export and economic growth - shodhganga : a reservoir...
TRANSCRIPT
INDIA’S EXPORT PERFORMANCE UNDER THE WTO REGIME
THESISSUBMITTED TO THE
UNIVERSITY OF LUCKNOWFOR THE DEGREE OF
DOCTOR OF PHILOSOPHYIN
APPLIED ECONOMICS
ByKALPANA SHARMA
Under the supervision ofProf. NAR SINGH
M.com., Ph.D., P.D.R. (Hungary)FMSH(Paris), FUR (Germany)
HEAD
DEPARTMENT OF APPLIED ECONOMICSFACULTY OF COMMERCE
UNIVERSITY OF LUCKNOWLUCKNOW
2013
PREFACE
The role of exports has been widely recognised as an important instrument for country’s economic development process. Exports growth builds import capacity and industries engaged in exports production have the high intensity to absorb surplus of labour force of developing country like India which thereby leads to the creation of employment and increase in income which leads to rise in savings which is transferred into investment in physical and human capital, and thus in the rate of economic growth. Until Third Five Year Plan the major thrust of Government of India was on pursuing an inward oriented import substitution policy, however it entailed higher domestic resource cost and also increased dependency of the country on the industrialist world. Over time, therefore the stress on import-substitution was gradually diluted and emphasis began to be placed on exports. With this various policy incentives in order to encourage exports was introduced in foreign trade policies. The most effective means encouraging outward orientation is to lower tariffs on imports so that the anti-export bias, both in policies and mind-sets get corrected.
The economic reforms of 1990s with focus on liberalisation have enabled increased integration of the Indian Economy with the rest of the world. Further the creation of WTO had provided an export friendly environment and wider scope of access to new markets through greater liberalisation in international trade rules. The World Trade Organisation (WTO) is the successor of GATT and came into existence on January 1, 1995 with the objective to enforce an open, equitable, non-discriminatory and rule based multilateral trading system. India is the founder member of the WTO and various provision and agreements under WTO have certainly affected India’s export trade. Some study has shown India has been benefited from the new trade regime under WTO especially in absolute terms while others exhibit there has been little benefit to India. The creation of WTO had significant impact on India’s foreign trade policy and apart from reduction in tariff barriers, all quantitative restrictions imposed by India on its imports and exports have been removed. The high export growth and improved share of India in world merchandise and service exports was made possible due to greater orientation in international market brought about by WTO and of course due to the export promotion measures adopted by the Government of India.
In post WTO period there has been substantial structural changes in India’s exports with steep fall in the share of primary exports and relative increase in importance of manufactured products with the considerable improvement in the share of the exports of engineering goods, gems and jewellery, readymade garments and chemicals products. India’s exports have shown a steady trend towards higher technology content, India’s specialization in exports lies in manufactures based on labour and natural resources essentially involving low technology. Given the exports structure of India, the potential for further growth of manufactured goods, especially to the developed markets remains high. Apart from manufactured goods petroleum products exports have shown drastic rise in past decade. The share of traditional agricultural items like tea, coffee, cotton etc. in total exports has declined whereas as rice, spices, sugarcane, vegetables and fruits and marine products are the key production items for India with significant share in India’s total agricultural exports.
Indian services exports has been rising importance globally and especially in case of business and software services. India’s share in world export of services has constantly improved and had reached to 3.23 per cent in 2011 with 8th rank in world exports. UK and USA remained the top destination for Indian services export. India’s export of services has grown at faster pace than merchandise exports under WTO regime.
Markets of Indian exports diversified from exclusive reliance on the developed market economies to other developing countries. Export of many commodities like rice, spices, tea, gems and jewellery, textile products, few chemical products and leather products etc. and services like software, computer and information and communication services has exhibited competitiveness in the international market.
The major challenge the Indian export sector is facing is to enhance its productivity, share and competitiveness in an increasingly integrated global environment. The creation of WTO has culminated multilateralism and free trade regime through removal and reduction of trade barriers which has posed both challenges and opportunities for Indian exports. So realising the overwhelming importance of WTO and its role in India’s exports, it was felt imperative to study and analyse India’s export performance under WTO regime and suggest some policy measures which is conducive to India’s export growth.
