India's rising export dependence on US raises risk from Trump's tariffs

India's growing dependence on the US for exports puts its merchandise shipments more at risk to reciprocal tariffs announced by President Donald Trump.

 

The US’ share in India’s merchandise exports has risen from 10.1 per cent in 2010-11 to 19.3 per cent during April-February FY25.

 

In contrast, the share of the US in India’s total exports had continuously declined from 21.7 per cent in 1998-99 to 10.1 per cent in 2010-11, shows India’s department of commerce data.

 

The US is India’s largest merchandise export destination with shipments growing at 9.1 per cent to $76.4 billion during April-February FY25.

 

The Parliamentary Standing Committee on Commerce, in a report last year, observed that India must expand its focus beyond its “conventional markets” and explore export opportunities in areas where it holds a competitive edge.

 

“Trade diversification beyond traditional partners, exploring non-traditional markets like Latin America, Africa, and Oceania, is crucial. The committee emphasises the need to develop a strategic approach to enhance the trade performance by focusing on the identification of products that have a significant export potential and also countries with the maximum demand for the identified products,” it added.

 

The committee also expressed concern that India's apparel exports are heavily concentrated in a limited number of markets. “The committee recommends diversifying from the US and European Union (EU) to explore new destinations through free trade agreements (FTAs),” it added. 

 

The department of commerce informed the committee that to optimise India's export potential, effective strategies involve closely monitoring export performance in key markets, exploring new markets for diversification, and pinpointing potential products or sectors for expansion. This is based on comparative advantages, trade intensity, and global demand dynamics.

 

The department further apprised the committee that for mapping of export items for expansion and diversification, analysis has also been conducted to see export items from the perspective of global demand.

 

In 2021, 1,328 items constituted 20.54 per cent of the world's import basket while India’s supplies were only 2.57 per cent of world demand for these items.

 

Apart from that, in 2021, 4,271 items constituted 70.79 per cent of the global import basket whereas India’s exports share was a mere 0.29 per cent in these sectors. These 5,599 items constitute 91.34 per cent of the world’s imports whereas India’s export share is only 0.81 per cent of world's demand.

 

India has been making efforts to diversify its exports for quite some time.

 

In its vision statement released during the mid-term review of the 2015-2020 foreign trade policy in 2017, the commerce ministry claimed the policy of market diversification, which has stood India in good stead during the global economic downturn, would continue to be a key determinant of the country’s trade policy, together with product diversification.