1 PHD Research Bureau November 2015 India’s Exports Diversification - Crisscross Outcomes Executive Summary India’s exports have witnessed an upward and steady growth after the Economic Reforms of 1991. India’s exports were registered at US$18 billion in 1991-92, increased by 9.6% (CAGR) to US$45billion in 2000-01 and by 17%(CAGR) to US$163 in 2007-08 when the global recession of 2008 jolted this upward rising trend. Annual export growth rate registered at 29 % in 2007-08 declined to 13.6% in 2008-09 and turned negative at (-) 3.5% in 2009-10. This significant decline in India’s exports was primarily due to overdependence on a few export destinations viz. USA and EU which together comprised of around 40% share in India’s total exports. It was realized that exports concentration on only a few markets was really an impediment to achieve a steady and sustainable exports growth. Therefore, Indian Government then embarked upon a diversification strategy wherein exporters were encouraged to venture into new export destinations. As an aftermath of the Government various remedial policy actions and strategies, barring few years India’s exports are still recording a negative growth rate. The trend has been indeed alarming and pushed us to review the policy measures especially relating to export diversification which were undertaken by the Government in the wake of slowdown in the traditional export destinations. At this backdrop, PHD Research Bureau of the PHD Chamber has conducted a study to analyze changes in India’s direction and composition of exports as a consequence of the measures taken during the last few years on diversifying into new markets and new products. Furthermore, changes in India’s direction and composition of exports are also measured in terms of export concentration and diversification. The analysis shows that the share of developed regions (EU and America) which was approximately 50% in India’s exports by the end of the first decade of economic reforms in FY2000 declined to 44% in FY2005 and 36.5% in FY2010. Though the share of these regions has registered a marginal increase to 37.2% in FY2015, it is still relatively less than the share of other developing regions (Asia and Africa) in the same year. The share of the fastest developing region viz. Asia in India’s total exports witnessed a rise from around 37% in FY2000 to 48% in FY2005 and 52% in FY2010. The share of Asia in India’s exports has reported a decline to around 50% in FY2015; but is still the highest amongst all regions. The region Africa has also registered a significant rise of share in India’s exports from 5% in FY2000 to around 7% inFY2005 andFY2010 and 11% in FY2015. Measuring the shift of India’s share from developed economies to developing economies by using a standard measure of export market diversification i.e. Regional Hirshman Index (RHI) shows that RHI for Europe and America has declined from 0.067 and 0.061 in FY 2000 to
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India’s exports have witnessed an upward and steady growth after the Economic Reforms of 1991. India’s exports were registered at US$18 billion in 1991-92, increased by 9.6% (CAGR) to US$45billion in 2000-01 and by 17%(CAGR) to US$163 in 2007-08 when the global recession of 2008 jolted this upward rising trend. Annual export growth rate registered at 29 % in 2007-08 declined to 13.6% in 2008-09 and turned negative at (-) 3.5% in 2009-10. This significant decline in India’s exports was primarily due to overdependence on a few export destinations viz. USA and EU which together comprised of around 40% share in India’s total exports.
It was realized that exports concentration on only a few markets was really an impediment to achieve a steady and sustainable exports growth. Therefore, Indian Government then embarked upon a diversification strategy wherein exporters were encouraged to venture into new export destinations.
As an aftermath of the Government various remedial policy actions and strategies, barring few years India’s exports are still recording a negative growth rate. The trend has been indeed alarming and pushed us to review the policy measures especially relating to export diversification which were undertaken by the Government in the wake of slowdown in the traditional export destinations.
At this backdrop, PHD Research Bureau of the PHD Chamber has conducted a study to analyze changes in India’s direction and composition of exports as a consequence of the measures taken during the last few years on diversifying into new markets and new products. Furthermore, changes in India’s direction and composition of exports are also measured in terms of export concentration and diversification.
The analysis shows that the share of developed regions (EU and America) which was approximately 50% in India’s exports by the end of the first decade of economic reforms in FY2000 declined to 44% in FY2005 and 36.5% in FY2010. Though the share of these regions has registered a marginal increase to 37.2% in FY2015, it is still relatively less than the share of other developing regions (Asia and Africa) in the same year.
