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Higher-end shift in export basket

Rising share of engineering goods, pharma at expense of traditionals such as textiles, gems & jewellery

Krishna Kant  |  Mumbai 

Bit by bit, India's export basket is tilting in favour of high value-added sectors such as automobiles, pharmaceuticals and capital goods. And, away from traditional manufacturing exports such as textiles and gems & jewellery.

The latter now account for less than a quarter of total merchandise exports (23.6 per cent), down from 39.2 per cent in 2002-03. In this period, the combined share of engineering goods, including automobiles (transport equipment), capital goods and pharmaceuticals (including basic chemicals and cosmetics) rose to 30.7 per cent from 26 per cent in FY03, according to Reserve Bank data. In 2012-13, India exported $27 billion worth of chemicals, pharmaceuticals and cosmetics, just a tad below textile and garment export revenue of $27.5 bn (see chart).

Experts say this shows maturing of Indian manufacturing and multinational corporations (MNCs) setting base here. "Exports mirror the shift in Indian manufacturing, with more and more companies moving towards higher value-added and intellectual property-driven products and services. The shift has been quickened by the entry of multinationals and the competitive pressure they've brought on Indian companies," says Kumar Kandaswami, country manufacturing industry leader for Deloitte in India.

The trend is likely to persist as competition intensifies and more sectors are exposed to global competition. "This is a positive development for the export story. We should aspire to export more value-added and IP-driven products, so that exporters could command some premium in international market," he says.

This is visible in automobiles and pharmaceuticals. Bajaj Auto, TVS Motors, Hyundai Motors India, Cipla, Dr Reddy's Laboratories, Sun Pharma and Lupin are among the companies now getting a large chunk of their revenue from export.

In 10 years, the combined export of engineering goods, including automobiles, capital goods, pharma and basic chemicals, grew at a compounded annual rate (CAGR) of 21 per cent, faster than the 19 per cent growth recorded by all merchandise exports. Transport equipment was the star of the show, with a CAGR of 30 per cent in dollar terms to reach $18.4 bn in FY13, making it the country's largest engineering export. Total engineering exports during the period expanded at the rate of 21.9 per cent annually. Transport equipment (including aircraft and ships) now account for 6.1 per cent of all exports against 2.5 per cent a decade before.

Similar buoyancy is visible in other engineering products such as machinery & equipment and electronic goods. In the last decade, export of machinery and equipment showed a CAGR of 22.4 per cent in dollar terms, to $15.2 bn in FY13 from $2 bn in FY03. Electronics exports expanded at a 20.5 per cent (annual) rate during the period to reach $8.1 bn last year.

Automotive exports would have been even higher, if not for the global economic slowdown. In 2012-13, these declined 13 per cent as consumers across the globe cut on big-size purchases. A similar thing had happened in the aftermath of the 2008 global financial crisis. Automotive exports had declined sharply in 2009-10 but recovered subsequently.

"Automobile exports are highly sensitive to economic growth in the destination country. They grow faster than the overall basket in good times and fall during a downturn. Given the current economic sluggishness in key emerging markets, including China, automotive exports may remain subdued in the near term," says Devendra Pant, head economist at India Ratings.

Pharmaceutical exports, however, have been more consistent. Last year, these grew 18 per cent, to cross $10 bn. In the past 10 years, these have shown a CAGR of 21.8 per cent and continue to outperform. Pharma's share in the total export basket increased by 15 basis points to 3.5 per cent in the first six months of the current financial year, from 3.35 per cent in FY13.

Experts believe a combination of rupee depreciation and the rising sophistication of Indian manufacturing companies, especially those at the top, will continue to support high-tech export.

"In the past, Indian manufacturers were constrained by lack of technology and exposure to global markets. The gap has been filled a bit by recent acquisitions by Indian companies in Europe and North America, giving them access to technology, besides markets. Many companies are augmenting it by scaling up in-house research and development, and product development," says Kandaswami.

Others say a lot will depend on the global growth environment. "It's tough to increase exports when the world's key economies are slowing. And, being discretionary in nature, high-end manufacturing exports suffer more than staples such as textile and agri products during a downturn," says Pant.

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First Published: Mon, February 03 2014. 00:50 IST