The present work is divided into nine chapters. Chapter I deals with the introduction and basic framework of the study. Chapter II describes the significance of international trade in growth and development of developing country including India. Chapter III provides an overview of the impact of WTO on India’s foreign trade policy and also highlights India’s negotiation position at different Ministerial Conference held under the auspices of WTO. Chapter IV deals with the various exports promotion measures adopted by the Government of India since independence and also observes the WTO status of export promotion measures in relation to India. Chapter V gives detail of the scenario of growth, direction, and structure of India’s exports during the pre and post WTO period and finally exhibit the factors and forces underlying India’s export performance during the concerned period. Chapter VI deals with the analysis of commodity wise and country wise India’s agricultural exports during pre and post WTO period. Chapter VII analyses India’s manufactured export performance under WTO regime with special focus on major categories of commodities. Chapter VIII examines the growth in India’s exports of services and evaluates the composition and direction and comparative advantage of services exports. Lastly, Chapter IX highlights summary and conclusions of the elementary chapters and also highlights some policy measures for promotion of India’s export trade.
In course of study, various institutions offered me immense help and cooperation, so I owe my indebtedness to thank the librarians and official staff of the following institutions: Indian Institute of Foreign Trade, New Delhi, ICSSR, New Delhi, Delhi School of Economics, New Delhi, Jawaharlal Nehru University, New Delhi, University of Lucknow, Lucknow, Giri Institute of Development Studies, Lucknow and IIM, Lucknow.
I am deeply indebted to Prof K.N. Mehrotra, Former Director, Indian Institute of Foreign Trade, New Delhi for giving me constant inspiration and guidance. I am also
grateful to Dr. R.S. Tiwari, Former Senior Fellow, Giri Institute of Development Studies, Lucknow for his consistent encouragement and very valuable discussions at the various stages of the study. I also express my sincere thanks to Dr. Manorama Tiwari.
I am deeply indebted to Prof Nar Singh, Head, Department of Applied Economics, University of Lucknow, the supervisor of this research work, for guiding and supporting me throughout my research work.
I also acknowledge the authors and writers of different books and journals which I consulted and referred during the compilation of this thesis. I am also thankful to the administrative staff of University of Lucknow, Lucknow for being cooperative and helpful throughout.
I thank all my family members, my parents, my brother Abhishek Sharma and my sister Upasana Sharma for being very encouraging and supportive throughout my research work. I am also thankful to all my friends and relatives particularly Tushi Sharma for being very helpful.
Date: KALPANA SHARMA
CONTENTS
Page No.
Preface i -iii
List of Tables vi-ix
List of Figures x-xi
CHAPTER I INTRODUCTION 1-24
1. Export and Economic Growth 1
2. Present Position of India’s Exports 3
3. WTO and Emerging Benefits and Challenges to India 6
4. Objectives of the Study 8
5. Hypothesis 9
6. Sources of Data 9
7. Research Methodology 9
8. Review of Literature 11
8. Chapter Scheme 17
CHAPTER II INTERNATIONAL TRADE AND ECONOMIC
GROWTH
25-49
1. Importance of International Trade 25
2. International Trade and Views of Economists 26
3. International Trade and Developing Economy 28
4. Liberalisation and International Trade 33
5. International Trade and India 38
CHAPTER III WORLD TRADE ORGANIZATION AND INDIA 50-87
1. WTO : A Brief History 50
2. WTO and India 57
WTO and India’s Foreign Trade Policy 57
India’s Stance at WTO 68
