As India & USA become close strategic partners, the possible India-USA trade deal becomes all the more critical. Data indicates that the overall volume of trade between India & USA has increased substantially in the last 10 years so much so that USA has overtaken China to become India’s largest trade partner in 2018-19 & 2019-20. As the US presidential elections come closer, we take a look at the India-USA trade of the last 10 years.
As per the World Trade Statistical Review – 2020 report by World Trade Organization (WTO), USA is the World’s largest trader for the year 2019. As per the same report, India ranks 12th among the world countries in terms of the total value of trade. This includes the trade of both goods and services.
Apart from being leading traders in the world, both the countries engage in considerable amount of trade between them. While India ranks 9th among the USA’s trading partners in goods for the year 2019, USA overtook China as India’s leading trade partner in 2018-19 and continued to stay in the top position in 2019-20.
So, what has contributed towards this improved position of USA as India’s trade partner? Has there been any change in the trade policy or is there an increasing trend in the trade of specific goods? In this story, we take a look at India-USA trade numbers and analyse trends over the last few years with the current Trump administration being in the final year of the current tenure.
In 10 years, trade increased by over 200% in rupee terms and over 95% in dollar terms
As per the data available on India’s Department of Commerce’s Export-Import Data Bank, during 2010-11, the total value of trade between India and USA (both imports & exports) was Rs. 2.06 lakh crores. In the ensuing 10 years, the value of trade increased continuously to reach Rs. 6.29 lakh crores in 2019-20 i.e. more than 3 times the value of trade in 2010-11. However, the increase in dollar terms was not on the same scale. In 2010-11, the total value of trade was USD 45.34 billion which increased to USD 88.91 billion in 2019-20. The significant appreciation of the dollar against rupee may have also played a role in the greater increase of trade in rupee terms. During this period, the trade in dollar terms increased by around 96% compared to the over 200% increase in rupee terms.
During this 10-year period, the greatest percentage increase in trade both in rupee & dollar terms was in 2011-12 when it increased over 34% in rupee terms & by over 28% in dollar terms compared to 2010-11. The year 2018-19 also marked a significant increase in trade with it increasing by over 28% in rupee terms and by over 18% in dollar terms compared to 2017-18.
As highlighted earlier, 2018-19 was the year when USA claimed the top spot as India’s trading partner.
Despite a fall in recent years, trade balance has increased substantially in the last 10 years
India has an overall negative trade balance i.e. the value of the goods imported is higher than the value of the goods exported. However, the case of trade with USA is different as India has a trade surplus i.e. the value of exports to USA are higher than that of imports.
In 2010-11, India had a trade surplus of Rs 23.8 thousand crores with the USA which in dollar terms was USD 5.24 billion. The trade surplus has now increased to Rs.1.22 lakh crores in 2019-20 which in dollar terms is USD 17.27 billion. The trade surplus was the highest in 2017-18 when it was Rs. 1.37 lakh crores and USD 21.27 billion. However, the trade surplus has fallen in both 2018-19 & 2019-20. The decrease in trade surplus coincides with the increase in overall trade in the last two years.
Increase in the imports resulted in the fall of trade surplus
Over the 10-year period between 2010-20, both the imports and exports have grown year on year in rupee terms (with the exception of 2013-14 & 2014-15 for imports). During this period, the total value of exports grew from Rs. 1.15 lakh crores in 2010-11 to Rs. 3.76 lakh crores 2019-20. The slow growth of overall trade during the period 2011-2016 is due to the slower growth of imports during this period.
In the case of exports, there has been a consistent year on year increase in the value of goods exported. However, the net increase has seen a declining trend during 2011-2016, which has since recovered. The highest single-year net increase was in 2018-19 where the exports were valued at Rs. 3.66 lakh crores i.e. 57 thousand crores more than the previous year 2017-18.
The year 2018-19 also saw a record increase in the value of imports. Goods worth Rs. 2.48 lakh crores were imported in 2018-19 which was Rs. 76.9 thousand crores more than the value of imports in 2017-18. However, this growth was preceded by years of low growth of imports. Especially during the two years 2013-15, there has been a negative growth in the imports.
The greater increase in the value of imports in 2018-19 compared to the exports, explains the fall in trade surplus.
Electrical Equipment, Nuclear Reactor etc. have contributed towards export growth in recent years
Pearls, Stones & other metals used in Jewellery are the major export commodity of India to USA. Although there was a fall in the value of exports of this commodity in 2019-20, it remains the largest exported commodity at Rs. 65.5 thousand crores.
Pharmaceutical Products are the other major export commodity and have shown a consistent increase in the five-year period between 2015-20, with the exception of 2017-18. Apart from these two commodities, three other commodities have recorded an increase in the value of their exports over the last three years and are also the key reason for the substantial increase in exports in 2018-19. Electrical Equipment & Machinery registered more than 40% growth in both 2018-19 and 2019-20, with the export value of this commodity increasing from Rs. 8.5 thousand crores in 2017-18 to Rs. 17.7 thousand crores in 2019-20. Similarly, export of Nuclear Reactors and other related products as well as exports of Vehicles have also recorded a significant increase over the past three years, especially in 2018-19.
