It is common to posit that India’s economy is more self-contained than China’s. Lately the facts have got in the way. In dollar terms China still sells five times more than India, but relative to output, exports of goods and services from India have been chugging up while those from China have fallen. Measured this way the two countries are converging (see chart).
This runs so counter to gut instinct— India is meant to be hopeless at making things—that many mutter about unreliable data. Some reckon firms are over-invoicing for exports to ship black money back into the country. But Sajjid Chinoy of JPMorgan Chase has tallied the official figures against India’s trade partners’ numbers and data on port traffic. He says the conspiracy theories are flimsy.
Two shifts are happening. First, India no longer only sells simple things such as jewels. A decade ago engineering and petrochemicals were 14% of goods exports; now they are 42%, says Rohini Malkani of Citigroup. Second, the share of goods exported to slothful America and Europe has dropped from a half to a third. India is selling more complex products to a wider and perkier group of trade partners. Small firms are doing a lot of the work, says T.C.A. Ranganathan of Export-Import Bank of India.
Could India become a “surplus” country like China? The government hopes so, having set as one of its targets—a typical mix of technocratic forecast and armchair bombast—that goods exports will hit $500 billion in three years’ time, double last year’s level. Despite the recent drop in the rupee, most economists are less brave: goods-export growth rates are expected to slow from some 50% in the past two quarters to 20% for the full year, thanks in part to a global slowdown. As for services, which are a third of the overall export basket, they are dominated by software, sold mainly to America and Europe, and may wilt.
Even if exports remain on fire, India likes spending the proceeds on imports more than China does. The result is a modest but stubborn current-account deficit. Relying on capital flows to fund that is not always comfortable. But no one in India wants to fall into China’s trap of giant surpluses that are recycled as loans to weak Western governments.