New Delhi, May 22 An opportunity to grow exports is knocking on India’s door as supply chains are getting redrawn and steps which raise mid-tech labour-intensive exports can boost the country’s trade interlinkages, mass consumption, investment, and GDP growth, according to an HSBC report released on Thursday.
While there is a general sense that India is mostly a domestic demand-driven economy, it is in periods of rising integration with the world that India has grown its fastest, the report states.
The report uses the rolling correlation between India and world GDP growth as a measure of global integration, and finds that the 2000-2010 decade was a period of falling import tariffs, as well as rising global integration, export share, and GDP growth. In the next decade, 2010-2020, all of this changed.
"Tariffs were raised, and global integration, export share, and GDP growth fell. Encouragingly, the few years following the pandemic reflect a rise in global integration once again, though so far it remains a tad one-sided - more financial integration, less trade integration," the report states.
An analysis of GDP sectors shows that consumption is most integrated with world growth (95 per cent), followed by investment (70 per cent), and then exports (35 per cent). One reason could be that India's global connections are stronger in finance (Indian equity markets have become far more aligned with global equities over the last two decades), and this impacts consumption. But integration remains weaker in trade, which influences export and investment, the report further states.
Corporate investment is more globally integrated, while integration is lower for household investment, which includes both real estate and investment by small firms, it points out.
Within consumption, discretionary consumption is more globally interlinked than essentials while strong financial integration is likely to support high-end consumers who tend to be better invested in financial markets, the report states.
Within exports, weak integration has been led by the more labour-intensive mid-tech exports (like textiles and toys), which have been sluggish for a decade, it points out.
"Those who have been able to enjoy the gains of financial integration, have seen incomes and discretionary consumption rise. Many of these individuals are associated with large firms (where global capex is globally correlated) or new sectors (e.g. rapidly rising professional services exports)," the HSBC report added.
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