The other traditionally top export commodities to USA include – Articles made out of Textiles, Apparels, Fish & Sea food, Mineral Fuels etc. Organic Chemicals is also among top exported commodity but has fallen out of top-10 export commodities in 2019-20.
Mineral Fuels, Pearls & Stones are the commodities that contributed to the recent increase in imports
During 2019-20, Mineral Fuels & Oils have emerged as the major import commodity from USA. In 2016-17, around Rs. 11 thousand crores worth of Mineral Oils and Fuels were imported from USA, which has more than doubled in the next year to Rs 25.6 thousand crores and further increased to Rs. 50.9 thousand crores in 2018-19 and to Rs. 58.7 thousand crores in 2019-20. There has been a 5-time increase in the value of import of Mineral Fuels & Oils in the last 4 years.
The import of Pearls, Stones & other metals used for Jewellery recorded a major increase in 2018-19. From Rs. 17.8 thousand crores in 2017-18, the value of imports increased to Rs. 57.4 thousand crores in 2018-19. However, this has fallen to Rs. 44.1 thousand crores in 2019-20.
These two commodities are the major contributors towards the significant increase in the value of imports in 2018-19. The imports of Aircraft and related parts had recorded a sudden increase in 2016-17, with the imports falling back to earlier levels in subsequent years.
Nuclear reactors and other related commodities used to be the leading imported commodity prior to 2018-19 and has shown a consistent increase in the value of imports. The import of Organic Chemicals has also doubled over the five years and currently is a top-5 imported commodity. Other major import commodities include – Optical equipment & related parts, Plastic Articles, Chemical products, Fruits & Nuts etc.
Electrical Equipment whose exports have increased to USA are also among the top-5 imported products from USA. The increase in import of Mineral Fuel from USA is in line with the increase in India’s overall demand for Mineral Oils and Fuels. In 2018-19, the total import value for this commodity was Rs 11.7 lakh crores compared to Rs. 8.5 lakh crores in 2017-18.
Meanwhile, the substantial increase in the import of Pearls, Stones etc. for Jewellery from USA compensates for the fall in import of this commodity from other countries like Russia, S.Korea etc.
A fall in the Balance of ‘Service trade’ with comparative increase in Imports from USA
As per the information provided by ‘Office of the United States Trade Representative’, India’s exports to USA in form of Services was USD 29.6 billion during 2018. During the five-year period i.e. from 2014-2018, the value of export services to USA have increased year on year. In 2014, the value of export services was USD 22.4 billion.
During the same period, the import of services also increased from USD 15.3 billion in 2014 to USD 29.6 billion in 2018. The higher increase in the import of services from USA compared to that of exports has resulted in decrease in the services trade surplus India enjoys in the services trade.
In 2014 , the trade surplus in services was USD 7.1 billion which has reduced year on year and during 2018, the surplus in services trade was down to USD 4.4 billion.
India and USA are yet to agree on the proposed limited trade deal
Data indicates that the overall volume of trade (both commodities and services) between India and USA has been increasing over the years. This is due to an increase in both the exports as well as imports. However, the trade surplus both in commodities & services has seen a declining trend over the last few years. This increase in the imports from USA is limited to specific products influenced by other factors and not specific to a policy change.
As on date, India does not have any specific trade agreement with the USA apart from mutual understanding on different aspects related to trade. However, India and USA have been working on signing a Trade Agreement since 2018. However, these discussions have been fraught with challenges.
In May 2019, President Trump terminated Generalized System of Preferences (GSP) eligibility for India which it enjoyed since the 1970s. The U.S. GSP program provides non-reciprocal, duty-free tariff treatment to certain products imported from designated beneficiary developing countries. As per the US government, this was done since there was no assurance from India to provide equitable access to its markets in spite of the tariff benefits that India enjoys with USA.
An US Congressional document on India-US trade relations from February 2020 asserts this stand of USA, that India has not been fair in opening up the markets for US products. It further highlights the higher tariffs levied by India on imported products well as ‘Forced localization’ regarding data storage, content etc. acting as barriers for trade.
There was expectation that a deal would be finalized during the visit of President Donald Trump’s during February’2020. But no deal was materialized. Replying to a question during an interaction with the students of Indian Institute of Foreign Trade (IIFT), Minister of Commerce and Industry, Piyush Goyal has stated that India has sent its part of the deal to USA and is waiting for USA to confirm on it. He also stated that COVID-19 in addition to the expectations from USA were the reasons for the delay. He has further indicated that an India-US deal could be materialized only after a new administration is constituted post the US presidential elections in November.
As India and USA become close strategic partners, the increasing volume of trade is only going to continue. The possible trade deal will important for future trade.
Featured Image: India-USA trade