SPECIAL ARTICLE january 7, 2012 vol xlvII no 1 EPW Economic & Political Weekly 94 I thank R Nagaraj for discussions and EPW for helpful comments on an earlier version. Help from Prachi Gupta with some of the data work is thankfully acknowledged. C Veeramani (veeramani@igidr.ac.in) is with the Indira Gandhi Institute of Development Research, Mumbai. Anatomy of India’s Merchandise Export Growth, 1993-94 to 2010-11 C Veeramani This paper analyses the growth and pattern of India’s merchandise exports during the post-reform period (1993-94 to 2010-11). The first decade after reforms (from 1993-94 to 2001-02) was characterised by a relatively low export growth rate of 8% a year, while the second decade (from 2002-03 to 2010-11) stands apart for its strong growth of 21% a year. The growth rate is at an impressive 24% per annum during the pre-financial crisis period of 2002-03 to 2008-09. These trends, based on India’s official export data, have been further confirmed using “mirror statistics” that have been constructed on the basis of imports reported by India’s trading partners. The composition of exports has undergone consistent changes in favour of capital and skill-intensive products. The lack of dynamism in labour-intensive exports is a matter of concern because it is this sector that holds the potential to absorb the large pool of surplus labour from agriculture. The analysis shows a major shift in India’s export destination from the traditional developed country markets to the emerging markets in Asia and Africa. 1 Introduction T rade and exchange rate liberalisation has been central to the structural adjustment programmes implemented by India since the early 1990s. The quantitative restrictions ( QRs) on importing capital goods and intermediates were mostly dismantled in 1992, although the ban on importing consumer goods continued, with some exceptions, until the late 1990s. Alongside the removal of QRs, customs duties in the manufactur- ing industries were gradually reduced. Following the new tariff reductions introduced in the March 2007 budget, India has emerged as one of the world’s low protection and open industrial economies (Pursell et al 2007). The focus of the export policy, by and large, shifted from product- specifc incentives to more generalised incentives based prima- rily on the exchange rate. It was held that the overvalued rupee had created a bias against exports and that a more realistic market determined exchange rate would make exporting activities in- herently more attractive. The government introduced a major downward adjustment in the rupee exchange rate against the major international currencies in July 1991. In February 1992, a dual exchange rate system was introduced, which allowed exporters to sell 60% of their foreign exchange earnings at the free market rate and 40% to the government at the offcial lower rate. In April 1993, a further move towards the deregulation of the external sector took place when the government adopted full convertibility on the trade account by unifying the offcial exchange rate with the market one. These steps culminated in India adopt- ing full current account convertibility in August 1994. We consider 1993 as the benchmark for defning the post-trade reform period since full convertibility on trade account was in- troduced in that year. The reforms, by reducing the anti-export bias of protectionist policies, were expected to improve export competitiveness and growth. During the frst decade of the re- forms (1993-94 to 2001-02), India’s merchandise exports in dollars grew at the rate of about 8% a year. This is slightly better than the average growth rate of 7% a year in the 1980s but pales in comparison with the growth rate of 18% a year in the 1970s. In stark contrast to the frst decade of the reforms, however, India’s merchandise exports recorded an exceptionally high growth rate of 21% a year during 2002-03 to 2010-11. Services exports grew relatively faster at the rate of 18% per year during 1993-94 to 2001-02 and at the rate of 25% a year dur- ing 2002-03 to 2010-11. 1 The increasing importance of services exports is evident from the fact that its share in India’s total exports increased from about 19% in 1993-94 to 34% in 2010-11.