India’s merchandise exports are projected to contract by 5.3% in 2023, in line with the global trend, according to a study conducted by a trade policy think tank. However, the electronics segment is emerging as a standout performer, offering hope that support measures could also be effective for other priority sectors. The United Nations Conference on Trade and Development predicts a 5% contraction in global exports, following China’s 5.2% drop in merchandise exports between January and November.
The analysis reveals that India’s merchandise exports dropped to $429 billion in 2023 from $453 billion the previous year, representing a decline of 5.3%. Imports fared even worse, experiencing a 7% plunge to $669.6 billion. On the other hand, services exports saw a significant increase of 10.5% to $333.6 billion, while services imports remained stable at $176.4 billion. This boost in the services sector pushed India’s overall export growth to 1%, reaching $763 billion.
The trade deficit, encompassing both merchandise and services, is expected to decrease from $141.3 billion to $82.8 billion, with a more pronounced drop in imports compared to exports. The study highlights that 78% of India’s products by value are anticipated to decline by 11.6% in 2023, amounting to $320 billion. This decline is attributed to weak global demand and India’s diminishing competitiveness in labour-intensive sectors, according to the Global Trade Research Initiative (GTRI).
Among India’s export commodities, engineering and petroleum products, which constitute almost 50% of total exports by value, have experienced a decline. Following closely behind are chemicals, gems and jewellery, textiles and garments, leather, handicrafts, carpets, and certain agricultural products. However, the electronics sector has displayed remarkable success, with smartphone exports projected to surge from $7.2 billion in 2022 to $13.9 billion in 2023. Overall, electronics exports reached $26.8 billion, indicating a substantial growth rate of 26.2%.
Conversely, imports of electronic components witnessed a significant escalation to $30 billion in 2023, resulting in a decline in the import of finished electronic products like computers, laptops, and other hardware, which dropped from $15.4 billion in 2022 to $13.8 billion in 2023. Ajay Srivastava, the co-founder of GTRI and the author of the analysis, views the success in the electronics segment as a positive sign for India’s electronics manufacturing capabilities, considering the implementation of the PLI scheme.
While the PLI scheme has been effective for electronics, the analysis suggests that India should adopt a similar targeted approach to revive exports in labour-intensive sectors. Small firms in these sectors face a 10-15% cost disadvantage compared to their competitors due to high capital costs, unreliable power supply, port delays, and increased compliance costs. Although PLI may not be the solution for industries like textiles, leather, and handicrafts, which comprise numerous firms producing similar products, Srivastava recommends implementing a horizontal scheme that provides a 2-3% incentive to every firm in the sector to alleviate some of the cost disadvantages.
The analysis underscores the need for India to focus on rejuvenating its labour-intensive export sectors and develop strategies that address the distinct challenges faced by each industry. By providing targeted support and addressing the underlying cost disparities, India seeks to regain its competitiveness and expand its export potential.
