The global trade ecosystem has faced numerous challenges recently, yet India has demonstrated remarkable and rapid recovery. Despite disruptions in the supply chain, concerns about inflation, and an overall economic slowdown, Indian exports have proven resilient to most macroeconomic conditions. In fact, India's GDP touched USD 3.75 trillion in 2023, led by growth in export-oriented sectors such as engineering goods, chemicals, and pharmaceuticals.
India's exports to its key markets, namely the United States, United Arab Emirates, and the Netherlands, have continuously grown over the past two years. This positive trend can be attributed to the release of pent-up demand after lifting COVID-19 restrictions. As macroeconomic challenges emerged in FY23, the need for Indian-originated goods persisted, further solidifying the nation's position as a prominent player in the global value chain.
Drip Capital analyzed these Indian products imported by the US, UAE, and the Netherlands and recommends that exporters continue to tap into these geographies by leveraging regional trends.
The US
In FY23, the US imported goods worth USD 78.54 billion from India, showing a 3% increase compared to the previous year. Among these imports, five commodities—natural pearls, minerals, pharmaceuticals, and electrical and industrial machinery—constitute half of India's total exports to the US. While all these goods experienced positive Y-o-Y growth in FY23, there was a 14% Y-o-Y decline in natural pearls.
According to the Federation of Indian Export Organisation (FIEO), India is progressively positioning itself as a reliable trading partner for the US. Global companies are reducing their reliance on China for supplies and diversifying their business operations to include other countries like India. This shift will increase shipments of essential commodities and pharmaceuticals from India to the US. With the possibility of bilateral trade between India and the US reaching USD 500–600 billion by 2030, it becomes crucial to explore how Indian exporters can capitalize on these emerging trends.
1. Companies' desire to diversify and build resilient supply chains:
As per a Boston Consulting Group (BCG) Report, trade patterns are shifting because of the Ukraine-Russia conflict and the adoption of the China +1 strategy. Companies are now focusing more on diversifying their supply chain risks. Given the hostile US-China relations, India is emerging as an alternative world supplier of manufactured goods. For instance, Apple now exports one million smartphones monthly from India to the US.
Indian traders can redesign their strategies to meet the growing demand from the US. MSMEs operating in industries like engineering goods, chemicals, apparel, rubber, ceramics, and agro must consider upgrading their capacities to meet international sourcing standards.
2. Consumers' increasing demand for value-added products:
With the increasing young working population in the US, there is a rising demand for convenience food items, tech-enabled appliances, etc. This opens new doors for Indian exporters to innovate and add value to their products by curating ready-to-consume products, spice mixes, etc., for the changing world palette. Businesses could enhance their profit margins and become more competitive in the global trade industry.
UAE
Traditionally, more than half of Indian exports to the UAE consisted of mineral fuels, natural pearls, and electrical machinery. However, the UAE's export portfolio has witnessed diversification over the past two years. New products like umbrellas, musical instruments, agro, meat and dairy, engineering goods, and chemicals have experienced Y-o-Y growth in FY22 and FY23.
Drip Capital attributes this upswing to a large and diverse consumer market in the UAE. The migration of the Indian diaspora has further strengthened bilateral relations between the two countries. To penetrate further into this market, exporters can consider the following strategies.
1.'Brand India' Campaign:
In 2022, the government launched the 'Brand India' campaign to enhance exports of locally manufactured goods and services to different markets. The export-oriented campaign that focuses on specific sectors will give exporters a platform to market their products through new digital channels and international events. Businesses can leverage the ‘Brand India' campaign to drive their marketing efforts in the UAE and participate in buyer-seller meetings organized by export promotion councils. They can even establish an online presence for continued momentum in this region.
2. Tax-free zones to minimize costs:
UAE is an excellent gateway to Africa and Europe. This offers exporters significant business and expansion opportunities in the region. For instance, Dubai boasts over 30 free zones that grant businesses total exemption from export taxes, making it an attractive export destination for Indian traders.
With the Comprehensive Economic Partnership Agreement (CEPA) in effect and bilateral trade between India and the country projected to reach USD 100 billion within the next five years, exporting to the UAE can be a win-win situation for MSMEs.
The Netherlands
India exported USD 21.62 billion worth of goods to the Netherlands in FY23. Petroleum products accounted for 60% of the exports, followed by electric machinery (8%) and organic chemicals (6%).
Industry experts believe one of the reasons for the surge in petroleum-product exports is the growing demand by oil companies using the Netherlands as a distribution hub. Moreover, exporters find it economical and advantageous to ship to the Netherlands because of its robust port/digital logistics infrastructure, business-friendly VAT implementation, etc. A recent study has highlighted stronger-than-expected domestic demand in the Netherlands, making it an emerging hot spot for Indian exporters.
1. Increasing Demand for Sustainable Products:
The European Union (EU) has increasingly focused on sustainability, as reflected in its policies and changing consumer preferences, thus providing new opportunities for Indian exporters.
However, support from policymakers is crucial in terms of easy accessibility of alternate eco-friendly resources/raw materials, ecological manufacturing facilities, and incentivizing energy-efficient trade practices. This will fuel research and development and enable exporters to gain the upper hand in the Dutch market.
2. Portfolio Diversification:
Energy prices are more volatile than most other commodities. To hedge risk, Indian exporters may benefit from diversifying into other sectors and reducing their dependence on petroleum products. Despite high inflation and rising interest rates, the European economy is expected to grow faster this year and next. The re-launch of the Free Trade Agreement (FTA) negotiations between India and the EU and a Y-o-Y growth in exports for 43 sectors will give exporters the push for product diversification in the Netherlands.
Conclusion:
As India sets its sights on achieving USD 2 trillion in exports by 2030. Diversifying product offerings and exploring new destinations through FTAs can significantly enhance trade opportunities. However, to capitalize on this potential, it is crucial to comprehend the evolving requirements of international trade markets and devise cost-efficient strategies. With the advantage of a young workforce and economies of scale, India possesses tremendous potential to establish itself as a global trade giant.
