India’s Foreign Trade Composition

India’s Foreign Trade Composition

Composition of India's Foreign Trade

Imports

• Imports have been classified into bulk imports and non-bulk imports.

Bulk Imports

• Bulk imports are further subdivided into:

• Petroleum, Oil and Lubricants (POL)

• Non-POL items such as consumption goods, fertilizers, and iron and steel.

Non-Bulk Imports

Non-bulk items comprise:

• Capital goods (which include electrical and non-electrical machinery)

• Pearls, precious and semiprecious stones

• Other items

Structural Changes in Imports Since 1951

• Rapid growth of industrialization necessitates increasing imports of capital goods and raw materials.

• Growing imports of raw materials based on liberalization of imports for export promotion.

• Declining imports of food grains and consumer goods due to the country becoming self-sufficient in food grains and other consumer goods through agricultural and industrial growth.

Exports of India

Exports of India are broadly classified into four categories:

Agriculture and Allied Products

• Includes coffee, tea, oil cakes, tobacco, cashew kernels, spices, sugar, raw cotton, rice, fish and fish preparations, meat and meat preparations, vegetable oils, fruits, vegetables, and pulses.

Ores and Minerals

• Includes manganese ore, mica, and iron ore.

Manufactured Goods

• Includes textiles and readymade garments, jute manufactures, leather and footwear, handicrafts including pearls and precious stones, chemicals, engineering goods, and iron and steel.

Mineral Fuels and Lubricants

Trend in Exports

Exports of India over the years show:

• A clear decline in the importance of agriculture and allied products.

• A substantial increase in the importance of manufactured goods.

This has been due to the changing production structure of the economy and the overall growth of the economy.

External Sector

Current Account Balance

• India's current account balance turned into a deficit of 0.2% of GDP in the first half (HI) of 2021-22, largely led by a deficit in the trade account.

Capital Flows

• Net capital flows were higher at US$65.6 billion in HI: 2021-22.

External Debt and BoP

• India’s external debt rose to US$593.1 billion as of end-September 2021, from US$556.8 billion a year earlier, reflecting additional SDR allocation by the IMF, coupled with higher commercial borrowings.

• The robust capital flows were sufficient to finance the modest current account deficit, resulting in an overall balance of payments (BoP) surplus of US$63.1 billion in HI of 2021-22.

• This led to augmented foreign exchange reserves crossing the milestone of US$ 600 billion and touching US$ 633.6 billion as of December 31, 2021.

• As of November 2021, India had the fourth-largest forex reserves in the world after China, Japan, and Switzerland.

[Source: ES2021-22]

Merchandise Exports

During 2021-22 (April-December):

• The merchandise exports recorded growth of 49.7% to US$301.4 billion, compared to the corresponding period of last year.

• Growth of 26.5% over 2019-20 (April-December), exceeding the pre-pandemic levels.

• Out of an ambitious export target of US$400 billion set for 2021-22, India has already attained more than 75% by exporting goods worth US$301.4 billion, which is higher than the export target of US$300 billion set for the April-December period of 2021-22.

Business services with the largest share in services imports grew by 0.9% on a y-o-y basis in HI: FY 22.

Current Account Balance

After witnessing a surplus in HI: FY 21, India's current account balance flipped into a deficit of US$3.1 billion (0.2% of GDP) in HI: FY 22, on the back of a sharp increase in the merchandise trade deficit.

However, this current account deficit remained lower than the deficit of US$22.6 billion recorded in HI: FY 20 (pre-pandemic level).

India’s External Debt

At the end of June 2023, India's external debt was placed at US$ 629.1 billion, recording an increase of US$ 4.7 billion over its level at the end of March 2023.

• The external debt-to-GDP ratio declined to 18.6% at the end of June 2023 from 18.8% at the end of March 2023.

• At the end of June 2023, long-term debt (with an original maturity of over one year) was placed at US$ 505.5 billion, recording an increase of US$ 9.6 billion over its level at the end of March 2023.

• The share of short-term debt (with original maturity of up to one year) in total external debt declined to 19.6% at end-June 2023 from 20.6% at end-March 2023.

• Similarly, the ratio of short-term debt (original maturity) to foreign exchange reserves declined to 20.8% at the end of June 2023 (22.2% at the end of March 2023).

Indian Benchmark Indices

The benchmark stock market indices in India—Sensex and Nifty 50—increased by 17.7% and 18.1%, respectively, during April-December 2021.

• Driven by good corporate earnings, a sharp rise in COVID-19 vaccination, and the opening up of business establishments across the country, Sensex and Nifty scaled up to touch their peaks at 61,766 and 18,477, respectively, on 18th October 2021.

• The Sensex and Nifty benchmark indices fell after that but started to rise again and stood at 61,223 and 18,256, respectively, as of 14th January, 2022.

Final Thoughts

India’s foreign trade has undergone significant changes over the decades, reflecting the country’s path of industrial and economic growth. Imports are broadly divided into bulk and non-bulk items, with petroleum products, fertilizers, and machinery forming a major share.

While food grain imports have declined due to self-sufficiency, capital goods and raw materials continue to rise with industrialization. On the export front, agriculture once dominated, but today, manufactured goods like textiles, engineering goods, and chemicals have taken the lead.

In recent years, India’s external sector has seen strong capital inflows, healthy forex reserves, and robust merchandise exports that surpassed pre-pandemic levels. Although the current account balance has slipped into a modest deficit, it remains much lower than in earlier years. India’s external debt has grown but remains stable relative to GDP, with a larger share in long-term debt.

At the same time, India’s stock markets have shown resilience, with Sensex and Nifty reaching record highs supported by corporate growth and economic recovery.