Forecast Data Modelled by Oxford Economics, based on HSBC Global Research Macro Data.

HSBC Global Connections Report

India

An overview of world trade and the opportunities for international businesses

February 2013

Trade Flows After being dragged down in 2012 by global weakness, Indias goods exports are forecast to accelerate again in 2013/14 as the world economy and the Asian regional economy in particular picks up pace. Sector Insights The sectoral composition of Indias goods exports is forecast to change over time as the country moves up the value chain into higher-tech sectors such as transport equipment, chemicals and industrial machinery. Still, lower value-added sectors such as wood and textile manufactures, which employ a large part of Indias unskilled workforce, will continue to generate a significant portion of export revenue. Overview of Present Situation India is not as trade-oriented as many other emerging Asian economies, partly due to its large domestic market, but nevertheless exports have risen substantially as a share of Indian GDP over the past decade. While the slowdown in growth to 6.5% in FY2012 from 8.4% in FY2011 was primarily domestically driven, the slowdown in exports had some impact as well. The economy is expected to have slowed further in FY2013, but is expected to gradually recover in FY2014, with trade supporting growth towards the latter half of the year. We expect merchandise exports to grow at an impressive average annual pace of 17% over the period 2013-15 and by 15% a year during 2016-20. Indias largest single export relationship is with the United Arab Emirates, accounting for around 15% of total exports. A key reason for these close trade links is their geographical proximity, as well as the political-cultural links between the two countries (including a large emigrant Indian population in the UAE). These links mean that the UAEs dominance as an export market is expected to endure out to 2030. The US is currently a very important market, but is forecast to decline in relative significance as intra-Asian trade proves a more dynamic opportunity over the next two decades. China, Hong Kong and Vietnam in particular are expected to considerably increase their share in Indias exports.

A large proportion of Indian exports are of natural resource-based manufactures, such as refined petroleum products and mineral manufactures, as well as low value-added manufactures of wood and textile products. Out to 2030, however, India is forecast to move up the value chain as the workforce becomes more skilled, with higher-tech manufacturing products such as transport equipment (especially automobiles), chemicals and industrial machinery providing a growing share of export revenue. Top Five Export Destinations*
Rank 1 2 3 4 5 2011 UAE USA China Singapore Hong Kong 2030 UAE China USA Hong Kong Vietnam

Top Three Import and Export Sectors in India 2011 and 2030*
Imports Exports

1st

2nd

1st

2nd

2030 2011

2030 2011

3rd

3rd

Petroleum and petroleum products Textiles and wood manufactures Road vehicles & transport equipment

Industrial machinery Mineral manufactures Unclassified goods

*Note: Table only considers goods exports between the 23 economies in the sample

Corridors to watch The most important current bilateral relationships are with the UAE and the US. These will continue to provide a large share of export revenue, but will not be the major sources of growth in new trade. Rather, Indias participation in intra-Asian trade is forecast to be a major driver of trade growth, both in the near-term as the Asian economy recovers faster than that of Europe and the United States, and in the longer-term as more Asian economies graduate to middle-income countries. China is forecast to increase in importance as an export market, growing by more than 15% per annum all the way out to 2030. The rapidly emerging Vietnamese economy will also prove to be a highly dynamic trade partner average annual growth of 23% a year is expected in 2013-15, with growth subsequently moderating to a rate of around 15% per annum in the years to 2030. Emerging European, Middle East and North African markets should also provide a key opportunity for exporters, diversifying Indian involvement in this region beyond the UAE. Egypt, Turkey and Saudi Arabia are all Fastest Growing Exports (% year)
Rank 1 2 3 4 5 6 7 8 9 10 Destination Vietnam Egypt Turkey Indonesia Mexico Ireland Argentina Saudi China Brazil 201315 28 24 24 22 22 22 22 22 21 20 Destination Vietnam China Turkey Malaysia Poland Brazil Indonesia Korea Egypt UAE

forecast to generate greater than 20% export growth per annum in 2013-15 period, and greater than 10% annual growth out to 2030. Regional Export Flows
Source: Oxford Economics

growth (% year) 20 201315 201620

16

12

0
As Ja ia e pa x. n Am La t er in ica & Aus O , ce NZ an ia ex Eu . R rop us e sia M i N dE Af as ric t a AmNo r er th ica Af S S ric a

