it India's third-largest trading partner. $30.2 billion was sent to
the UAE, while $29.8 billion was imported from the UAE. As the two countries have
established a $100 billion trade objective by 2020, it is predicted that the figures would increase
dramatically in the upcoming years. Currently, UAE investments in India are estimated to be
close to $13-14 billion, primarily in five sectors: air transport, power,
construction/development of the real estate, services, and hotels and tourism. Also, Expo 2020
will build on the 20 percent increase in our trade and will enable us to move significantly

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towards the trade target of $100 billion. To achieve this target, competitiveness has to improve
for products that have an export value of more than $500 million, while value has to be
increased for many products which have significant global share and high comparative
advantage.
China
India-China bilateral trade declined by about $3 billion last year while India's trade deficit
continues to be high at $53.5 billion as both countries faced economic slowdown. The widening
trade deficit has become a big concern for India in bilateral relations between India and China.
India wants China to open up its IT, agri-food, and pharmaceutical sectors to allow it to expand
its exports. “Gross Chinese investment in India amounted to $5.08 billion by the end of
September 2019.” (China’s Ministry of Trade)
The majority of the items shipped to China are intermediate products and raw materials, which
account for more than 7% of total exports. whereas China's imports are dominated by
manufactured items, particularly electronics, communications equipment, electrical
equipment, and medicines. The mismatch between bilateral exports and imports is highlighted
by India's import basket, which points to a considerable demand for Chinese goods in important
industries.
The three categories of commodities are in a similar condition to the UAE. The items with
higher potential do not seem to be in line with the higher-performing ones. Therefore, there is
plenty of room to expand trade with China, which would then increase the value of our exports
and help us close our growing trade deficit.
Hong Kong
Imports from Hong Kong also increased in recent times and the balance of trade during this
period was in Hong Kong’s favor amounting to $5000 million. Retaining its position as the 7th
largest trading partner of Hong Kong, about 90% of India's exports are gems and jewellery
related. Other than that, exports include, mineral fuels, electrical machinery, leather, iron &
steel, fish & crustaceans, cotton, organic chemicals, machinery and articles of apparel while
Indian imports from Hong Kong include pearls, precious and semi-precious stones, electrical
machinery, machinery, optical & medical instruments, clocks & watches, plastic and articles
thereof, special woven fabrics, miscellaneous manufactured articles, edible fruits & nuts and
paper. With the signing up of Double Taxation Avoidance Agreement (DTAA), investments

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from Hong Kong to India are expected to increase.
The Trade Promotion Council of India claims that over the same time period, there was a one-
to-one product link between decreased shipment from China to India and a similar rise from
Hong Kong to India. As it is interesting to note from the data that major products like electrical
machinery, nuclear reactors, mineral fuels, and iron and steel among others are mainly
produced in China and not Hong Kong, China and Hong Kong may be treated as a
complementing entity for all trade purposes and calculating trade figures. More micro-level
study is required to investigate this situation of round-tripping across Hong Kong because the
list of enhancers vastly outweighs the achievers and aspirers.
Singapore
It is the fifth-highest prospective country with a value of exports to Singapore that has increased
by 13.5%. The $28 billion in overall commerce has given Singapore and its businesses reason
for optimism on India's long-term prospects. The total amount of investment has also increased,
particularly in logistics and services, but more attention should be paid to signing agreements
that will increase the value and proportion of India's exports.
United Kingdom
Even though in the last 3 years India-U.K. bilateral trade has increased over 27% the table
clearly shows signs of significant amelioration. With no achiever or aspirer, and the political
instability regarding Brexit, near term prospects do not seem very encouraging.
Germany
India-Germany trade of $24 billion has increased only partially in the last couple of years.
Other than exporting nuclear reactors, boilers, and machinery no other product has fared well.
Manufacturing exports should be the main concern while making trade deals or negotiations.
Bangladesh
With distance not being a barrier and a long-shared history between the two neighbors, India
has to diversify the range of products exported to Bangladesh. Although total trade has been
increasing in the past, the number has not seen a significant rise in the last 2-3 financial years.
The growth rate of Bangladesh has surpassed that of India due to its high intensity of exports
in the primary sector, especially textiles and agriculture. This might be a problem for India and
the only way out is diversification.

