RESTRICTED

WT/TPR/G/403

25 November 2020

(20-8527) Page: 1/22

Trade Policy Review Body Original: English

TRADE POLICY REVIEW

REPORT BY

INDIA

Pursuant to the Agreement Establishing the Trade Policy Review Mechanism (Annex 3 of the
Marrakesh Agreement Establishing the World Trade Organization), the policy statement by India is
attached.

Note: This report is subject to restricted circulation and press embargo until the end of the first
session of the meeting of the Trade Policy Review Body on India.
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2.1.2 Savings and investment

2.4. Gross domestic savings as a proportion of GDP rose marginally from 32.1% in 2015-16 to
32.2% in 2018-19. Gross Capital Formation, as a proportion of GDP, was 34.5% in 2015-16 and
marginally increased to 35.6% in 2018-19.

2.1.3 Inflation

2.5. India has been experiencing moderation in inflation in the past few years. Retail inflation has
decreased from 4.9% in 2015-16 (based on Consumer Price Index-Combined New series) to 3.4%
in 2018-19 (Consumer Price Index-Combined). The high inflation was brought under control
primarily due to the significant reduction in food inflation. The decline in crude oil prices and the
introduction of a monetary policy framework for inflation targeting since August 2016 are some of
the important factors that have kept the inflation under check. However, CPI has increased during
the recent months and stood at 6.9 % (provisional) for July 2020 and 6.2% for June 2020 mainly
due to an increase in food inflation.

2.1.4 Employment and labour market scenario

2.6. As per the latest estimates based on Periodic Labour Force Survey (PLFS) of India, 2018-19,
the share of the regular wage/salaried employees has increased by 5 percentage points from 18%
in 2011-12 to 23% in 2017-18 as per usual status. In absolute terms, there was a significant jump
of around 26.2 million new jobs in this category with 12.1 million in rural areas and 13.9 million in
urban areas. Moreover, total formal employment increased from 8% to 9.98% during this period. In
absolute terms, the number of workers with formal employment increased from 38 million in 2011-
12 to 47 million in 2017-18.

2.2 Trade Performance

2.2.1 Merchandise Exports, Imports and Trade Balance

Total Trade and Trade Deficit

2.7. India's total trade in goods (exports plus imports) as a percentage of GDP has shown an uneven
trend. After declining from 37% in 2015-16 to 36% in 2016-17, it showed a steady increase and
reached 41% in 2018-19 (Table 3). However, it declined to 37.8% during 2019-20. The slowdown
of world output has definitely had an impact on reducing the export to GDP ratio.5

Table 3 Merchandise trade: exports, imports, trade balance, and trade openness
Value in USD billion Ratios based on USD
Exports Imports Trade
Exports Imports Trade
Year Trade Openness
% % as % of as % of Balance as
Exports Imports Balance (Trade as
growth growth GDP GDP % of GDP
% of GDP)
2015-16 262.3 -15.5 381.0 -14.9 -118.7 15.1 21.9 -6.8 37.0
2016-17 275.9 5.2 384.4 0.9 -108.5 15.0 21.0 -5.9 36.0
2017-18 303.5 10 465.6 21.1 -162.1 14.8 22.8 -7.9 37.6
2018-19 330.1 8.7 514.0 10.4 -184 16.4 25.5 -9.1 41.9
2019-20 313.2 -5.11 474.0 -7.80 -160.8 15.0 22.7 -7.7 37.8

Sources: DGCIS, RBI, and National Statistical Office (NSO).

2.8. In 2019-20, the major commodity groups in India’s export basket in terms of percentage
shares were Chemical and Related Products (14.4%), Petroleum Crude and Products (13.2%), Gems
and Jewellery (11.5%), Textile and Allied Products (10.8%); Machinery and Electrical Appliances
(9.1%); Agriculture and Allied Products (8.4%); and Base Metals (7.6%).

