India since liberalization: A look at share of commodities in exports.

New Delhi: Twenty-five years since India’s liberalization, here’s a look at how the share of commodities in the overall exports basket has changed.

India’s trade profile has seen a significant change since the first foreign trade policy was unveiled between July 1991 and March 1992 in a series of steps by then commerce minister P. Chidambaram.

These measures gradually dismantled the quantitative restrictions on imports in the form of import licences on most products and abolished the office of the chief controller of imports and exports, replacing it with the Directorate General of Foreign Trade.

India’s peak import duties which were among the highest in the world at over 200% in 1991 were gradually brought down to 45% by 1997-98. Now the peak customs duty stands at only 10%.

The share of manufacturing in the Indian exports basket saw a nominal rise from 78% in 92-93 to 84% in 2015-16.

But there has been a marked change in the composition of India’s export basket—the share of leather, textiles and ready-made garments has fallen sharply reducing while items like engineering goods and chemical products have seen a strong rise during the same period.

Madan Sabnavis, chief economist at Care Ratings said the change in composition from traditional goods to sophisticated goods is encouraging.

“Demand for engineering and chemical products is elastic. Developed countries are importing chemical-based products like pesticides as these commodities create environmental problems during production in their own countries,” he said.

K. J Joseph, ministry of commerce chair professor at the Centre of Development Studies, Trivandrum, said India’s manufacturing exports have lagged behind due to a lack of innovation culture. “Sadly in case of India, there are reasons to believe that we are yet to evolve a vibrant innovation system at the national level. This is not to underplay the existence of certain extent of vibrancy at the level of certain sectors which also present better export performance,” he added.

The share of petroleum and crude products has also increased from 3% in 1992-93 to 12% in 2015-16 after the discovery of oil and gas reserves, especially in the Krishna-Godavari basin.

Alongside the rise in manufacturing products and petroleum products, the share of agriculture and allied product has fallen from 17% to 14% and that of ores and minerals from 4% to less than 1% during the same period.

However, the domestic value addition to the overall merchandise exports has been falling, which has caused concern. According to the Economic Survey 2014-15, the domestic value addition for overall merchandise exports fell from 85% in the 1998-99 to 71% in 2007-08, implying more import content in India’s export basket.

Rashmi Banga, economist at the United Nations Conference on Trade and Development, pointed out in an article published in the Economic and Political Weekly in October 2014 that even if manufacturing output grows and exports rise, unless domestic value addition rises, there will be no commensurate production-linked gains like employment generation, technology upgradation and skill development.

“Declining value-added growth can lead to a stage where the industries will need to increase their imports of inputs but will not be able to add much value to their exports and will thus slowly hollow-out,” she wrote.

India’s share in global merchandise exports hasn’t increased much. While in 2004-05, India’s merchandise exports had a share of 0.9%, it increased to 1.6% by 2014-15.

Source : livemint.com