This document discusses exports, imports, and economic growth in India based on a study conducted by Dr. K. Sathiya. It summarizes the literature on export-led growth and import-led growth hypotheses and examines the causal relationship between exports, imports, and GDP in India from 1951/52 to 2003/2004. The results show that exports and imports individually and jointly Granger-cause GDP, supporting export-led growth and import-led growth. There is also some evidence that GDP jointly Granger-causes imports and exports. The findings imply that both exports and imports have positively impacted India's economic growth.

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Dr.K.Sathiya
Assistant Professor in Commerce,
S.B.K College, Aruppukottai.
Exports, Imports and Economic Growth in India
With the advent of WTO, India entered into the era of trade reforms in 1991 and is
moving gradually towards an open economy. It is widely believed that export and import growth
is crucial in providing the impetus for economic growth in developing countries and imports
provide the important 'virtuous' link between trade and output growth. Therefore, our aim, here,
is to address the export/import-led growth and growth-driven export/import hypotheses for India.
In spite of some ambiguity, the results clearly show that exports and imports Granger-cause
GDP, both individually and jointly, lending support to the export/import led growth hypotheses.
There is also some indication of GDP and exports jointly Granger- causing imports, and GDP
and imports jointly Granger-causing exports, but the growth driven export/import hypotheses
seem implausible. A possible reason for the results is the favourable trade environment of India.
Since the early 1960s both policy makers and academics have shown great interest in exploring
the possible relationship between international trade and economic growth. The reason is
obvious. Nations are concerned about improving the quality of life of their countrymen, which
mainly comes from overall, i.e. macroeconomic, development in a highly competitive and
globalised world. Thus, creating wealth, increasing GDP is of prime importance for any
economy. There are many different approaches to achieve this goal, though not a single
foolproof. One possibility is to find new export markets for goods and services, as exports, along
with the imports of new technologies, is an important engine of development. This strategy,
however, raises the question: should a country promote exports and/or imports to speed up
economic development and growth, or should it primarily focus on economic growth to generate
international trade?
In the literature there has been considerable debate on the export-led growth (ELG) and
growth-driven exports (GDE) hypotheses, with special regard to their implications on
development policies and international trade. As reported by Giles and Williams (2000a), the
story goes back at least to Nurkse (1961). A large number of empirical studies have focused
on this issue, some of them using Indian data. Giles and Williams (2000a, 2000b) and Ahmad
(2001) offer almost exhaustive and comprehensive reviews of these studies, highlighting their
similarities and differences.

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In 1991, with the advent of WTO, India has entered into the era of trade reforms and has been
moving gradually towards an open economy since then. It is widely believed that exports are
crucial in providing the impetus for economic growth in developing countries. Thus, export-
led growth has been put forward as an efficient alternative to inward-oriented strategy of
development. Outward orientation is said to lead to higher total factor productivity growth
(Bhagwati 1978, Krueger 1978, Kavoussi 1984, Ram, 1987) and encourages capital material
investment including foreign direct investment. The pressure to compete with the best in the
world may lead to better products and service quality and force the domestic producers to
reduce inefficiencies. For example, foreign exchange liberalisation, which is an important
component of the export-led growth strategy, is likely to reduce the allocation inefficiencies
of exchange control. MacDonald (1994) argues that the imports of final and intermediate
goods will force domestic producers to innovate and increase their efficiency to compete with
foreign imports.
Anoruo and Ahmad (2000), referring to Esfahani (1991) and Ram (1990), note that imports
have positive influence on economic growth. Imports of capital goods are especially
important for developing countries which depend on foreign capital for their economic
development programmes. However, to be beneficial, imported capital must be productively
engaged in the production of goods and services.
Reviewing the relevant literature, Nidugala (2000) provided the following explanations for
the importance of the ELG strategy: i) Exports enable an economy to specialise in the
production of goods in which it has comparative advantage, resulting in optimal allocation of
resources and enhanced overall productivity; ii) Foreign trade can be beneficial through its
effect on balance of payments; iii) Trade can expand production possibilities through its effect
on competition, access to new technologies and ideas (i.e. through the so-called 'dynamic
gains from trade'); iv) Exports enable imports of essential raw materials and capital goods,

