Exports have moved up the value chain and are less vulnerable to changes in global demand
The latest Balance of Payments data released by the Reserve Bank of India for the second quarter of this fiscal points to a familiar story — of services exports being instrumental in keeping the current account deficit under check. This ties in with a recent paper on export trends since the 1990s put out by the Office of the Chief Economic Adviser (one among a set of papers titled ‘Re-examining Narratives — A Collection of Essays), which observes that services (and goods) exports have moved up the value chain and are less vulnerable to changes in global demand.
The paper observes that India has come a long way from the early 2000s when it would offer “cost-cutting, back-end IT services”. Now, it offers high value services in IT, law and management, while being part of global value chains in software. India has capabilities at the front and back end of the services value chain, as a result of which it has secured market power, the paper says. It is, however, hard to delve into specifics in the absence of granular data on services.
Meanwhile, the export data for April-November this year point to a divergent trend in manufacturing and services exports. While services exports were up 5.93 per cent, merchandise exports were down 6.3 per cent.The burden of the Finance Ministry paper is that income elasticity of all exports (responsiveness of export growth to changes in global demand) has fallen from 5.67 for the period 1991-2008 to 3.44 for the period 2009-22). The price elasticity of exports has fallen more sharply over this period from minus 2.7 to minus 0.4. Macro figures on elasticities, however, do not shed light on conditions across the diverse range of goods and services. The paper, however, concedes some weakness in the manufacturing space when it says that the drop in elasticities “could be explained by a growing share of services exports”. Within manufacturing, however, it says that some sectors have evolved in ‘complexity’ and sophistication, such as high value engineering goods, chemicals, transportation, pharmaceuticals and petroleum products. As many as 628 new products entered India’s export basket between 1990 and 2022.
But the paper makes a significant, but passing, observation when it says that India’s export advantage had improved for the above-mentioned sectors that had evolved in complexity, but dropped in textiles, footwear, clothing, hides and skin, stones, glass and minerals. Since the latter are traditional sectors, which employ millions, this imbalance must be given due attention. If services alone are to power India’s exports, it is a matter of concern.
India’s exports have evolved, but schemes such as the PLI must be subject to constant review. Meanwhile, exports will run up against ever new trade barriers in the form of environment, IPR, labour, sanitary and phytosanitary curbs and gender. India must break into newer markets in the East to overcome these curbs, while fighting for its exporters in world forums.
Comments
aniltikotekar4sme.com 