201620 20 20 18 17 17 17 16 16 15 15

&

Destination Vietnam China Malaysia Turkey Indonesia Egypt Saudi Bangladesh UAE Canada

202130 15 15 13 13 13 12 12 11 11 11

Fastest Growing Imports (% year)

Rank 1 2 3 4 5 6 7 8 9 10 Origin Mexico Vietnam Egypt Turkey Brazil Poland China Indonesia Korea Bangladesh 201315 28 23 23 21 21 21 19 19 18 18 Origin Vietnam Turkey China Poland Bangladesh Mexico Canada Malaysia Egypt Brazil 201620 17 17 17 16 15 15 14 14 14 13 Origin Vietnam Bangladesh China Turkey Mexico Malaysia Canada Poland Egypt Indonesia 202130 15 15 14 13 12 12 12 11 11 11

Sectors to watch Natural resource-based sectors are currently of primary importance, including petrol products such as fuels, industrial lubricants and bitumen, and mineral manufactures like cement, brick, and glass products. Mineral manufactures will continue to provide a strong and steady source of growth, supplying construction materials to the developing countries of the region, and absorbing Indias large unskilled workforce. This sector is expected to contribute around 15% of Indias export growth in the decade to 2030. However, India is also forecast to begin to move into higher-value and higher-tech sectors as the workforce becomes more skilled. In particular, the countrys passenger car and commercial vehicle manufacturing industry is expected to be a major driver of exports, helping the transport equipment sector to contribute around 15% of total export growth in the decade to 2030. Chemicals and industrial machinery are also seen providing a strong and steady source of export revenues, with each contributing around 7-9% of growth out to 2030 as they gradually account for a higher share of trade. % Contribution To Overall Growth In Merchandise Exports
Rank 1 2 3 4 5 6 7 8 9 10 Sector Mineral manufactures Transport equipment Textile and wood manufactures Chemicals Industrial machinery Clothing and apparel Petroleum products Misc. manufactures Pharmaceuticals Iron and steel 201315 16 10 10 9 9 7 6 6 5 5 Sector Mineral manufactures Transport equipment

Sector Contribution to Increase in Merchandise Exports %

Source: Oxford Economics
100%

80%

60%

40%

20%

0% 2013 2014-15

2016-20

Food & animals Mineral fuels Machinery & transport

Beverages & tobacco Chemicals Other

Raw materials Manufactures

201620 16 12 9 9 8 6 5 5 5 5

Sector Mineral manufactures Transport equipment Textile and wood manufactures Chemicals Industrial machinery Iron and steel Non-ferrous metals Misc. manufactures Plastics Pharmaceuticals

202130 15 15 9 8 7 6 6 5 5 4

Textile and wood manufactures Chemicals Industrial machinery Misc. manufactures Petroleum products Iron and steel Clothing and apparel Pharmaceuticals

% Contribution To Overall Growth In Merchandise Imports

Rank 1 2 3 4 5 6 7 8 9 10 Sector Industrial machinery Unclassified goods ICT equipment Chemicals Mineral manufactures Plastics Misc. manufactures 201315 23 12 7 7 7 6 5 Sector Industrial machinery Unclassified goods Chemicals Mineral manufactures ICT equipment Plastics Misc. manufactures 201620 25 14 7 7 7 5 4 Sector Industrial machinery Unclassified goods Chemicals Mineral manufactures ICT equipment Plastics Iron and steel Misc. manufactures Transport equipment Other fertilizers 202130 29 11 8 7 6 4 4 4 4 4

