The Netherlands beats China to become India’s third largest export market

The Netherlands has grown into India’s third export destination, ahead of China and Bangladesh. It has moved up two places in the list of India’s top ten export destinations since FY22, thanks to a 106% increase in shipments to August this fiscal year from a year earlier to $7.5 billion.

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The other surprises:

What comes as a bigger surprise is that Brazil, which ranked 21st in FY22, is now India’s 8th largest export market. Similarly, Indonesia has climbed seven steps to take the 7th position. However, amid a slowdown in demand, only two European countries – the Netherlands and the UK – are among India’s top ten markets, down from 4 in FY22. Germany and Belgium, which were previously fiscally on the list, are now out.

Meanwhile, the US and UAE remain the largest and second largest export destinations for India, respectively. Exports to the US rose 18.3% to $35.2 billion through August, while those to the UAE rose 27.3% to $13.8 billion.

The main ingredients:

Until August this fiscal year, India’s exports to the Netherlands were mainly driven by a 238% increase in shipments of oil products to $3.67 billion. Even inventories of chemicals ($513 million) and pharmaceuticals ($219 million) remained significant.

Meanwhile, exports to Indonesia rose 43% to $4.8 billion. Deliveries to this ASEAN country were dominated by petroleum products, which rose 144% to $1.8 billion through August this fiscal year. The other major products were grains, sugar and chemicals.

Shipping to Brazil rose 70.9% to $4.7 billion in the first five months of this fiscal year. Exports were driven by a 299% increase in the supply of petroleum products to $2.3 billion, followed by those of certain chemicals ($684 million) and automobiles, auto parts and related products ($233 million).

While Bangladesh has limited its imports to mostly essential products to save dollars in the wake of a currency crisis there, exports to Bangladesh increased by 8.7% to $5.8 billion.

China Concern:

China is still fighting the pandemic. Indian exports to China thus contracted sharply by 35.6% through August this fiscal year to $6.8 billion. In contrast, Indian goods exports to all destinations grew 19.5% to $196.5 billion in the first five months of this fiscal year.

India’s export performance: the link between goods and services:

The government wants to make India an export hub to boost job creation. The export-to-GDP ratio has increased rapidly since the early 1990s and is now broadly on par with China’s. What is striking, however, is the large share of services in total exports: while India has performed very well in the export of IT services, the export of goods has lagged behind. Exports of labour-intensive manufacturing products could grow faster and contribute to job creation. The 2019 OECD Economic Survey of India discusses policies to make Indian exports more competitive.

The performance of the export of services was great. India’s share of world trade in services has more than quadrupled from 0.5% in 1995 to 3.5% in 2018 and India has become a major exporter of business services, particularly in the information, communications and technology sectors ( IT). Medical and wellness tourism is also performing well, with patients seeking quality medical treatment at competitive prices in some Indian hospitals.

Goods exports show mixed results. India has gained market share for a number of skill and capital intensive commodities, including pharmaceuticals and refined oil. However, the performance in the export of textiles, leather and agricultural products was disappointing. Looking at the labour-intensive components of the textile sector (including clothing) provides an illustration: Vietnam now has a larger market share.

India could turn exports into a new growth engine:

India’s trade prospects are relatively positive, as it has specialized in sectors likely to be in high demand in the future (e.g. ICT services, pharmaceuticals and medical devices) and fast-growing destinations (with a large share of its exports to emerging market economies). To realize its potential to capture market shares in the labour-intensive manufacturing segment, India needs to modernize labor and land laws, tackle infrastructure bottlenecks and further open up the services sector to trade and investment. Better and cheaper services – financial, marketing, distribution, legal, transport, etc. – will increase manufacturing competitiveness, boost job creation and meet the aspirations of women and new entrants to the labor market.

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