India’s Trade

India’s Regional Trade in Goods

India’s regional trade-orientation is a subject which is being study. Some of the preliminary observations are given below.

India’s Trade in Goods with World-by Regions (July 2017)
Exports: USD 22.09 billion;Imports: USD 33.82 billion.
Asia is a key destination of India’s exports and also a key source of India’s imports, followed by Western Europe. North America is the third largest export partner region of India. Africa is the third largest import partner region. Currently, Latin America’s share in India’s total trade is not significant.

Given the importance of Asia in India’s total merchandise trade, we also consider India’s Trade with Asia- by Sub-regions.
West Asia is the largest export partner and second largest import partner of India in Asia, after North East Asia.
In terms of exports, it is followed by ASEAN, North-East Asia and South Asia.
In terms of imports, West Asia is followed by ASEAN.
South Asia and Central Asia play insignificant role in India’s imports from Asia.

Since, the cost of doing trade in South-Asia is high; the advantage of geographical proximity is lost. As per data sources, intra-regional trade in South Asia is much smaller compared to that in East Asia. The trade potential in other South Asian countries needs to be explored by India. Similarly, Central Asia offers extensive potential for trade, investment and growth since it is strategically positioned as an access point between Europe and Asia.

Reversal in India’s Trade Composition: Analyzing Stages of Processing

This is yet another dimension of an ongoing study. It has been found that India’s merchandise trade has increased manifold in the post- 1990 period and there has been a structural change in the composition of India’s Exports between 1990 and 2016.

Nevertheless, during all these years, two categories viz Gems and Jewellery and Fisheries have maintained their respective shares in exports. What is more, there has been a change in the composition of imports of goods as well in terms of their relative proportion in the total import basket.

However, challenges remain in terms of increasing India’s share in global merchandise trade.

Over the years, India’s exports’ composition displays a reversal. Overall, India’s exports show a marked shift from raw materials & intermediate goods to final goods (especially capital goods and sustained levels of consumer goods) observed in their respective shares in total exports. This is a reversal in India’s export basket, which is often less appreciated or even lesser noticed.

On the imports front too, a reversal can be observed with the combined share of imports of raw materials and intermediates having increased whereas the combined share of imports of consumer and capital goods has declined.

Thus, on the imports front, the broad inference is one that of reversal in the product composition, over time. It would be wrong not to attribute this phenomenon to the Import Substitution policy which India pursued especially until 1991. However, this policy made the Indian economy high cost, inefficient and one which was characterized by poor quality products – all due to an absence of competition, especially the global competition. The reversal is possibly got geared towards more desirable import composition due to import liberalization as well.

Factor-Intensity Reversal and Technology-Intensity Reversal in India’s Exports

Based on the factor endowments of countries, the Neo-classical trade theory states that countries export products that use their abundant and cheap factors of production, and import products that use the countries’ scarce resources. Under certain assumptions, relative endowments of the factors of production determine a country’s comparative advantage. Countries have comparative advantages in those goods for which the required factors of production are relatively abundant locally. For instance, according to the Neo-classical trade theory (Heckscher-Ohlin Model), developed countries, being capital abundant as compared to developing countries, are expected to export more of capital-intensive goods and vice-versa.

Yet, in 1953, Leontief’s Paradox came up as a finding based on U.S. exports’ structure. As far as India is considered it is still unskilled/low skilled labour abundant country relative to many of the other developing and developed countries. However, is India’s export basket characterised by a Factor Intensity Reversal? The export basket has witnessed a shift in terms of the factor intensities of the commodities exported, indicating a consistent rise in the share of technology and human capital intensive in India’s export basket. Consequently, the combined share of primary products and unskilled labour-intensive products has witnessed a consistent decline.

In addition to Factor Intensity Reversal, India also witnesses Technology Intensity Reversal. The economy progressed over the years and the impact from the liberalisation reforms of 1990 started enforcing themselves in the economy, there has been a shift or reversal in the technological intensity of the commodities. This is evident from the fact that there has been a steady increase in the share of medium and high technology intensive manufacturers. Subsequently, the combined share of non-technological and low technology manufactures has declined.

India is still a labour abundant country, however over the years, the export basket has seen a relative increase in the export of capital intensive (both technology and human capital intensive) products, implying that yes, there has been a factor and technology intensity reversal in them and to an extend there is an apparent breakdown of the H-O model with respect to India. Empirically too, though the H-O model has been proved inconclusive at most instances, the innate relevance of the H-O theorem still stands, especially in today’s world of North- South trade, where factor intensities of North’s imports is different than of its exports, and thus the factor proportions approach is at the centre of practical debates on International Trade policy.