Opinion Express View on trade data: In shifts within trade basket, an opportunity

Recent trade data points to consequential shifts in India’s export basket. Three broad trends emerge. First, after registering robust growth in 2021-22, the country’s merchandise exports slumped in the second half of 2022-23. However, during this period, exports of electronic goods and mobile phones have seen a significant jump. Second, over the same period, services exports grew at a robust pace, even as the fourth quarter results of major IT firms suggest a subdued near-term outlook. Third, within services, exports of “other” IT services have gained considerable traction in the recent past. This suggests the emergence of other drivers of growth. How these trends play out could have a significant bearing on the country’s trade performance in the coming years.

Data released last week showed that India’s merchandise exports grew by a mere 6 per cent in 2022-23. Excluding oil, exports were lower than in the previous year. However, in the midst of this weak performance, electronic exports have surged by around 50 per cent. And as per reports, exports of Apple’s iPhone have witnessed a remarkable surge. While value addition in the case of iPhones may currently be low, there are reports of the tech giant looking to increase localisation, which would increase domestic value addition. Equally significant, the growing share of India in iPhones manufactured globally could act as a signalling factor for other companies looking at shifting their production bases away from China. In contrast is the weaker than expected fourth quarter (January-March) results of IT majors such as Infosys, despite services exports estimated to have grown by 27 per cent in 2022-23. The weakness can be traced to US and European companies, especially in the banking vertical, postponing their spending after the recent turmoil in financial markets. Economic uncertainty in these major markets is likely to continue to exert pressure on Indian IT firms. But even as these concerns gain traction, a recent report by HSBC shows that “other” IT services have gained considerable momentum, growing at a faster pace than the IT majors. This category includes professional and management consulting (estimated to have grown by 29 per cent), followed by computer services and research and development. The report suggests that these activities are based out of global capacity centres, which are essentially delivery centres set up by multinational companies to provide tech services and research and development. As these centres grow in size and scope, their contribution to India’s exports will likely rise.

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However, the immediate outlook is shrouded in uncertainty. With the IMF’s latest world economic outlook projecting global growth and trade to slow down sharply, India’s exports will come under pressure. In this scenario, even though the government has recently unveiled a new trade policy, more needs to be done to boost the country’s exports — from reducing the frictions in trade to ensuring a competitive exchange rate, lowering tariffs, and signing broader and deeper free trade agreements.