CHAPTER IV EXPORT PROMOTION MEASURES IN INDIA 88-117
1. Institutional Setup for Export Promotion 90
2. Export Promotion Strategy and Scheme, Including Export Incentive and Export Infrastructure
93
3. Export Promotion Policies and WTO 95
4. Export Promotional Measures under Foreign Trade Policy 104
CHAPTER V EMERGING PATTERN OF INDIA’S EXPORTS
UNDER WTO
118-
152
1. Global Export Trends With Reference to India’s Relative Export Behaviour
119
2. Trends in Export Performance of India in Pre- and Post-WTO 128
CHAPTER VI WTO AND INDIA’S AGRICULTURAL EXPORTS 153-
207
1. Importance of Agriculture in India 153
2.Performance of Indian Agricultural Exports under the WTO Regime
155
3. Commodity-wise Analysis of Indian Agricultural Exports 164
4. Country-wise Analysis of Indian Agricultural Exports 178
5. Impact of WTO on Indian Agriculture 197
6. Major Problems of Indian Agricultural Export Sector 203
CHAPTER VII INDIA’S MANUFACTURED EXPORTS 208-
275
1. Role of Manufactured Sector in Indian Economy 208
2. India’s Manufactured Export Performance 210
3. Export Performance of India’s Key Manufactured Products in Post-WTO Period
221
4. WTO and Trade Barriers to Indian Manufactured Exports: Tariff and Non-Tariff Measures
268
CHAPTER VIII INDIA’S SERVICES EXPORT PERFORMANCE 276-
322
1. Importance of Service Sector 276
2. India’s Export of Services in WTO Era 281
3. Emerging Opportunities and Challenges for Indian Services
Export under WTO Regime
313
4. Policy Development by Indian Government in the Past Decade to
Facilitate Growth in Indian Services Export
318
CHAPTER IX SUMMARY, CONCLUSION AND POLICY 323-
IMPLICATIONS 340
BIBLIOGRAPHY 341-
354
LIST OF TABLES
Table No. Title Page No.
1.1 Recent Trends in India’s Value of Merchandise Exports 31.2 Value of Services Exports in Recent Year 52.1 Export of Goods and Services as a Percentage of GDP 292.2 Import of Goods and Services as a Percentage of GDP 292.3 Trade to GDP Ratios 302.4 Annual Growth Rate in Merchandise Trade of Selected Economies 302.5 Annual Growth Rate in Commercial Service Trade of Selected Economies 312.6 Trends in Trade Openness at Major Trading Economies 342.7 Trade Weighted Applied Tariff Average, in year 2006 372.8 Export as Percentage of GDP at Market Price 402.9 Composition of India’s Imports 412.10 In Flow of FDI in India 422.11 Trends in India’s Merchandise and Service Trade 442.12 Composition of India’s Exports 442.13 Composition of India’s Imports 452.14 Structure of India’s Services Exports 462.15 Trends in Direction of India’s Foreign Trade 463.1 Various Ministerial Conferences at WTO 523.2 Non-tariff Barriers (NTBs) on India’s Imports, 1996-97 to 1998-99 613.3 Reduction of Average Tariffs in India 613.4 Removal of Quantitative Restrictions in India 623.5 Non-Tariff Barriers (NTBs) on India’s Imports 633.6 India’s Peak Duties and Custom Duties 633.7 India’s Peak Duties and Custom Duties 653.8 Simple Average Applied Tariff Rates 653.9 India’s MFN Applied Tariff in All Products 663.10 India’s Anti-Dumping Measures in Past Decade 673.11 India at the WTO Ministerial Conference 693.12 Coalitions of which India is part to Play Important Role 723.13 AMS Reduction Tiers Suggested in the WTO Negotiations 743.14 India’s Non Product Specific Support and Support under the S&D Provision 763.15 India’s Bound and Applied Tariffs in Agricultural Products 773.16 Coefficients and Flexibilities 793.17 LTFR Principle (% cut in dutiable Lines) 793.18 India’s Bound and Applied Tariffs in Non-Agricultural Products 814.1 New Categories of Star Houses 1094.2 Target Plus Scheme 1095.1 Value, Growth Rate and Share of Exports of Developed Countries and India in World 1215.2 Value, Growth Rate and Share of Exports of Developed Countries and India in World
in Post WTO Period123
5.3 Value, Growth Rate and Share of Exports of Selected Developing Countries and India in World Export
124