The share of the fastest developing region viz. Asia in India’s total exports witnessed a rise from around 37% in FY2000 to 48% in FY2005 and 52% in FY2010. The share of Asia in India’s exports has reported a decline to around 50% in FY2015; but is still the highest amongst all regions. The region Africa has also registered a significant rise of share in India’s exports from 5% in FY2000 to around 7% inFY2005 andFY2010 and 11% in FY2015.
Measuring the shift of India’s share from developed economies to developing economies by using a standard measure of export market diversification i.e. Regional Hirshman Index (RHI) shows that RHI for Europe and America has declined from 0.067 and 0.061 in FY 2000 to
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0.033 and 0.036 in FY2015 which apparently indicate that India’s concentration of exports in these markets have reduced and are tilted towards the other regions viz. Asia and Africa. RHI for Asia has witnessed a significant rise from 0.14 in FY2000 to 0.24 in FY2015 and RHI for Africa has increased from 0.002 in FY2000 to 0.0112.
Overall, RHI of India’s exports has reported a rise from 0.52 in FY2000 to 0.57 in FY2005 and 0.59 in FY2010, however it declined to 0.57 in FY2015. This suggests that India’s exports have been marginally diversified to non-traditional markets in last few years. With regard to India’s exports product composition to different regions, the data indicate that India’s exports are still concentrated in top 10 export commodities across almost all regions.
Measuring the shift of India’s share from traditional to non traditional products pertaining to different regions by using a standard measure of export product diversification i.e. Sectoral Hirshman Index (SHI)shows that SHI of India’s exports has reported a rise from around 0.32 in FY2000 to 0.36 in FY2005, 0.41 in FY2010 and 0.40 in FY2014. This indicates that contrary to expectations of a decline in product export concentration in the light of various product diversification measures undertaken by the government, product export concentration has gone up and there is a bleak sign of its reduction in the near future.
Though the Central Government has undertaken several measures for encouraging exporters to venture into new markets and to develop new products accordingly, however a desired level of export diversification is still a distant reality. This is because of several causes which are seen as impediments to enhance level of diversification for India’s export products and destinations. These causes are identified on the basis of primary survey wherein around 15 exporters (MSMES and Large) were personally interviewed.
The survey revealed that small exporters are not preferring to venture into new markets or into new products as it involves huge funds and risks, whereas large exporters are constantly trying to build new customer base across different parts of the world while maintaining commercial relations with their existing customers’ markets.
With regard to the benefits provided/extended by the government eventually for diversifying into new markets and products views of the small exporters’ are highly pessimistic. According to them, they do not get information about the benefits provided by the government for exports diversification.
Exporters reported lack of adequate financial facilities, frequent changes in tax rates, interest rates, forex rates, lack of comprehensive market information as the major problems for diversifying into new markets. Therefore It is suggested that the government should assist MSMEs exporters by providing them all necessary resources viz. finance, technology, marketing intelligence, export incentives.
PHD Chamber believes that export diversification strategy, if effectively implemented can enable the exporters to revive and strengthen their exports and enable the Government in achieving its long term export target of US$900 billion and enable the whole society to be benefitted in terms of employment , income and growth.
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1.0 Introduction
India’s exports have witnessed an upward and steady growth after the Economic
Reforms of 1991. India’s exports were registered at US$18 billion in 1991-92, increased
by 9.6% (CAGR) to US$45billion in 2000-01 and by 17% (CAGR) to US$163 in 2007-08
(Table -1), when the global recession of 2008 jolted this upward rising trend. Annual
export growth rate registered at 29 % in 2007-08 declined to 13.6% in 2008-09 and
turned negative at (-) 3.5% in 2009-10. This significant decline in India’s exports was
primarily due to overdependence on a few export destinations viz. USA and EU which
together comprised of around 40% share in India’s total exports.
