Despite concerted efforts to diversify its merchandise exports, India’s reliance on the United States has grown significantly over the past 13 years. In the fiscal year 2023-24 (FY24), the share of India’s exports to the US rose by 7.6 percentage points, reaching 17.7%, according to data from the Department of Commerce.
Historically, the US has been a major destination for Indian exports, but its share has fluctuated considerably. The peak was recorded in 1998-99 when the US accounted for 21.7% of India’s total exports. However, this share declined steadily, hitting a low of 10.1% in 2010-11. The trend of diminishing reliance was disrupted during the COVID-19 pandemic, when in 2021-22, the US’s share rose sharply to 18%, exceeding the FY24 levels.
In the preceding fiscal year, 2022-23 (FY23), the share of exports to the US was similarly significant, underscoring the enduring importance of the US market for Indian goods. The data reveals a complex picture where efforts to diversify export markets coexist with a persistent and growing reliance on the US.
India’s export diversification strategy has involved expanding trade relations with various regions, including Europe, Africa, and Southeast Asia. These efforts aim to reduce over-dependence on any single market and to insulate the economy from external shocks. However, the increasing share of exports to the US suggests that the diversification strategy has not fully achieved its objectives.
Several factors contribute to this trend. The US market’s size and purchasing power make it an attractive destination for Indian exporters. High demand for Indian pharmaceuticals, textiles, and IT services in the US has sustained and increased export volumes. Additionally, trade policies and bilateral agreements between India and the US have facilitated smoother trade flows, reinforcing this dependence.
The increase in US-bound exports is not entirely negative. The US economy offers stability and substantial market opportunities for Indian businesses. However, the over-reliance on a single market poses risks. Economic downturns, policy changes, or trade disputes in the US can have disproportionate impacts on Indian exports, potentially leading to significant economic repercussions.
In response, India has been actively seeking to bolster its trade ties with other regions. Initiatives like the Comprehensive Economic Partnership Agreements (CEPAs) with various countries and regions aim to open new markets for Indian goods. Moreover, India is investing in improving its manufacturing capabilities and enhancing the quality of its exports to make them more competitive globally.
The diversification push also involves exploring niche markets and emerging economies where Indian products have strong potential. For instance, increasing exports to Africa and Latin America could provide new growth avenues. Additionally, leveraging regional trade agreements and participating in global value chains can help diversify India’s export portfolio.
Nonetheless, the data indicates that the process of diversification is gradual and complex. The benefits of tapping into diverse markets must be balanced with maintaining strong trade relations with traditional partners like the US. This dual strategy is crucial for sustainable trade growth.
To accelerate diversification, India needs to focus on reducing trade barriers, enhancing export incentives, and supporting sectors with high export potential. Building robust infrastructure, streamlining regulatory processes, and fostering innovation are key to making Indian exports more competitive.
In conclusion, while India’s efforts to diversify its merchandise exports are ongoing, the increasing reliance on the US market is evident. This growing dependence highlights the need for a balanced approach that combines strengthening existing trade ties with the US and expanding into new markets. Achieving this balance will be critical for ensuring the resilience and sustainability of India’s export sector in the global marketplace.
