Exports: Breaking Into Top Five

In 2014, India was a marginal player in export of molasses, a by-product of sugar manufacturing. Between 2014 and 2022, India’s molasses exports grew from $12.92 million ($933 million global market) to $265.55 million ($1,005 million global market). From 1.38% market share and 21st position in 2014, India jumped to the number one molasses exporter in 2022, the latest year for which global trade data is available; market share touched 26.41%. What made the difference was a decision by key importers — North European countries use molasses in cattle feed — to switch to India due to lower cost. “It was a win-win situation. The sugar miller, who was getting ₹5,000 for one-tonne molasses in domestic market, started getting ₹10,000. North European countries found India good in both price and quality,” says Prakash P. Naiknavare, managing director, National Federation of Cooperative Sugar Factories.

Despite being a marginal player in goods with less than 2% market share, India has become one of the top five exporters in several products, besides molasses. For instance, it moved from 14th to 4th position in certain categories of petroleum products between 2014 and 2022. In some precious and semi-precious stones, it moved from 11th to top position. In aluminium, it moved from 35th to 5th (tubes, pipe fittings) and 9th to 2nd (unwrought aluminium) ranks. In cyclic hydrocarbons, it went from 8th to 5th with 8.4% market share. What does this signify?

Commerce ministry data shows: First, the number of tariff lines (classified under four-digit HS Codes) where India is among top five exporters rose from 169 in 2014 to 218 in 2022. As total tariff lines are 1,228, this means India is in top five in about 20% tariff lines. India’s average share in these was 10.35%, several times its share in global exports. Second, cumulative value of these exports was $261.09 billion, over 50% of total merchandise exports, in 2022. Third, 5% of these products moved to top five when global trade was facing massive disruptions due to Covid and geopolitical tensions.

It’s obvious that favourable policy changes, geopolitical developments, labour/cost arbitrage and efforts by export promotion agencies to explore new markets have increased acceptance of select Indian products in recent years. At the same time, overall export numbers show that such product-specific, micro-level changes have made little impact on country’s share in exports or growth in total value of exports. Is this contradictory? Should increase in global market share of some Indian products, without an overall impact, merit attention? Is growth in these products sustainable? For answers, let’s take a closer look at key sectors where India has managed to take leadership.

Value Matters

India has been a world leader in gems and jewellery exports for more than a decade. It held 24.22% share in diamonds, cut or uncut, with $24.1 billion exports in 2014. It retained its position in 2022 with share rising to 27.5% despite decline in global demand. However, in precious and semi-precious stones — a related category with significantly smaller market value — it moved from 11th place with 2.64% market share in 2014 to number one in 2022 with 34.45% market share. In value terms, exports under this tariff line fetched $1.9 billion in 2022 as against $30.4 million in 2014.

Vipul Shah, CEO & MD, Asian Star, and chairman, Gems and Jewellery Export Promotion Council, attributes India’s leadership in the sector to conducive government policies. “A key advantage and pillar of this industry are our skilled artisans. Over the years, we have bolstered our infrastructure and manufacturing capabilities through advanced technologies and machinery, aimed at enhancing quality and productivity. India is the leader in several verticals and can fulfil any order. As a result, it is poised to strengthen its position in the sector,” says Shah.

That is not all. Petroleum products are the biggest contributor to Indian exports in value terms. India was at fifth spot in petroleum oils and oils from bituminous minerals in 2014. In 2022, it was second. Value of exports grew from $60.8 billion in 2014 to $94.4 billion in 2022 and global market share from 6.71% to 9.45%. In case of oils and other products of distillation of high temperature coal tar, and similar products in which weight of aromatic constituents exceeds that of non-aromatic constituents, India moved from 14th to 4th rank between 2014 and 2022 with exports going up from $533.6 million to $2 billion. In cyclic hydrocarbons, increase was from $2.2 billion to $3.3 billion, with India’s position going up from 8th to 5th and global market share from 3.9% to 8.4%. The revenue contribution of categories which rose to top five during the period was a fraction of what the sector was contributing as a whole.

