India's export market expanding in volume, scope and range of products

30 July 2018 Consultancy.in

Overall economic growth is driving up the volume and reach of India’s export market, both in terms of commodities and in terms of commercial services. According to a new report from global professional services firm KPMG, merchandise and commercial services exports in India have grown by 8% and 9% respectively over the last decade. 

The last few decades have seen the economy become increasingly globalised, and cross-border trade has been rapidly simplifying in tandem with the advancement in technology. According to Big Four professional services firm KPMG, this has been driven by an overall increase in the global GDP.

Over the last decade or so, the global export market for merchandise has grown at a compound annual growth rate (CAGR) of 3% from just over $12 trillion to nearly $16 trillion, while the export of commercial services globally has increased from nearly $3 trillion to $4.8 trillion, at a CAGR of 5%.

The Indian economy can safely be considered among the larger contributors to this growth, given the country’s exports are growing rapidly through a combination of economic growth and economic reforms. The country is expected to become the second largest economy in the world by 2050 according to some estimates.

World merchandise export + world export of commercial services

In addition, one of the flagship policies under the current administration has been the ‘Make in India’ drive, emphasising the increase of domestic manufacturing to reduce imports and expand the export market, and the initiative appears to have produced tangible results in recent years.

Between 2006 and 2016, the market for India’s merchandise exports grew by a CAGR of 8% from nearly $122 billion to $264 billion, which also indicates how far the country has come since the host of liberalisation policies that were introduced in 1991, when total exports stood at $18 billion.

In 2017 itself, merchandise exports from India grew by as much as 3.8%. The export of commercial services, on the other hand, grew by 3.4% last year, and by a CAGR of 9% between 2006 and 2016 from just over $69 billion to just over $161 billion, driven by the overall growth of the country’s commercial services sector.

India merchandise exports + India export of commercial services

The report also notes that the geographical reach of India’s exports has become more expansive, with as many as 20 markets across the globe accounting for two-thirds of the total export value. Traditionally, India’s export destinations comprised only a handful of developed economies, the US being the primary market.

Although the US still accounts for the largest share of Indian exports, a number of other economies have entered the mix, including a number of developing countries. Among the larger markets, the UAE now accounts for 11% of Indian exports, while Hong Kong attracts nearly 4.5%.

The biggest jump in recent decades, however, has come in the exports across Asia and Africa. India is expected to become a driver of growth for Asia in the next few years. After liberalisation, between 1991 and 2015, Asia’s piece of the Indian exports pie has grown from 35% to a staggering 50%. African countries now attract 11% of India’s exports, a figure that stood at 3% back in 1991.

The Indian economy itself is diversifying beyond its heavy dependence on agriculture, which has brought about a shift in the nature of products exported by the country, from predominantly agricultural products and textiles, to incorporate engineered goods and value-added services in the technology segment. 

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Public and private innovation are driving India's substantial digital economy

01 April 2019 Consultancy.in

New analysis from global management consultancy McKinsey & Company has reinforced what many experts have been indicating in recent times, that India is amongst the largest digital economies in the world. On a number of metrics, India is second only to China in terms of digital consumption.

The analysis comes against the backdrop of reports from a number of major consulting firms about India’s rapidly digitalising economy. In 2017, the Boston Consulting Group placed India’s population of online users at approximately 400 million, and predicted that it would reach 850 million by 2025.

Since then, experts have focused on what the emergence of such a large digital market means for various sectors, and how they are likely to grow and evolve in this context. McKinsey’s latest study offers a comparative analysis of India’s digital market against other major economies in the world.

India's global digital position

The highlight of the report is the role that the Aadhaar initiative from the Indian government has played in the development of this digital economy. Aadhaar was launched in 2009, and is essentially a digital identity mechanism that has registered as many as 1.2 billion people in accordance with their biometric information. 

The presence of such a digital identity has spelled growth for a number of other sectors that have fed off of this substantial database. The digital banking segment is one example. By the start of last year – nine years after the introduction of Aadhaar, nearly 900 million bank accounts were linked to Aadhaar information.

Not only does this represent monumental growth over less than a decade, but the number also nearly doubled since the previous year, when the number of linked bank accounts stood at just under 400 million. The digital identity database generated under Aadhaar has grown into the largest of its kind in the world.

Global digital adopters

The report attributes the overall digital growth in the country to a number of other government initiatives as well, including the Goods and Services Tax that was established in 2013, and has created a unified and harmonized database for over 10 million firms that pay indirect tax to the government.

Consequences of this expansion in the digital sphere have spread far beyond the sectors most directly affected, and India has become the second largest digital economy in the world behind only China on a number of metrics. These include the number of application downloads as well as the number of wireless phone subscribers.

The latter has been the result of the Reliance Jio initiative, which has tremendously increased the accessibility of mobile data by offering extremely cheap data plans across the urban and rural landscape. The number of internet subscribers has also grown to the second largest in the world as a result, currently at 560 million according to McKinsey.

Falling data prices in India

Increased prosperity has also led to a boom in the number of smartphones being purchased in India, currently at nearly 355 million in India, behind only China. The same global position is applicable when comparing the volume of social media engagement in India. Alongside government initiatives, the report attributes this scenario to innovation in the private sector as well.

“Global and local digital businesses have recognized the opportunity in India and are creating services tailored to its consumers and unique operating conditions. Media companies are making content available in India’s 22 official languages, for example,” says the report.