Table - 1 India’s exports FY2001-FY2015
Source : Ministry of Commerce and Industry, GOI
At that juncture, it was realized that exports concentration on only a few markets was
really an impediment to achieve a steady and sustainable exports growth. The
Government then embarked upon a diversification strategy wherein exporters were
encouraged to venture into new export destinations. With that end in view, the
government extended various policy measures viz.Focus Market Scheme (FMS), Market
Linked Focus Product Scheme (MLFPS),Focus Product Scheme (FPS) etc. to arrest the
declining of exports in the short run and to ensure exports stability in the long run.
1) Europe 0.0673 0.055 0.046 0.033 2) America 0.0610 0.040 0.023 0.036 3) Asia 0.1402 0.229 0.273 0.246 4) Africa 0.0029 0.004 0.006 0.011 5) CIS & Baltics 0.0006 0.000 0.000 0.000 6) Unspecified Region 0.0018 0.000024 0.001 0.000
Sum of the squares of the share of regions 0.2737 0.3298 0.3481 0.3264 Regional Hirshman Index (RHI) 0.5231 0.5742 0.5900 0.5713 Source : PHD Research Bureau
Overall, RHI of India’s exports has reported a rise from 0.52 in FY2000 to 0.57 in FY2005
and 0.59 in FY2010, however it declined to 0.57 in FY2015. This suggests that India’s
exports have been marginally diversified to non-traditional markets in last few years.
However, export market concentration coefficient (0.57) is still found to be very high
and gives an indication to undertake further measures for enhancing exports to
different non-traditional markets.
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Source: PHD Research Bureau
4.3 India’s Composition of Exports - Regions Wise Analysis
With regard to India’s exports product composition to different regions, the data
indicate that India’s exports are still concentrated in top 10 export commodities across
almost all regions.
Table - 5 Share of top 10 export commodities to different regions (%) Regions FY2000 FY2005 FY2010 FY2015 Europe 58.01 55.09 63.92 57.12 America 71.98 67.97 68.96 65.97
Asia 60.76 65.25 68.28 65.08 Africa 63.59 70.2 71.74 72.53
CIS 81.26 72.33 70.21 63.71 Source : PHD Research Bureau, Compiled from Ministry of Commerce & Industry , GOI
The share of top 10 exports to Europe from India increased from 58% in FY2000 to 63%
in FY2010 but, declined to 57% in FY2015 indicating that India’s export has diversified
over a period of time and especially during the post crisis. However, share of 57% of top
10 export products to Europe is still very high suggesting the country to enhance its
0.523
0.574
0.590
0.571
0.480
0.500
0.520
0.540
0.560
0.580
0.600
FY2000 FY2005 FY2010 FY2015
Figure - 2 Regional Hirshman Index (RHI)
RHI
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export basket for the region in the light of its changing demands and preferences.
Presently, conventional export products viz. apparels, mineral fuels, articles of iron and
steel , natural or cultured pearls are still in the top 10 export products to Europe, while
only few products viz. electrical machinery, aircrafts, ships, boats, have entered the top
The shift of India’s share from traditional to non traditional products pertaining to
different regions can be measured by using a standard measure of export product
diversification i.e. Sectoral Hirshman Index (SHI) which is calculated as below:
Sectoral Hirshman Index = SHI = sqrt [sum (xi / Xt)^2]
Where, SHI -SectoralHirshman Index
xi - Exports of product i
Xt - Total exports of the country
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The highest possible value of commodity concentration index (SHI) is 1; this occurs
when total exports are comprised of only one commodity. The index enables us to find
whether India’s exports are diversifying to new products and to what extent.
Table -6 Export Product Concentration - SectoralHirshman Index (SHI)
Year
Exports of Top 10 Commodities
(US$bn)
% Share of Top 10 Export Commodities in India's
Exports SHI
FY2000 20.7 56.3 0.317
FY2005 50.2 60.05 0.361
FY2010 114.3 63.9 0.408
FY2014* 200 63.5 0.403 Source : PHD Research Bureau, complied from Ministry of Commerce and Industry * FY2014 is taken instead of FY2015, because new commodity classification has been adopted since FY2015
Overall, SHI of India’s exports has reported a rise from around 0.32 in FY2000 to 0.36 in
FY2005, 0.41 in FY2010 and 0.40 in FY2014. This suggests that India’s product export
concentration has increased contrary to the expectations of its decline in the light of
undertaking various product diversification measures by the Government.
