US-India Strategic Partnership Forum
Since India’s liberalization move in 1990-91, increased global integration, FDI and liberalized services sector have led to a steady rise in India’s trade in both merchandise and services. India’s total two-way trade (exports and imports) for CY2021 stood at $1,344.8 billion. This Report offers an analysis of India’s trade patterns while suggesting measures to aid India’s foreign trade.
Since the launch of India’s liberalization in 1990-91, the country’s trade engagement has increased significantly – merchandize exports have increased more than 28 times and imports almost 29 times; likewise, service exports have grown from $52 billion in 2005 to $239 billion in 2021 and service imports at almost $138 billion in 2021 have more than doubled from $61 billion in 2005. India’s exports and imports of goods and services in CY2021 stood at $634.4 billion and $710.4 billion, respectively. Increased global integration, FDI and a liberalized services sector have led to a steady rise in India’s trade in both merchandize and services. While India has maintained a strong services trade surplus, the high merchandize trade deficit remains a persistent challenge for Indian policymakers.
India’s total trade dipped 6.8% in the pandemic year 2020, yet better than the WTO forecast of –9.2% in global trade. Despite the initial economic downturn during the first six months of 2021, India’s total trade for the whole year witnessed expansionary trends, developing in certain sectors and destinations owing to market demand and supply chain changes.
India’s export basket includes diverse products and has been growing in competitiveness in many new industrial categories, such as mineral oils, engineering items, iron and steel, and vehicles, compared to the traditional products, such as textiles and apparels, carpets, and agriculture products. Since 2016, the top ten products in India’s export basket include:
Some noteworthy changes in the export basket over the last few years:
The United States is India’s top trading partner in terms of both goods and services. In 2021, the US share in India’s total Goods and Services two-way trade was more than 12% at $159 billion. A USISPF Bilateral Trade Report in 2019 estimated $177.70 billion worth of total bilateral trade between the United States and India by 2021 at an average 7.5% compounded annual growth. While US-India bilateral trade declined 17% in 2020 (pandemic year), it has increased almost 32% in 2021, nearly bouncing back to the average growth level. India’s total exports to the United States, at $102.36 billion, and imports from the United States, worth $56.67 billion, generated a trade surplus of $45.69 billion in 2021. These numbers suggest there is mutual interest among US and India’s businesses even without any trade agreement, and the prospects of their enhanced trade partnership appear bright as the two sides converge to solve contentious issues.
India’s services sector is the key driver of its economic growth, contributing more than 54% to India’s GDP. India’s trade in services has been a major component of its total global sales over the past 25 years, and India is now a prominent supplier of computer, telecommunications, information, commercial and travel services. India’s services trade to GDP ratio is 13.2% in 2021, and its service exports account for 3.5% of global exports of services. India has maintained trade surplus in services trade in major service categories.
Despite the pandemic impact, India ranked 7th in leading exports of global commercial services in 2020, according to the WTO.
India’s Foreign Trade Policy (FTP) targets goods and services exports of over $1 trillion by Indian Fiscal Year (IFY) 2026-27. The new FTP (to be announced later in 2022) will, reportedly, provide government support to leverage the rebound in global economic growth. Recently the Ministry of Commerce has also flagged the ambitious target of achieving exports worth $2 trillion by 2027 and increasing India’s share in world trade to 10% from the current 5.3%. Given the bright prospects of economic growth of India, achieving these aspirational goals is possible if Indian policymakers implement a focused strategy, such as the PM’s Vision on Export Strategy, and other appropriate measures, such as removing trade barriers through industry consultations, further opening of specific services, increasing India’s manufacturing competitiveness through government support, foreign direct investment and technology, augmenting efforts for freer goods trade, and improving the ease of doing business through use of technology.
The new FTP for 2022-27 is expected to focus on ensuring greater integration with the global supply chain and reducing logistics costs. USISPF hopes that the GOI will continue to facilitate trade and manufacturing through its policy support and incentive schemes. We acknowledge the recent Budget announcement of an increased focus on capital expenditure that will help the country’s manufacturing and trading community. That said, COVID-driven supply chain constraints, geopolitical challenges (US-China Trade war, Russia-Ukraine war disruptions, etc.), and steep shipping costs due to the sharp hike in international oil prices may not exclude India, impacting its foreign trade performance in the near term. India will likely have opportunities to expand exports of specific commodities after the end of the Ukraine-Russia war, and Indian exporters may also benefit from weakening Indian Rupee against the US Dollar. Overall, India, being a major crude oil importer, will likely have a higher-than-expected current account deficit if the international oil prices remain elevated.