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thus increase the investment in the economy and thereby lead to higher output; v) Foreign
competition creates strong pressure for innovation and efficiency in both export and import
competing industries, thereby raising the productivity of sectors not directly exposed to
foreign competition; vi) Economic success under outward orientation depends on innovation
and efficiency, rather than on the directly unproductive profit seeking activities observed
under import substitution; vii) Export promotion has increasing marginal returns while import
substitution has decreasing marginal returns over time.
Piana (2001), while discussing exports, advocates that increasing exports raise production,
GDP, and employment. In turn, through the Keynesian multiplier effect, it engenders higher
consumption and production, giving rise to a positive feedback loop. Probably, imports will
also rise as a consequence. On the other hand, Thangavelu and Rajaguru (2004) suggest that
trade has an important impact on productivity and output growth in the economy, however it
is imports that provide the important 'virtuous' link between trade and output growth.
The current study is a modest attempt to further investigate the relationship between Indian
exports, imports and GDP growth, and to re-address the export-led growth (ELG), import-led
growth (ILG), and growth driven export/import (GDE/GDI) hypotheses. Specifically, our aim
is to study the potentially causal relationship between the logarithms of exports, imports, and
GDP (all measured at current prices) in India from 1951/52 to 2003/2004, and to test whether:
• Export and/or import and GDP are cointegrated?
• Export and/or import Granger cause GDP or vice versa?
Conclusions and Policy Implications
Summary Conclusions
In this study we aimed at exploring whether India experienced export/import-led
growth, or growth-driven export/import, both or none, during the fifty-four years period
spanning over 1951/52-2003/2004. Our data series are reasonably long and cover the pre- and

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post liberalisation periods alike, making it possible to capture the effects of measures to
promote exports and output growth. We studied Granger causality between the logarithms of
exports, imports and GDP. In order to re-enforce the results, we applied two complementary
strategies. The first, indirect, approach assumes that the variables are stationary or can be
made stationary by differencing. It makes use of pre-testing for unit roots and cointegration
and, depending on the outcomes, testing for causality is carried out with Wald tests in VAR
and/or VEC models in levels and/or first differences. The second, direct, approach is based on
a modified Wald test without need to pre-test for unit roots and cointegration.
Based on these strategies, we are of the opinion that exports and imports, both jointly and
individually, Granger-cause GDP (supporting the ELG and ILG hypotheses), as confirmed by
the Wald and MWald tests in the bivariate and trivariate frameworks alike. There is also some
evidence of GDP and exports jointly Granger-causing imports, and GDP and imports jointly
Granger-causing exports, while the growth driven export/import (GDE/GDI) hypotheses seem
implausible in case of India.
Policy Implications for India
This study confirms that export and import growth has been instrumental in accelerating
economic growth in India. The evidence of causality from exports to economic growth
implies that exports can have positive effect on economic growth. Exports, for example, can
boost output growth in the short-run by allowing the use of excess capacity in cases where
domestic demand requires less than full capacity production. Based on outcome similar to
ours, Nidugala (2000) favours the ongoing reforms regarding openness for faster economic
growth and higher GDP in India. By further opening up her market and continuing the
ongoing trade (export/import) promotion policy reforms, India can not only boost its
economic growth further but can also fuel growth in the entire South Asian region.
As suggested by Kemal et al. (2002), in the long-run exports can have beneficial effect on

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economic growth in a variety of ways. First, export production allows economies with narrow
domestic markets to overcome size limitations and to reap economies of scale. Second, by
relaxing the foreign exchange constraints, higher exports can permit higher imports of capital
goods thereby strengthening the productive capacity of the economy. Third, exports lead to an
improvement in economic efficiency by enhancing the degree of competition. Fourth, exports
contribute to productivity gains through diffusion of technical knowledge and learning by
doing. Further, export-oriented production and investment tend to take place in the most
efficient sectors of the economy fostering a pattern of production that is consistent with a
country's comparative advantages. Specialisation in these sectors improves productivity in the
economy leading to higher output growth, as also advocated by Thangavelu and Rajaguru(2004).
The study of Kemal et al. (2002) lends support to the export-oriented policies that are hallmark
of current trade regimes of the major South Asian economies, and suggest that South Asian
countries ought to continue the strategy of export-led growth to tackle the myriad development
challenges facing their economies.
Finally, according to Thangavelu and Rajaguru (2004), in India and in several other Asian
countries imports tend to have long run 'virtuous cyclical' effect on labour productivity, more
than exports. They suggest that exports and imports are both important for an outer-oriented
economic strategy. Similarly, the empirical evidence reported by Lee (1995) indicates that
imports have a positive effect on long-run output growth. In particular, imports could be an
important vehicle and source to assess foreign technology for developing countries. In an
outer-oriented strategy, countries should allow greater flow of goods and services into the
domestic economy by promoting both exports and imports.
Foreign trade of India
Foreign trade in India includes all imports and exports to and from India. At the level
of Central Government it is administered by the Ministry of Commerce and Industry. Foreign
trade accounted for 48.8% of India's GDP in 2015.