Exporters have reported lack of adequate financial facilities, frequent changes in tax
rates, interest rates,forex rates, lack of comprehensive market information as
the major problems for diversifying into new markets.
Conclusions and Suggestions
The analysis shows that as the Government is highly focused upon export diversification
strategy to enhance India’s exports and the scope and benefits for the dedicated schemes
relating to export diversification has eventually enhanced, especially during the post crisis.
As a result, export market and product concentration has witnessed a decline in last few
years. India’s exports have been observed shifting from the developed to the developing
regions and share of top 10 export commodities to different regions has also been reduced
marginally. However, the country has not marked a significant change pertaining to
diversification of India’s exports and in fact achieving the desired level of diversification still
seems to be far away from the reality. In the present times, when India’s major export
destinations USA and EU are facing slowdown period it is preferable for the exporters to
explore new business avenues in the different markets.
But, because of various problems viz. lack of adequate finance and knowledge, incapabilities
of taking high risk , high transaction costs, lack of knowledge about the government
assistance programs MSMEs exporters do not prefer to enter into new markets with new
products . Since, MSMEs exporters comprises of a major chunk of overall Indian industry ,
any efforts made in the direction of export diversification will not generate effective and
fruitful results, if their interest are ignored.
It is suggested that first the government should assist MSMEs exporters by providing them
all necessary resources viz. finance, technology, marketing intelligence, export incentives;
second , various domestic constraints viz. high transaction costs, multiple taxes, lack of
proper infrastructure should be addressed to on an urgent basis; third , MSMEs exporters
should be well encouraged to participate in various national and international trade shows;
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last but not the least, technological collaboration with foreign partners should be further
enhanced and the ongoing alliances with foreign partners should be well routed to the
MSMEs exporters.
Export diversification strategy is an effective tool which if effectively implemented can
enable the exporters to revive and strengthen their exports and enable the Government to
achieve its long term export target of US$900 billion and thus enable the whole society to
be benefitted in terms of employment , income and growth.
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Annexure – A
Table : A.1 India's Exports to Europe: Trend Analysis
Source: PHD Research Bureau, compiled from Ministry of Commerce & Industry, Government of India.
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Table : A.2 India's Exports to America: Trend Analysis
Source: PHD Research Bureau, compiled from Ministry of Commerce & Industry, Government of India.
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Table : A.3 India's Exports to Asia: Trend Analysis
Source: PHD Research Bureau, compiled from Ministry of Commerce & Industry, Government of India.
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Table : A.4 India's Exports to Africa: Trend Analysis
Source: PHD Research Bureau, compiled from Ministry of Commerce & Industry, Government of India.
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Table : A.6 India's Exports to CIS: Trend Analysis
Source: PHD Research Bureau, compiled from Ministry of Commerce & Industry, Government of India.
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Project Team
Dr. S P Sharma Chief Economist & Director of Research Ms. Rashmi Taneja Senior Research Officer
Disclaimer
Study on “India’s Exports Diversification: Crisscross Outcomes” is prepared by PHD Chamber of Commerce and Industry. This report may not be reproduced, wholly or partly in any material form, or modified, without prior approval from PHD Chamber of Commerce and Industry. It may please be noted that this report is for guidance and information purposes only. Though due care has been taken to ensure accuracy of the information to the best of the PHD Chamber's knowledge and belief, it is strongly recommended that readers should seek specific professional advice before making any decisions. Please note that the PHD Chamber of Commerce and Industry does not take any responsibility for outcome of decisions taken as a result of relying on the content of this report. PHD Chamber of Commerce and Industry shall in no way, be liable for any direct or indirect damages that may arise due to any act or omission on the part of the reader or user due to any reliance placed or guidance taken from any portion of this publication.
Copyright 2015 PHD Chamber of Commerce and Industry ISBN No. 978 93 84145 22 4
ALL RIGHTS RESERVED. No part of this publication including the cover, shall be reproduced, stored in a retrieval system, or transmitted by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of, and acknowledgement of the publisher (PHD Chamber of Commerce and Industry).