5
https://www.indiabudget.gov.in/economicsurvey/doc/vol2chapter/echap03_vol2.pdf.
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Merchandise Trade

2.9. During the period 2015-16 to 2019-20, India's merchandise exports showed an increasing
trend during most of the period, increasing at an average annual rate of 1.7% (Chart 1), with the
exception of the decline during 2019-20. In 2018-19, India’s exports stood at USD 330 billion mark,
aided by positive growth rates in three preceding years. However, it declined by (-) 5.1% to
USD 313.2 billion during 2019-20. The decline in exports is attributed to a subdued external demand
weakened by slowdown in global investment.6

2.10. During the five-year period under review (2015-16 to 2019-20), imports grew at an average
annual rate of 1.9% (Chart 1). In 2019-20, imports declined by (-) 7.8% to USD 474 billion as
compared to USD 514 billion in 2018-19. The sharp downturn in import was mainly on account of
fall in industrial production activities and domestic consumption.

2.11. In 2019-20, the following product groups accounted for almost 75% of India’s total imports:
Petroleum Crude and Products (27.5%); Gems and Jewellery (11.5%); Electronic items (11.1%);
Machinery (9.5%); and Chemical and Related Products (9.3%).

Chart
Figure 1 1Export
Export andgrowth
and import import
ratesgrowth rates

25%
Exports Imports
20%

15%

10%

5%

0%
2015-16 2016-17 2017-18 2018-19 2019-20
-5%
-5.1

-10% -7.8

-15%

-20%

2.12. The merchandise trade deficit, as a percentage of GDP, increased from 6.8% in 2015-16 to
7.7% in 2019-20. During the period from 2015-16 to 2019-20, it increased from USD 118.7 billion
in 2015-16 to USD 160.8 billion in 2019-20 (Chart 2). The heavy dependence on imports of essential
commodities including crude oil, gas, coal, pulses, edible oils, fertilizers, electronics, footwear, etc.
has kept India's trade deficit at a high level.
Figure 2 Merchandise trade: exports, imports and trade balance (USD billion)
Chart 2 Merchandise trade: exports, imports and trade balance (USD billion)
600
India's exports India's imports Trade balance
500

400

300

200

100

0
2015-16 2016-17 2017-18 2018-19 2019-20
-100
-118.7 -108.5
-200 -162.1 -160.8
-184.0
-300

Source: DGCIS

6
https://www.indiabudget.gov.in/economicsurvey/doc/vol2chapter/echap03_vol2.pdf.
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2.2.2 Direction of merchandise trade

2.13. There has been significant market diversification in India's trade in recent years – a process
that has helped in coping with the sluggish global demand. Region-wise, India's export shares to
North America and Europe and Central Asia have increased over the years from 14% and 19%
respectively in 2014-15 to 19% and 19.5% respectively in 2019-20. However, the United States of
America continues to be the topmost destination for India's exports with a share of 17% followed by
the United Arab Emirates (9.2%) and China (5.3%) in 2019-20.

2.14. The share of India's exports to the ASEAN (Association of South East Asian Nations) region
decreased slightly from 10.25% in 2014-15 to 10.07% in 2019-20 and exports to the Middle East
and North Africa decreased from 21.33% in 2014-15 to 18.05% in 2019-20. However, exports to
South Asia increased slightly from 6.6% in 2014-15 to 7% in 2019-20, with high growths to all the
SAARC (South Asian Association for Regional Cooperation) countries except Sri Lanka and Pakistan.
Exports to China grew at 39.2 %, while exports to Japan declined by16.06%, during the period.

2.15. As regards imports, the shares of Europe and Central Asia and Middle-East and North Africa
in India's imports declined from 16.7% and 25.8% respectively in 2014-15 to 15.5% and 24.0%
respectively in 2019-20. The share of South Asia has reached 0.8% in 2019-20. The share of North
America in India's imports has increased from 6.5% to 9.3% during the same period. China is the
major source of India's imports, accounting for 13.7% of India's total imports, followed by
United States (6.9%), UAE (5.8%) and Saudi Arabia (5.5%) in 2019-20.

