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The importance of exports to economic development has been well documented in empirical as well as theoretical literature. A number of studies have examined how exports are beneficial for economic development of an economy. A common point among them is that, exports may lead to greater capacity utilization, economies of scale, incentive for technological improvement and efficient management due to competitive pressure abroad.

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The interest in the relationship between exports and economic growth has led to emergence of two schools of thought, namely export led growth (higher export leads to higher economic growth).

Although India has been following an import substitution strategy for long, exports promotion has always got the attention of the policy-makers and planners. Export promotion strategy became more pronounced in India particularly after the new economic policy (NEP) of 1991. It is a fact that although India’s share in world exports is less than 1 per cent today, its share in total GDP of the country is more than 11 per cent which is a substantial percentage that can play an important role in ushering faster economic development to the country.

Exports from India constitute agricultural and allied commodities (10.10%), ores and minerals (5.29%), manufactured goods (73.40%) (Such as engineering goods, gems & jewellery, chemical products and so on), crude oil and petroleum products (8.5%) and others (2.64%). Engineering industry has significance to the economic development of the country. Engineering goods industry constitutes the prime mover of industrial growth in Indian economy as it has played a pivotal role in industrial resurgence of India since the advent of independence, especially after the adoption of the Mahalanobis capital goods oriented strategy from the second plan onwards. The following facts highlight the very significance of the Indian engineering industry in Indian economy.

The engineering goods industry enjoys 30.5 per cent weight in the index of industrial production, 29.9 per cent share of total investment in all industry, 33.5 per cent share in the value of output of all industry, 37.1 per cent share in valued added by all industry. 30.6 per cent share in employment of all industry, and 62.8 per cent share in number of foreign collaborations (EEPC). Further more, recently it has emerged as a major exporting sector and also provides technical know-how and consultancy services to a number of African and Arabian states. As per the data available for the year 2004-05, engineering industry has emerged as the single largest item of total Indian exports pushing aside gems & jewellery export which had been dominating Indian export basket as the single largest item for some time now. Thus engineering industry is reckoned as an engine of economic development and one of the dynamic sectors of the Indian economy.

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