India’s export dependency on US, UAE makes us susceptible to economic shocks

According to a recently released report by the UN Economic and Social Council for Asia and Pacific (ESCAP), India is likely to grow 7.5 percent in 2018, provided Donald Trump does not play spoil sport. The report warned that if the US policies take a severe protectionist turn, India's growth could be affected by as much as 1.2 percent. Despite the current political climate in the United States, India’s exports grew by a whopping 20 percent this April.

Representational image. Reuters

Given the sudden jump in exports as well as talks of greater trade protectionism around the world, FirstData decided to evaluate India’s export relationships and portfolio of commodities to gauge our susceptibility to external economic shocks.

The analysis graphically represents India’s dependence on limited big ticket export partners and high value commodities. For example, the UAE and the US collectively account for Rs 3.9 lakh crore or over 24 percent of India’s total value of export relationships. To put this in context, Singapore, the country with the third highest export value relationship, accounts for only Rs 73,900 crore, which is a steep drop of over Rs 1,20,000 crore from where the US is pegged.

Even within the commodity portfolio of exports to the UAE and US, the top 5 commodities disproportionately account for the total export relationship, further exposing India to external sector/ industry based economic shocks. It has to be remembered both the US and UAE are at present geo-politically sensitive.

1. Universe of India’s export relationships

Key takeaways:

a) In 2012-13, India exported over Rs 16 lakh crore worth of commodities to over 230 countries, extended entities and disputed territories.

b) Regionally, our biggest trading blocs are West Asia - Gulf Corporation Council (17 percent), EU (16.7 percent), North America (13.2 percent) and North East Asia (13.1 percent), which collectively account for 60 percent of the total value of all commodities exported.

c) Exports to our immediate 7 neighbours account for only 9 percent of the total value of all commodities exported, with exports to China alone accounting for 4.5 percent. Pakistan (0.6 percent), Nepal (1 percent), Bhutan (0.07 percent), Myanmar (0.1 percent), Sri Lanka (1.3 percent) and Bangladesh (1.7 percent) account for the remaining.

2. India’s portfolio of export commodities

Key takeaways:

a) In 2012-13, India exported 53 categories of commodities*

b) Petroleum is our highest value export commodity, accounting for 20 percent of the total value of all commodities, followed by gems and jewelry (14.4 percent), machinery/instruments/ equipment (11.4 percent), chemicals (8.8 percent) and metals and alloys (7.4 percent).

c) Collectively, the top 5 commodity categories account for 62 percent of the total value of commodities exported.

3. Relationship between number of commodities traded, commodity type and total value

Key takeaways:

a) There is a positive but weak linear relationship between the number of distinct commodity categories traded and the total value of the export relationship (correlation coefficient: 0.36)

b) For example, we export 53 commodity categories to both Australia and the UAE, however, the value of the export relationship with the UAE is 15x the value of the export relationship with Australia.

c) This is because the portfolio of commodities exported to the UAE leans towards high value commodities like petroleum and gems and jewelry, while the commodity portfolio for Australia leans towards relatively low value commodities like machinery, chemicals, yarn and ready made garments.

4. Deep dive into India’s partner and commodity dependency

Key takeaways:

a) The top 10 countries by relationship value account for over Rs 8.3 lakh crore or 50 percent of India’s total value of export relationships. Countries ranked between 11 - 60 account for over Rs 6.9 lakh crore or 42 percent. Countries ranked between 61 - 235 account for only 6 percent of the total value of export relationships.

b) The UAE and USA collectively account for Rs 3.9 lakh crore or over 24 percent of India’s total value of export relationships.

c. To put the numbers in context, Singapore, the country with the third highest export value relationship, accounts for only Rs 73,900 crore, which is a sharp decline of over Rs 1,20,000 crore from where the US is pegged. The export dependency on the UAE and US leaves India susceptible to external economic shocks.

Key takeaways:

a) Even within the commodity portfolio of exports to the UAE and US, the top 5 commodities disproportionately account for the total export relationship, further exposing India to external sector/ industry based economic shocks.

b) India exports 53 distinct commodity categories to the UAE, but the top 5 categories account for over 82 percent (Rs 1.6 trillion) of the total value of exports.

c) Likewise, India exports 53 distinct commodity categories to the US, but the top 5 categories account for over 60 percent (Rs 1.1 trillion) of the total value of exports.

*Department of Commerce defines over 90 categories of commodities. We have further grouped categories to ensure better classification (eg: ‘Finished Leather and ‘Leather Goods’ would be classified under ‘Leather’)

Source: 2012-2013, Department of Commerce