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Studies Undertaken by PHD Research Bureau
A: Thematic research reports 1. Comparative study on power situation in Northern and Central states of India (September 2011) 2. Economic Analysis of State (October 2011) 3. Growth Prospects of the Indian Economy, Vision 2021 (December 2011) 4. Budget 2012-13: Move Towards Consolidation (March 2012) 5. Emerging Trends in Exchange Rate Volatility (Apr 2012) 6. The Indian Direct Selling Industry Annual Survey 2010-11 (May 2012) 7. Global Economic Challenges: Implications for India (May 2012) 8. India Agronomics: An Agriculture Economy Update (August 2012) 9. Reforms to Push Growth on High Road (September 2012) 10. The Indian Direct Selling Industry Annual Survey 2011-12: Beating Slowdown (March 2013) 11. Budget 2013-14: Moving on reforms (March 2013) 12. India- Africa Promise Diverse Opportunities (November 2013) 13. India- Africa Promise Diverse Opportunities: Suggestions Report (November 2013) 14. Annual survey of Indian Direct Selling Industry-2012-13 (December 2013) 15. Imperatives for Double Digit Growth (December 2013) 16. Women Safety in Delhi: Issues and Challenges to Employment (March 2014) 17. Emerging Contours in the MSME sector of Uttarakhand (April 2014) 18. Roadmap for New Government (May 2014) 19. Youth Economics (May 2014) 20. Economy on the Eve of Union Budget 2014-15 (July 2014) 21. Budget 2014-15:Promise of Progress (July 2014) 22. Agronomics 2014:Impact on economic growth and inflation (August 2014) 23. 100 Days of new Government (September 2014) 24. Make in India: Bolstering Manufacturing Sector (October 2014) 25. The Indian Direct Selling Industry Annual Survey 2013-14 (November 2014) 26. Participated in a survey to audit SEZs in India with CAG Office of India (November 2014) 27. Role of MSMEs in Make in India with reference to Ease of Doing Business in Ghaziabad (Nov 2014) 28. Exploring Prospects for Make in India and Made in India: A Study (January 2015) 29. SEZs in India : Criss-Cross Concerns (February 2015) 30. Socio-Economic Impact of Check Dams in Sikar District of Rajasthan (February 2015) 31. India - USA Economic Relations (February 2015) 32. Economy on the Eve of Union Budget 2015-16 (February 2015) 33. Budget Analysis (2015-16) 34. Druzhba-Dosti: India's Trade Opportunities with Russia (April 2015) 35. Impact of Labour Reforms on Industry in Rajasthan: A survey study (July 2015) 36. Progress of Make in India, September 2015 B: State profiles 36. Rajasthan: The State Profile (April 2011) 37. Uttarakhand: The State Profile (June 2011) 38. Punjab : The State Profile (November 2011) 39. J&K: The State Profile (December 2011) 40. Uttar Pradesh: The State Profile (December 2011) 41. Bihar: The State Profile (June 2012) 42. Himachal Pradesh: The State Profile (June 2012) 43. Madhya Pradesh: The State Profile (August 2012) 44. Resurgent Bihar (April 2013) 45. Life ahead for Uttarakhand (August 2013) 46. Punjab : The State Profile (February 2014) 47. Haryana: Bolstering Industrialization (May 2015) 48. Progressive Uttar Pradesh: Building Uttar Pradesh of Tomorrow (August 2015) 49. Progressive Uttar Pradesh: Building Uttar Pradesh of Tomorrow, Recommendations Report (September 2015)
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PHD Research Bureau
PHD Research Bureau; the research arm of the PHD Chamber of Commerce and Industry was constituted in 2010 with the objective to review the economic situation and policy developments at sub-national, national and international levels and comment on them in order to update the members from time to time, to present suitable memoranda to the government as and when required, to prepare State Profiles and to conduct thematic research studies on various socio-economic and business developments. The Research Bureau has been instrumental in forecasting various lead economic indicators national and sub-national. Many of its research reports have been widely covered by media and leading newspapers.
Dr. S P Sharma Chief Economist & Director of Research