Export sector buoys India's spiraling growth rate

Total exports soared 20-fold to US$530bn from US$26bn in 21 years, Maybank Kim Eng said.

In a release, Maybank Kim Eng revealed that India's external sector has been the key beneficiary of reform. In the year before economic reform began  (FY1990/91), India’s exports ofgoods (US$18.5bn) and services/invisibles (US$7.5bn) totaled US$26bn. After 21 years (in FY2011/12), that total had jumped morethan 20-fold to US$530bn (chart 6 below).

Here's more from Maybank Kim Eng:

The 29-fold increase (to US$220bn) in exports of invisibles (primarily software, businessprocess outsourcing, and remittances) is the well-known aspect of India’s transformation. Less well-appreciated, however, is the nearly 17-fold surge in merchandise exports, which reached US$310bn in FY2011/12.

Toward the end of 2008, invisible exports converged with merchandise exports – but since then (i.e., in the post-GFC period), India’s merchandise exports have strongly out-performed services exports – and also outperformed global export growth (as India’s exports gained market share in the US and globally).

Trend growth rate (10-year moving average of real GDP growth) reached all-time high of 7.8% in FY2011/12. The sharp increase in incomes in the export sector (both goods and services) has been a crucial contributor to fuelling the increase in consumption and investment that has pushed out India’s production-possibility frontier – thus raising the potential growth rate.

Although real GDP growth slowed to a 8-year low of 6.5% in FY2011/12 (and the 5-year moving average of real GDP growth moderated to 7.8% from a peak of 8.8% just before the global finance crisis), the 10-year moving average of growth still reached a new high of 7.8%.