India’s export opportunities in Post-COVID world

  • IASbaba
  • October 14, 2020
  • 0
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Topic: General Studies 3:

  • Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment. 

India’s export opportunities in Post-COVID world

Context: The recent embracement of atmanirbharta by India’s intellectual and policy community. This inward turn — actually return — amounts to abandoning two core principles of the post-1991 consensus: 

  1. Export-orientation on the macro-economic side
  2. Slow but steady liberalisation on the trade side

The inward turn is based on three misconceptions of diagnosis

First, the perception is that India’s growth success since 1991 has not really been based on exports and certainly not on manufacturing exports.

  • This is wrong. India has been a model of spectacular export success and an exemplar of export-led growth.
  • Between 1995 and 2018, India’s overall export growth (in dollars) averaged 13.4% annually, the third best performance in the world amongst the top 50 exporters
  • Most strikingly, India’s manufacturing exports (in dollars) grew on average by a 12.1%, the third-best performance in the world, and nearly twice the world average. Only China and Vietnam surpassed India.
  • In each of the three decades since the 1990s, exports contributed about one-third of overall growth. As a result, India’s export-GDP ratio is currently 20 per cent, more than twice as high as in the early 1990s.
  • Thus, an export slowdown today is likely to have a more consequential impact on the overall economy. 
  • Every 5 per cent of the export growth foregone will shave off 1 per cent in overall GDP growth.

Second, is a pessimistic outlook about India’s future export

  • Export pessimism is based on expectations of deglobalisation abroad and weak performance at home. 
  • But India can gain market share even in a deglobalising world
  • In the 2010s, world exports were stagnant and yet India’s exports grew by about 3 per cent. This was true in both manufacturing and services
  • In present times, China’s secular ceding of low-skill export space provides further opportunity for Indian exports to expand in world market.
  • Also, one of the virtues of past under-performance is that the future can be more accommodating to India and less intimidating for the world.
  • In the Post-COVID world, activities that can be done at a distance — and tradable services are exactly that — could benefit enormously and India can tap into its comparative advantage in service exports.

Third, there is a strong belief that India’s market is big enough to sustain growth going forward and make up for the loss of opportunities overseas.

  • At $2.9 trillion, and as the fifth largest in the world, India’s GDP seems alluringly big. 
  • But if the domestic market is to sustain growth, we need to look at the size of the market (say the “middle class”) with some amount of purchasing power over manufacturing goods and services.
  • The middle class market size is between 15 and 40 per cent of GDP, which is smaller than commonly believed 
  • Also, there are a lot of poor people with limited purchasing power and a few people with a lot of purchasing power who, however, save a lot. Both of these factors can reduce the market for consumption.
  • The delusion of size is making policy-makers set their sights on the domestic market when it should be on the world market.


India’s growth model has been an export-led one and should not be abandoned. Moreover, India’s export opportunities in general and in specific sectors could be significant even in a post-COVID world.

Connecting the dots:

  • US-China Trade War
  • Supply Chain Resilience Initiative

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