India’s Key Sources of Dollar Earnings

Source: The post rise of India’s Key Sources of Dollar Earnings has been created, based on the article “We need more sectors to become reliable dollar earners” published in “Live mint” on 24th December 2024

UPSC Syllabus Topic: GS Paper3 – Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment

Context: The article discusses India’s reliance on essential imports and the need for strong dollar earners like remittances and software services. It highlights challenges in boosting exports, opportunities in tourism, education, and engineering, and stresses improving value-added sectors.

What Are India’s Major Imports and Export Challenges?

1. Major Imports

• India imports essential goods worth over $250 billion, including crude oil, coal, fertilizers, steel, and copper.
• Pharmaceuticals, special minerals, and renewable energy inputs are also crucial.
• High import dependency impacts net earnings from exports like petrol, diesel, and polished diamonds.

2. Export Challenges

• Traditional exports like textiles dropped from 21.1% (2004) to 8% (2024), overtaken by Vietnam and Bangladesh.
• Polished diamonds’ share fell from 16.9% to 7.5%, with high import costs.
• AI threatens low-end software jobs; competition in garments and automation risk labour-intensive sectors.

What Are India’s Key Sources of Dollar Earnings?

1. Inward Remittances: India leads globally with $129 billion in remittances, primarily from Gulf countries and North America. Reducing transaction costs can boost this further, inspired by UPI’s success.
2. Software Services: Exports exceed $200 billion, relying on skilled talent. Growth depends on adapting to AI challenges and climbing the value chain.
3. Engineering Goods: Exports reached $110 billion, growing 40% in six years.
4. Mobile Phones: Exports crossed $20 billion recently, showing steady growth.

5 Petroleum Products: Account for a fifth of merchandise exports but face high import costs and oil price volatility.

What Are Some Emerging Opportunities and Risks?

1. Emerging Opportunities
2. Tourism: India attracts only 9 million foreign tourists compared to Spain’s 85 million and Thailand’s 29 million. Better promotion and infrastructure can double arrivals.
3. Mobile Phone Exports: Rising from zero to $20 billion, showing potential as a steady dollar earner.
4. Project Exports: Combining services and goods, leveraging India’s human capital.
5. Emerging Risks
6. Automation: Threatens labor-intensive sectors like garments, footwear, and diamond polishing.
7. Dependence on Imports: High import content in engineering goods and petro-products reduces net export earnings.
8. Education Costs: Draining $70 billion, with a need to boost domestic education exports.

Wise

Question for practice:

Examine the challenges and opportunities for India’s export sector in enhancing its net dollar earnings, considering the reliance on imports and emerging global trends.