EXPORT PREPAREDNESS INDEX 2022: UNLOCKING INDIA’S EXPORT POTENTIAL
By Amit Kapoor & Sheen Zutshi
India’s Foreign Trade Policy (FTP) for 2023 has outlined the importance of exports as a driver of the nation’s growth, steering India toward its ambitious goal of evolving into a developed economy by 2047. It has set the target for India to achieve USD 2 trillion in exports by 2030.
Over the years, the Indian economy has demonstrated remarkable resilience in its exports in the time following the pandemic, when countries aimed to restore their pre-pandemic trade levels. Despite the challenges posed by the COVID pandemic, Indian exports, surpassing pre-COVID levels, have recovered strongly, registering positive growth. Along with the recovery of global demand coupled with a revival in domestic activities, the timely initiatives of the government also played a vital role in fostering Indian exports.
During the fiscal year 2021–22, India achieved a merchandise export value of USD 422 billion. This exceeded the ambitious target of USD 400 billion. This further increased to USD 450 billion in 2022–23, marking a growth of 6.74 percent. Whereas, service exports from India achieved an all- time high of USD 254 billion, which was further increased to USD 322 billion.
Of particular note is the remarkable performance of agricultural exports, which reached an unprecedented peak of nearly USD 53 billion. Therefore, sustaining this positive momentum is crucial for Indian exports to attain the goal of reaching USD 2 trillion by 2030. The key to this is the effective utilisation of India’s inherent diversity to improve its export competitiveness.
India needs to address the existing regional disparity across states to build the antifragile export ecosystem. Around 85 percent of total merchandise exports originated from just ten states in 2021-22. There is Regional Disparity as coastal states continue to be the flag bearer of the export sector growth in India. This is reflected in their share of exports in India. In 2021-22, Gujarat (30.05), Maharashtra (17.32), Tamil Nadu (8.34), and Karnataka (6.13) together accounted for over 61 per cent of India’s exports. Furthermore, the top ten exported commodities contribute to nearly 80 percent of the country’s total export value. These trends indicate a significant level of export concentration both regionally and in terms of commodities. Such a concentrated export portfolio exposes our economy to external shocks, as fluctuations in demand for these products can directly impact our economic stability.
For a more equitable approach to exports, diversification of the export basket and decentralisation of exports become important. Presently, a significant portion of India’s total merchandise exports, approximately 87 percent, originate from the top hundred districts.
DISTRIBUTION OF TOTAL EXPORTS FROM DISTRICTS IN INDIA
Source: Ministry of Commerce and Trade
Among these, the districts of Jamnagar (12.18%), Surat (4.57%), Mumbai Suburban (3.75%), Mumbai (3.70%), and Pune (2.73%) are the top exporting districts and are responsible for exports worth over USD 113 billion. This highlights the untapped potential present in the remaining districts, which should be harnessed to achieve a more balanced regional distribution of exports.
Although, the Government of India has launched two initiatives, “Districts as Export Hubs” (DEH) and “One District, One Product” (ODOP), to boost exports. DEH aims to leverage regional advantages and create District Export Action Committees to produce exportable goods. Over 670 districts have established DEHs, and 570 have formulated plans. ODOP identifies at least one exportable product from each district, with over 774 identified. These initiatives align with the vision of promoting local products and domestic manufacturing, contributing to a self-reliant India. This vision set forth by the Honourable Prime Minister Modi to establish ‘Districts as Export Hubs’ aligns with this objective.
The Export Preparedness Index (EPI), prepared by NITI Aayog in association with the Institute for Competitiveness (IFC), goes beyond evaluating and measuring the export preparedness of states to evaluate their readiness to improve their export capacity over the years. The index sheds light on the absence of a viable export ecosystem across states and UTs. These interstate and intrastate gaps must be eradicated by the effective implementation of national and state government policies. The objective of this index is to promote competitive federalism, which states and UTs achieve by identifying multiple important impediments and overcoming them with the context- specific techniques advised in the scope of this research.
Over the last 3 years, EPI via ranking assesses the states and UTs based on export readiness and performance, providing crucial insights to improve the export ecosystem of each state and UT. To help the states identify their strengths and challenges, the index assesses the states using a comprehensive framework designed with rigorous discussion with NITI Aayog, State government officials and organizations such as DGFT, EXIM Bank and DGCIS, to evaluate their preparedness for the export ecosystem. The States and UTs are assessed across four main pillars: policy, business ecosystem, export ecosystem, and export performance.
Each of these pillars are further divided into sub-pillars, each comprising relevant indicators. Moreover, the states and UTs are categorised into four groups: coastal, Himalayan, landlocked, and small states and UTs.
This categorisation acknowledges the diversity present in the country’s geography and the entailing impact it has on exports from each state, making it inappropriate to compare them on a one-on-one basis. These categories, thus, enable each state and UT to have a peer group, and the detailed profiles and scorecards provided in the report allow them to assess their performance relative to their peers. By understanding the distinctive prospects and addressing challenges, EPI 2022 provides a significant policy roadmap for the states and UTs to foster their exports.
According to EPI 2022, the national average score for the policy pillar is 74.71, indicating a viable policy ecosystem fostering exports across states and UTs. However, the pandemic has affected the business ecosystem, with states experiencing a decline in FDI inflow and value addition in the manufacturing sector.
Tamil Nadu has emerged as a top scorer with a score of 80.89, signifying the greatest degree of export preparedness in the country. It is closely followed by coastal states such as Maharashtra (78.20), Karnataka (76.36), Gujarat (73.30), and Haryana (63.65). These states along the country’s coastline have performed well in all categories, followed by the states that are landlocked.
EPI 2022 OVERALL RANKINGS
In various crucial areas, the Himalayan states, with the exception of Uttarakhand and Himachal Pradesh, score below the national average of 46.56. Similarly, UTs and minor states performed low on the index and their administrations must make major efforts to improve their export performance. Coastal and landlocked states have a well- developed export ecosystem, while Himalayan and small states/UTs have the potential for growth. It is noted that the export-oriented policy framework is well-adopted, but urgent steps are needed in trade support, business infrastructure, connectivity, and research and development to improve export performance.
The Export Preparedness Index 2022 emphasizes the importance of export expansion for a nation’s development and highlights the need for fostering export performance at state and district levels. The report suggests creating a supportive business ecosystem, investing in research and development, and leveraging unique products. By analysing state and UT’s performance at national, pillar, and sub-pillar levels, it helps identify strengths and areas for improvement. State governments play a crucial role in this process, and learning from their peers can help India become a dominant global trade player.
Authors:
Amit Kapoor is Chair, Institute for Competitiveness
Sheen Zutshi is Research Manager, Institute for Competitiveness
The Export Preparedness Index (EPI) was prepared by NITI Aayog in association with the Institute for Competitiveness (IFC).
