Economy

India's Trade Basket Is Transforming, Shifting Towards High-Value Exports: Dr V Anantha Nageswaran

Swarajya StaffJun 08, 2023, 01:01 PM | Updated 01:11 PM IST
Chief Economic Adviser V Anantha Nageswaran.

Chief Economic Adviser V Anantha Nageswaran.


Dr V Anantha Nageswaran and Meera Unnikrishnan, respectively the Chief Economic Adviser and a young professional in the Ministry of Finance, Government of India, have provided a fresh perspective on India's export boom in a recent article.

Their analysis delves deeper than the commonly attributed factors of commodity price surges, favourable exchange rates, and trade diversion from China, revealing significant structural changes in India's trade basket.

According to Nageswaran and Unnikrishnan, India has added 628 new products to its export basket since 1994, with a focus on high-tech manufactured goods, chemicals, and electronics. This expansion, they argue, reflects a strategic shift in India's export strategy, moving beyond traditional markets and products.

Over the past three decades, the authors note that India has not only found new markets for over 600 products but has also become a market leader in some of these categories, including turbojets and defence technology.

The growth of these new products has outpaced that of legacy products, with helicopters, arms and ammunition, and electrical machinery registering some of the highest growth rates.

The authors further highlight that the shift towards high-value goods in the export basket has led to a decrease in the sensitivity of exports to real effective exchange rates.

The sensitivity of exports to the exchange rate has dropped significantly since the global financial crisis, meaning that a rise in the value of the rupee is less likely to negatively impact exports.


They suggest that policies like the production-linked incentive (PLI) scheme can help develop downstream linkages and further integrate India into downstream GVCs.

Addressing critiques of the PLI scheme, the authors argue that the tendency of manufacturers to set up assembly units rather than manufacturing plants can still generate employment for low-skilled workers and create backward linkages to domestic sectors, leading to further value addition.

They cite the experience of countries like China and Vietnam as evidence of this.

In the services sector, Nageswaran and Unnikrishnan highlight India's impressive performance in the services value chain.

They note that India has moved from providing back-end services in law, IT, and management in 2010 to upstream, high-value-added services by 2020.

The authors also point out that India's services exports have shown a low degree of vulnerability to changes in global income fluctuations, indicating the country's market power.

In conclusion, Nageswaran and Unnikrishnan argue that India's export boom is a result of the country's evolving export basket, which is becoming less vulnerable to global fluctuations in demand and exchange rates due to the development of high-tech manufacturing goods and services capabilities.

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