2.16. In 2019-20, the top three trading partners of India were the United States, China, and the
UAE, with the top slot shifting away from China during the last two years.

2.2.3 Services trade

2.17. Trends in the composition of services exports since 2014-15 show that the shares of sectors
such as transport, software and financial services have witnessed a decline in 2019-20. The share
of communication services has remained unchanged. However, the share of travel and business
services has increased. Though the share of software services has declined by 2.6 percentage points
over the same period to reach 43.7% of total services exports in 2019-20, India’s services exports
remain largely concentrated in software services. This sector accounts for more than twice the share
of the second-largest component, business services.

2.18. According to the WTO data, India’s share in world’s commercial services exports has risen
steadily over the past decade to reach 3.5% in 2018, twice the share in world’s merchandise exports
at 1.7%. India now ranks 8th among the world’s largest commercial services exporters. It continues
to register strong growth performance relative to the other major services-exporting countries as
well as world services export growth. India's services exports outperformed merchandise exports
during the period 2015-16 to 2019-20, recording a compound annual growth rate (CAGR) of 8.4%,
higher than the CAGR of merchandise export (4.7%) during the same period. In 2019-20, services
exports registered a growth of 2.5% over the previous year, on the back of robust performance in
some major sectors like software, business, transportation, travel and communication services.
Software exports registered a growth of 11.5% in 2019-20 over 2018-19. Imports of services
increased by 1.8% to USD 128 billion in 2019-20 from USD 126.1 billion in 2018-19. The major
categories of services imports included business services, transportation, travel and software
services. Robust services surplus provides a steady flow of current receipts, financing 53.9% of the
merchandise trade deficit in 2019-20 (Table 4).
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Table 4 Trade in services (USD billion)

Period Exports Imports Net
2013-14 151.8 78.7 73.1
2014-15 158.1 81.6 76.5
2015-16 154.3 84.6 69.7
2016-17 164.2 95.9 68.3
2017-18 195.1 117.5 77.6
2018-19 208.0 126.1 81.9
2019-20 213.2 128.3 84.9
Source: RBI.

2.19. Recognizing the enormous potential of the services sector, as part of a new initiative, the
Government of India is giving focussed attention to 12 ‘Champion Sectors in Services’; Information
Technology and Information Technology enabled Services (IT & ITeS), Tourism and Hospitality
Services, Medical Value Travel, Transport and Logistics Services, Accounting and Finance Services,
Audio Visual Services, Legal Services, Communication Services, Construction and Related
Engineering Services, Environmental Services, Financial Services and Education Services. Nodal
Ministries/Departments have been identified for finalising and implementing action plans to realize
the full potential of these sectors.

2.20. To promote greater trade in services between India and the rest of the world, Global Exhibition
on Services (GES) is being organized by the Government every year.7 The main objective of the
Exhibition is to create a global platform for increased trade in services. It is expected to enhance
strategic cooperation and develop synergies to strengthen multilateral relationships between all
stakeholders, tap the potential for services' exports and to increase FDI flow in the services sector.
Other prominent sector specific events (Reverse Buyer Sellers Meets) supported by the Government
include 'Advantage Health Care India' to promote medical value travel and 'Higher Education
Summit' to promote the ‘Study in India’ brand.

2.3 Investment Profile

2.3.1 Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI)

2.21. During 2019-20, FDI inflows reached an all-time high of USD 74.39 billion (Table 5),
registering an increase of 20% over the corresponding period a year ago. Singapore, Mauritius,
Netherlands, US, and Japan, have been the major sources of FDI flows to India in 2019-20. The
major FDI recipient sectors include services sector, computer software and hardware,
communications services, financial services, retail and wholesale trade and financial services.

Table 5 FDI Inflows and Net FPI (USD billion)

Financial Year Total FDI Inflows Net FPI
2013-14 36.0 5.0
2014-15 45.1 40.9
2015-16 55.6 -4.0
2016-17 60.2 7.0
2017-18 61.0 22.0
2018-19 62.0 -2.2
2019-20 74.4 0.6

Source: RBI.