Textile and wood manufactures 5 Transport equipment Iron and steel 4 4

Textile and wood manufactures 4 Iron and steel Transport equipment 4 4

Rapid industrialisation and increasing wages, coupled with maturing consumer demand in many of the countries along the South-South corridor are driving different types of global trade growth. This report highlights how these trends are changing the types of goods imported, manufactured and subsequently exported. As countries shift towards higher value sectors there are significant opportunities for companies to evolve and grow. Some of the faster growing, emerging markets show a shift from basic commodities trading in sectors such as Cereals or Sugar, to become a refiner or producer of branded goods based on those raw materials. In many of the developed markets there is a shift towards increasingly specialised sectors such as Chemicals and Pharmaceutical products as companies seek opportunities for higher returns.
About the Data: About the HSBC Global Connections report Modelled by Oxford Economics Oxford Economics has tailored a unique service for HSBC which forecasts bilateral trade for total exports/imports of goods, based on HSBCs own analysis and forecasts of the world economy to generate a full bilateral set of trade flows for total imports and exports of goods, and balances between 180 pairs of countries. Oxford Economics produces a global report for HSBC, plus regional reports and country specific reports on the following 23 countries: Hong Kong, China, Australia, Indonesia, Malaysia, India, Singapore, Vietnam, Bangladesh, Canada, USA, Brazil, Mexico, Argentina, UK, France, Turkey, Germany, Poland, Ireland, UAE, Saudi Arabia, & Egypt. Oxford Economics employs a global modelling framework that ensures full consistency between all economies, in part driven by trade linkages. The forecasts take into account factors such as the rate of demand growth in the destination market and the exporters competitiveness. Exports, imports and trade balances are identified, with both historical estimates and forecasts for the periods 201315, 201620 and 202130. Oxford Economics formerly Oxford Economic Forecasting was founded in 1981 to provide independent forecasting and analysis tailored to the needs of economists and planners in government and business. It is now one of the worlds leading providers of economic analysis, advice and models, with over 500 clients. Oxford Economics commands a high degree of professional and technical expertise, both in its own staff of over 70 professionals based in Oxford, London, Belfast, Paris, the UAE, Singapore, Philadelphia and New York, and through its close links with Oxford University and a range of partner institutions in Europe and the US.

Emerging markets are developing at a phenomenal pace and are set to reshape world trade patterns over the next 20 years. By expanding their operations in to new, higher value sectors, they are driving more developed nations to specialise and diversify to compete. Understanding which sectors are growing in which markets, delivers huge opportunities for businesses as they plan for the future and aim to capitalise on these trends. James Emmett HSBC Global Head of Trade & Receivables Finance

About the HSBC Sectors: The model looks at two-digit classifications from the COMTRADE database, grouped in to a set of thirty headings. The sector data has been tracked by country, to give an insight in to the primary drivers of trade between the 25 countries and territories in the sample. The sector data has been calculated to show growth as a percentage of the overall contribution to growth, to ensure that the model highlights the sectors which are representing the biggest drivers of growth. More information about the sector modelling can be found on http://www.globalconnections.hsbc.com/ Sector classification headings: 1 -  Animals & Animal products, Cereals, Sugars, sugar preparations & honey, Coffee and other spices 2 - Beverages, Tobacco 3 -  Crude animal and plant materials, Oil-seeds, Crude fertilizers, Metalliferous ores 4 -  Petroleum and petroleum products, Gas, natural & manufactured, Other mineral fuels & electric current 5 - Animal & vegetable oils 6 -  Organic chemicals & inorganic chemicals, Pharmaceutical products, Fertilizers, Plastics 7 -  Textiles & wood manufactures, Mineral manufacturers, Iron & steel, Non-ferrous metals 8 -  Industrial machinery, ICT equipment, Road vehicles & transport equipment 9 -  Prefab buildings, fixtures & furniture, Clothing & apparel, Scientific & photographic apparatus, Miscellaneous manufactured articles 10 -  Commodities and transactions not classified elsewhere in the SITC, primarily gold in non-coin form.

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