A third example is marine exports. While frozen shrimp, with 68% share in India’s $8 billion marine exports, is leading the growth, the related segment — crustaceans, molluscs and other aquatic invertebrates, prepared or preserved — moved up the most, from 15th to 5th, but contributed only $789.7 million to export earnings in 2022, up from $111.3 million in 2014.

In FY23, India exported 17,35,286 MT seafood worth $8.09 billion, an all-time high by volume and value; frozen shrimp was the major contributor, says Dodda Venkata Swamy, chairman, Marine Products Export Development Authority. “The 10-year CAGR of frozen shrimp is 11.8%, the highest among major products exported from India,” says Swamy.

Petroleum, precious stone and marine product exports illustrate why high global share in certain tariff lines may not result in a corresponding increase in global share in merchandise trade. However, that’s not all.

Product Matters

The fact that India’s share in global exports is just 1.8% even after having 20% tariff lines in top five calls for introspection, says Ajay Sahai, CEO & DG, Federation of Indian Export Organisations. “This shows we are not in top five in products in which major trade is happening. Also, we may be in top five, but if gap between number one and 5th is, let’s say, $100 billion, we need to be worried. For instance, if we look at apparel, our exports are $14 billion, while China is at $140 billion. If we are among top five in sectors where there isn’t much difference with the number one player, it is a different picture, but if not, it is a cause for concern,” he says.

Reinforcing Sahai’s views is the list of products where India is in top five. Precious and semi-precious stones, petroleum products, aluminium, etc, are raw materials or intermediates. The only exceptions, to an extent, are electrical, electronic, marine, fabric and some iron and steel items. Despite value addition in some of these sectors, they are not the most valuable items in global trade today. For instance, apparel and textiles will be a focus area for India due to the number of jobs the sector creates, but it is not among sectors adding serious value to exports. Major contributors to exports by value are technology-driven sectors where our exports have been low. India is, in fact, a big importer of most of these products.

The Way Ahead

The ministry of commerce is looking to move beyond India’s traditionally strong sectors to increase exports. According to senior officials, India has added 2,105 commodities in list of exports between FY16 and FY23. Officials say share of these new commodities in India’s merchandise exports increased from 20.1% in FY16 to 33.6% in FY23. The number of registered exporters in the country grew 26.4% from 1.29 lakh to 1.63 lakh between FY14 and FY23. Free trade deals being negotiated with various countries and regional blocs are also expected to increase exports in coming years.

There are strong positive signals. One is increase in automobile and mobile phone exports. The country has been moving up the value chain. “It is happening. Probably it will accelerate when product linked incentive (PLI) schemes start yielding results because most of the PLI investments have come in electrical, electronic, automobile and machinery segments. Major global trade is happening in these segments,” says Sahai.

Even as PLI is promising in medium term, policy directions can make a difference even in current top five products in the short term. Despite small value, molasses exports is perhaps the best example of timely policy interventions impacting export competitiveness. Part of the attractiveness of molasses was zero duty policy adopted by central government to encourage export of excess molasses being produced due to ethanol push. States like Maharashtra sweetened the offer by issuing export licences to sugar mills three years ago. However, the situation has reversed now. “Sugarcane production dipped due to adverse climatic conditions in FY24. There was pressure on availability of molasses, and government increased export duty from 0% to 50% a couple of months ago. Export has become unviable. Practically there is no export taking place now,” says Naiknavare. According to him, ex-mill prices have dropped to ₹7,000-6,000 a tonne, but exporting with 50% duty has made Indian molasses globally expensive.

No one is blaming the government as the aim of the policy was to support the national ethanol programme. But the fact remains that basic commodities, be it rice, spices or molasses, can’t be the best examples of India’s export story.