Market diversification behind India’s engineering goods export resilience in 2014

Bidhu Bhushan Palo | The Dollar Business While much remains to be done in India’s product diversification, market diversification in some sectors have helped the country tide over the global economic slowdown seen in recent years. According to a recent Reserve Bank of India (RBI) report, India’s trade performance improved significantly in Q1 of 2014-15 (to around 9% y/y), but declined by almost 50% in Q2 of 2014-15 due to weakening demand in major markets, triggering concerns about India’s trade balance. However, overall growth in April – September 2014 stood at around 6.5%, slightly better than the 6.3% seen in the corresponding period the previous year. However, export growth was restricted to a few sectors such as engineering goods, petroleum products, readymade garments, chemicals and pharmaceuticals which accounted for 58% of India’s total value of exports in the period, said RBI. Meanwhile, exports of India’s traditionally strong export items such as gems and jewellery, electronic goods, oil meals and iron ore weakened, as demand slowed down in India’s traditional trading partners and due to lower production of some commodities in India. However, the brighter side of this was the increasing market diversification seen last year, as exporters explored new markets and tapped greater potential in existing ones. “Growth in exports of engineering goods has been the outcome of diversification to new markets,” said RBI. Engineering exports in April-September 2014 recorded a growth of around 23.3% y/y, which is low when compared to over 26% growth seen in April 2014. However, this could have been lower without higher exports to Sri Lanka which became the third largest export destination for Indian engineering goods during this period, behind USA and UAE. India’s engineering exports to Sri Lanka during April – September 2014 grew to over $2 billion, which was more than double the exports in the corresponding period in the previous year. Exports to countries such as Mexico, Jordan and Oman also increased significantly last year. “This diversification has helped Indian companies gain resilience in the face of the on-going slowdown, especially in a number of EU markets,” said RBI.  

This article was published on January 10, 2015.