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Netherlands and Nepal
Both Netherlands (40.75) (above) and Nepal (17.5%) (below) have seen a significant rise in
trade with India in both value and share. However, other than the export of minerals fuels, the
export performance has been dismal. Still, there is scope for improvement and the products
with the potential to do so have been mentioned in the tables.
Belgium
Coming to Belgium, if we rule out the fact that Gujarat has a significant global share in the
diamond cutting industry and Antwerp is the “Diamond Capital of the World” India does not
perform well at other sectors when exporting to Belgium.
Malaysia
India and Malaysia are connected by various cultural and historical links dating back to
antiquity. Our bilateral trade level on the trade front stands at $10.5 billion and was expected
to hit $25 billion by 2020. Recent ban on refined palm oil, imposed by India, may hinder the
good relations of the past, along with the trade potential.
Looking at the list of the tables for the 9 countries mentioned above after Hong Kong, a certain
similarity can be noticed in the export potential basket for India. Although the products with
high potential are somewhat different as per the needs of the different countries, one thing that
is recurring is the poor performance, in value terms, of the products which have a high
comparative advantage and notable share in the world market. With only one or two products
surpassing the $1 billion or $500 million marks, the situation is not very encouraging. To
ameliorate this scenario, identification of products that are performing well in the last two
columns of each table is done.
The government needs to enhance the capacity to export such goods and increase their value
to make them reach at least the $500 million thresholds. Another trade indicator that should
automatically adjust itself, if the potentials are realized, is the trade deficit with all the countries
other than the United Kingdom and to some extent Vietnam. Out of the top 14 export potential
nations, India only has a surplus in two countries (one being the UK where we do not export
any goods that value more than $500 million).

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Saudi Arabia
India has a huge trade deficit with Saudi Arabia. India imports goods worth nearly 5 times than
what it exports. Most of the deficit is due to the huge import of crude oil and related products.
However, the relationship between the two countries is expected to elevate to that of a strategic
partnership as Saudi Arabia sees investment opportunity of $100 billion worth in India.
Conclusion and Policy Recommendations:
India's economy has undergone a full transformation as a result of its foreign policy since post-
liberalization. India chose an export-led economic strategy and gave export promotion priority
as a result of its outward-looking policy. The major strategies for increasing the nation's exports
were trade and investment. The amount and make-up of exports have varied in recent decades.
Although services continue to be the mainstay of Indian export growth, the country's economy
is actively promoting industrial exports. The current study has two goals in mind. The research
begins by examining the trends that have an impact on Indian exports before utilizing quarterly
data from 2008 to 2018 to apply a gravity model of trade. The majority of the findings were
consistent with theory: commerce is hampered by distance and tariffs whereas respectable
economies' sizes and the existence of a shared official language with India support exports.
The negative sign for the contiguity variable was one odd outcome. Although the outcome
deviates from the norm, it is also not unexpected. India exports far more (in terms of value) to
other nations than its neighbours, which explains why. The relevance of FTAs for India is still
another factor. The tariff variable is rendered meaningless by the inclusion of the FTA dummy
in the model, which is what should happen given that nations who have such agreements with
India no longer need to worry about tariffs. However, India's FTA results have not been very
promising. The necessity for TAs that would facilitate greater integration in global value chains
must be emphasised. The TAs should also make it possible for products to enter emerging
markets when the nation has a competitive advantage over its rivals (ref 28). These factors are
significant and must to be taken into account when creating new contracts and rules.
Finding a route to increase India's exports' value is the study's key goal. Although more than
96% of the world's exports (measured in terms of number of products) are made up of exported
goods, the percentage of exports measured in terms of product value is incredibly low and is

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not increasing. To maximize the nation's export potential, diversification (in markets and
goods) and an increase in exports are recommended. In order to improve India's terms of trade,
lower its trade and current account deficits, and boost its market share, new policy measures
are required. In order to do this, we've identified six HS-6 products with a share of more than
1.7% and an export value of more than $1 billion: semi-milled or fully milled rice, light oil
preparations, petroleum oils, and oils derived from bituminous minerals (aside from crude),
pharmaceuticals, diamonds (cut or otherwise, but not mounted or set), and articles of jewelry
made of precious metals (other than silver). However, these goods often do poorly in the top
14 export-prospective nations (excl. USA and UAE). Along with marketing the aforementioned
products, newer commodities that can be exchanged with any of the 14 nations should be found.