7
https://www.gesindia.in/.
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2.22. There was a net FPI inflow to the tune of USD 0.6 billion in 2019-20 as against net outflow of
USD 2.2 billion a year ago. The modest net FPI inflow in 2019-20 was on account of huge sell-off in
March 2020 induced by COVID-19 related concerns.

2.3.2 Outward investment by India

2.23. Net outward FDI by India has shown a mixed trend during the review period returning figures
of USD 9.2, 4, 8.9, 6.6, 9.1, 12.6, and 13 billion in the years from 2013-14 to 2019-20. The major
destinations of India’s outward FDI in 2019-20 included Singapore, the US, the UK, Mauritius and
Switzerland. Financial, insurance and business services sector accounted for the largest share in
outward FDI by India in 2019-20, followed by manufacturing, wholesale and retail trade, restaurants
and hotels, transport, storage and communication services and construction.

2.4 Monetary and Fiscal Policy

2.24. The Government amended the Reserve Bank of India Act, 1934 in May 2016 to provide for a
revised monetary policy framework. Under the amended Act, the inflation target is to be set by the
Government, in consultation with the Reserve Bank, once every five years. It further provides for a
statutory basis for the constitution of an empowered Monetary Policy Committee (MPC). The
Government has fixed the inflation target of 4% with a tolerance level of +/- 2 % for the period
beginning from 5th August 2016 to 31st March 2021.8

2.25. Fiscal deficit of the Government of India as a per cent of GDP averaged 3.62% during 2015-
16 to 2019-20 (RE). Central Government debt which was budgeted at 48% of GDP in 2019-20 has
been revised upwards to 50.3% of GDP in RE 2019-20. This is mainly on account of allowing a fiscal
deficit of 3.8% of GDP in RE 2019-20. As a percentage of GDP, Central Government debt is expected
to marginally decline to 50.1% in 2020-21 and at a higher pace in projection years to reach 45.5%
in 2022-21. The borrowings are expected to reduce in the medium term with increased revenue
collections.9

3 REFORMS: ECONOMIC POLICY AND OTHER INITIATIVES

3.1 Economic Reforms and Better Delivery of Services

3.1.1 Goods and Services Tax (GST)

3.1. The introduction of the Goods and Services Tax (GST), which came into effect on 1 st July 2017,
was a very significant step in the field of indirect tax reforms in India. By amalgamating a large
number of Central and State taxes into a single tax, GST aims to mitigate the ill effects of cascading
or double taxation and paves the way for a common national market. The GST replaces taxes such
as the Central Excise Duty, Service Tax, State Value-added Tax, Octroi, Luxury Tax, Purchase Tax,
etc. The introduction of GST is aimed at full neutralization of input taxes across the value chain of
production and distribution. This is expected to make Indian products competitive in the domestic
and international markets. The Government has made concerted efforts to improve the tax
compliance and tax revenue collection through extensive automation of business processes,
application of e-way bill mechanism, targeted action on compliance verification, enforcement based
on risk assessment and proposed introduction of electronic invoice system.

3.1.2 Insolvency and Bankruptcy Code

3.2. The Insolvency and Bankruptcy Code10, which was enacted in 2016, provides a mechanism for
the insolvency resolution of debtors in a time bound manner. This seeks to enable maximisation of
the value of their assets, with a view to promote entrepreneurship, availability of credit and balance
the interests of all the stakeholders. The Code separates commercial aspects of insolvency and
bankruptcy proceedings from judicial aspects. It empowers and facilitates the stakeholders and
Adjudicating Authority to decide matters within their respective domain expeditiously.

8
https://www.rbi.org.in/Scripts/PublicationsView.aspx?id=19439.
9
https://www.indiabudget.gov.in/doc/frbm2.pdf.
10
https://www.ibbi.gov.in/legal-framework/act.