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Trade in goods
India accounted for 1.7% of the global trade in goods and increased in 2016.
Trade in services
India was the eighth largest exporter of commercial services in the world in 2016, accounting for
3.4% of global trade in services. India recorded a 5.7% growth in services trade in 2016-17.
Exports and imports
Main article: List of exports of India
India exports approximately 7500 commodities to about 190 countries, and imports around 6000
commodities from 140 countries. India exported US$318.2 billion and imported $462.9 billion
worth of commodities in 2014.
The Government of India's Economic Survey 2017-18 noted that five states — Maharashtra,
Gujarat, Karnataka, Tamil Nadu and Telangana — accounted for 70% of India's total exports. It
was the first time that the survey included international export data for states. The survey found a
high correlation between a state's Gross State Domestic Product (GSDP) per capita and its share
of total exports. With a high GSDP per capita but low export share, Kerala was the only major
outlier because the state's GSDP per capita was heavily influenced by remittances.
The survey also found that the largest firms in India contributed to a smaller percentage of
exports when compared to countries like Brazil, Germany, Mexico, and the United States. The
top 1% of India's companies accounted for 38% of total exports.
Trade statistics
Year Export Import Trade Deficit
1999 36.3 50.2 -13.9
2000 43.1 60.8 -17.7
2001 42.5 54.5 -12.0
2002 44.5 53.8 -9.3
2003 48.3 61.6 -13.3
2004 57.24 74.15 -16.91

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2005 69.18 89.33 -20.15
2006 76.23 113.1 -36.87
2007 112.0 187.9 -75.9
2008 176.4 305.5 -129.1
2009 168.2 274.3 -106.1
2010 201.1 327.0 -125.9
2011 299.4 461.4 -162.0
2012 298.4 500.4 -202.0
2013 313.2 467.5 -154.3
2014 318.2 462.9 -144.7
2015[18] 310.3 447.9 -137.6
2016 262.3 381 -118.7
2017 275.8 384.3 -108.5
The top 10 commodity exports in 2014 were as follows:
Rank Commodity HS Code Value (US$ billion) Share (%)
1 Refined Petroleum 27 61.2 19.2
2 Gems, precious metals, coins 71 41.2 13
3 Vehicles 87 14.5 4.6
4 Machines, engines, pumps 85 13.6 4.3
5 Organic chemicals 29 12.1 3.8

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6 Pharmaceuticals 30 11.7 3.7
7 Cereals 10 10.1 3.2
8 Iron and steel 72 9.1 2.9
9 Clothing (not knit or crotchet) 58 9.1 2.9
10 Electronics 85 9.1 2.8
The top 10 commodity imports in 2014 were as follows:
The top 10 commodity imports in 2014 were as follows:
Rank Commodity HS Code Value (US$ billion) Share (%)
1 Oil 27 177.5 38.3
2 Gems, precious metals, coins 71 60 13
3 Electronics 85 32 6.9
4 Machines, engines, pumps 85 31.2 6.7
5 Organic chemicals 29 18.3 4
6 Plastics 39 11.8 2.6
7 Iron and steel 72 11.4 2.5
8 Animal/vegetable fats and oils 15 10.7 2.3
9 Ores, slag and ash 26 7.4 1.6
10 Medical and technical equipment 90 7.1 1.5
Trading partners
India's largest trading partners in descending order of value of total trade are the United Arab
Emirates, China, the United States, Saudi Arabia, Switzerland, Singapore, Germany, Hong
Kong, Indonesia, Iraq and Japan.