Container ship in a port
Articles & stories

Can exports again help India’s growth acceleration?

India's manufacturing share of GDP has been declining steadily since 2012, partly due to a stagnation in exports of manufactured goods. As exports pick up again, due to the impact of Production-Linked Incentive (PLI) schemes, the shift of manufacturing out of China, some sectors like Chemicals coming of age, and emerging opportunities from the multiple disruptions in the global automotive landscape, they are likely to boost GDP as well as employment. We estimate growth in exports can boost GDP by 2.4% over 5 years.

Electronics hold promise, not only due to the large size (~30% of global goods exports), but also opportunities for market share gains, helped by geopolitical shifts, China's shrinking industrial labour force, and the government's policy support enabling local as well as global firms investing in capacities in India (even those not covered in PLI scheme). During the India Manufacturing Days, a senior government official flagged the government target at US$300bn in electronics production and $110bn of exports vs. $76bn and $12bn respectively in FY21.

In chemicals, while India lacks a sustainable advantage in bulks, its share of global exports of specialty chemicals has risen steadily. Through steady growth and China ceding share in some cases, the industry has now gained critical mass. There are 18 companies with market capitalization above US$1bn, compared to just 6 in 2015.

We also take stock of PLI schemes a year after we flagged them as a significant turn in India's industrial policy. We find that impact on GDP five years out remains largely the same, though this means a one-year lag.

Schemes in electronics are in the execution phase, and while supply-chain challenges/lockdowns slowed progress in 2021, trends are encouraging. Autos and apparel have gone through iterations, delaying their start, but most other large schemes are in the execution state, reducing the risk of further delays. The new scheme for autos is smaller but can hasten EV transition in India, and has seen a flurry of applications. The new scheme for apparel is also seeing positive industry feedback.

@Neelkanth Mishra