In which Sector or Theme India is growing and where the Allocation to be ? Economic Survey Analysis Series II

The Economic Survey Analysis Series II delves into the sectors and themes where India is experiencing significant growth. This analysis highlights key areas of economic expansion and suggests strategic allocation opportunities for investors and policymakers.

Defence Sector

India's defence production has seen a substantial increase, rising from ₹74,054 crore in FY17 to ₹108,684 crore in FY23, leading to a boost in defence exports. Between 2015 and 2019, India was the world's second-largest arms importer. However, India has now transitioned from being an arms importer to becoming one of the top 25 arms-exporting nations. The combined efforts of the private sector and Defence Public Sector Undertakings (DPSUs) have driven this success, achieving the highest-ever defence exports. The number of export authorizations issued to defence exporters has also risen, from 1,414 in FY23 to 1,507 in FY24. About 100 domestic companies are now exporting a wide range of defence products, including aircraft like Dornier-228, artillery guns, Brahmos Missiles, PINAKA rockets and launchers, radars, simulators, and armoured vehicles.

Toy Industry

For over a decade, India relied heavily on China for about 76% of its toy imports. However, India's import bill for toys from China decreased significantly from USD 214 million in FY13 to USD 41.6 million in FY24, reducing China's share in India's toy imports from 94% in FY13 to 64% in FY24. This shift highlights India's growing competitiveness in the international toy market.

 Footwear and Leather Industry

The Indian footwear and leather industry is a crucial foreign exchange earner. India is the second-largest global producer of footwear after China, contributing 13% of global footwear production and 2.2% of global exports. India is also the ninth-largest global footwear exporter. According to DGCIS, India's footwear exports increased from USD 1.9 billion in FY21 to USD 2.5 billion in FY24.

 Smartphone Industry

FY20 marked a milestone for India's smartphone industry as domestic production exceeded domestic demand for the first time, making smartphones one of India's top export categories. Exports have become the primary growth driver for the sector, with a 42.2% increase in exports in FY24 (year-on-year), placing smartphones among India’s top five export items at the six-digit HS product categories.

Agriculture and Allied Products, Chemicals, Plastics, and Textiles

The exports of agriculture and allied products, chemicals, plastics, and textiles have seen a decline. Over the past six years, the composition of exports in these categories has shifted. Engineering goods dominated merchandise exports in FY19, accounting for 25.3% of total exports. This trend continued, with engineering goods exports reaching USD 109.3 billion in FY24, maintaining a 25% share. Agri and allied products also maintained a steady share, peaking at USD 52.7 billion in FY23 before slightly declining to USD 48.3 billion in FY24, holding around an 11% share in merchandise exports. Chemical and plastic exports grew from USD 31 billion in FY19 to USD 37.5 billion in FY24, though their share declined from 9.4% to 8.6%. The textile sector witnessed a decline in exports from USD 37.5 billion in FY19 to USD 34.8 billion in FY24, with its share in total exports dropping from 11.4% to 8%. This decline reflects shifting priorities and emerging sectors within India's export framework and underlying challenges in the textile sector.

 Electronics Sector

India’s share in world electronics exports, encompassing HS chapters 84, 85, and 90, improved from 0.63% in 2018 to 0.88% in 2022. Consequently, India’s global electronics export rank improved from 28th in 2018 to 24th in 2022. The share of electronics goods in India's merchandise exports rose from 2.7% in FY19 to 6.7% in FY24.

 Pharmaceuticals Sector

India maintained a strong position in the drugs and pharmaceuticals sector. The sector’s share in India’s exports grew from 5.8% in FY19 to 6.4% in FY24, with exports increasing from USD 19.1 billion in FY19 to USD 27.9 billion in FY24.

 Allocation Strategy

Given India's diverse and growing sectors, investors should consider allocating resources to the following areas:

1. Defence: Increased exports and production capabilities.

2. Toy Industry: Rising domestic production and declining reliance on imports.

3. Footwear and Leather: Significant global market share and growing exports.

4. Smartphones: A leading export category with robust growth.

5. Engineering Goods: Consistent share in total exports.

6. Electronics: Rapidly increasing global export share.

7. Pharmaceuticals: Strong export growth and global market presence.

 These sectors represent areas of strong growth potential and strategic importance for India's economy.