5.4 Value, Growth Rate and Share of Exports of Selected Developing Countries and India in World Export in Post-WTO Period
126
5.5 Exports as Percentage of GDP at Market Price 128
5.6 Value, Growth Rate and Share of Exports and Imports of India 1295.7 Value, Growth Rate and Share of Exports and Imports of India in Post-WTO Period 1315.8 India’s Exports by Principal Categories 1345.9 Growth and Share of India’s Exports by Principal Categories and Commodities 1365.10 India’s Exports by Principal Categories in Post-WTO Period 1385.11 Share of India’s Exports by Principal Categories and Commodities in Post-WTO Period 1395.12 Annual Export Growth Rate of India’s Primary Products 1415.13 Annual Export Growth Rate of India’s Manufactured Goods 1425.14 India’s Major Export Markets in Pre- WTO Period 1455.15 India’s Major Export Markets in Post- WTO Period 1476.1 Share of Agriculture in GDP 1546.2 Employment (Agriculture and Non-Agriculture) in various NSS rounds (CDS basis) 1546.3 Agricultural Employment Growth Rates 1556.4 Exports of Agricultural Commodities from India 1606.5 Value of Agricultural Exports and Percentage Share of India in World Agricultural Exports 1616.6 Leading Exporters of Agricultural Products in Post WTO Period 1626.7 India’s share in World Exports of Selected Agricultural Commodities 1666.8 Percentage Share of Selected Agricultural Commodities in India’s Total Exports in Pre-
WTO Period167
6.9 Percentage Share and Annual Export Growth Rate of Selected Agricultural Commodities in India’s Total Exports in Post-WTO Period
168
6.10 Compound Annual Growth Rate of Selected Agricultural Commodities in Pre and Post WTO Period
169
6.11 Average Value, Percentage Share and Simpson Index of Selected Agricultural commodities 169-1706.12 Revealed Comparative Advantage of Selected Indian Agricultural Commodities in Pre and Post WTO 1776.13 Country wise Average Value, Share and Simpson Index of Tea Export from India 1796.14 Country wise Annual Compound Growth Rate of India’s Tea Exports in Pre and Post
WTO Period179
6.15 Country wise Average Value, Per cent Share and Simpson Index of Coffee Export from India 1806.16 Country wise Annual Compound Growth Rate of India’s Coffee Exports in Pre and Post WTO
Period181
6.17 Country wise Average Value, Share and Simpson Index of Rice Export from India 1826.18 Country wise Annual Compound Growth Rate of India’s Rice Exports in Pre and Post WTO
Period182
6.19 Country wise Average Value, Share and Simpson Index of Tobacco Export from India 1846.20 Country wise Annual Compound Growth Rate of India’s Tobacco Exports in Pre and Post WTO
Period184
6.21 Country wise Average Value, Share and Simpson Index of Spices Export from India 185-1866.22 Country wise Annual Compound Growth Rate of India’s Spices Exports in Pre and Post WTO
Period186
6.23 Country wise Average Value, Share and Simpson Index of Cashew including Cashew Nut Shell Liquid Export from India
187-188
6.24 Country wise Annual Compound Growth Rate of India’s Cashew including Cashew Nut Shell Liquid export in Pre and Post WTO Period
188
6.25 Country wise Average Value, Share and Simpson Index of oil meals Export from India 1896.26 Country wise Annual Compound Growth Rate of India’s oil meals Exports in Pre and Post
WTO Period190
6.27 Country wise Average Value, Share and Simpson Index of Marine Product Export from India 1916.28 Country wise Annual Compound Growth Rate of India’s Marine products Exports in
Pre and Post WTO Period192
6.29 Trend in Domestic Support to Agriculture Sector in USA 2006.30 Domestic Support in Japan 2006.31 Tariff Rates Imposed by Selected Developed Nations 201
6.32 Tariff Rate on Specific Commodities by Selected Developed Nations 2016.33 Tariff Rates Imposed by Selected developing Nations 2016.34 Tariff Rate on Specific Commodities in Selected developing Nations 2026.35 Major NTMs that are maintained against Indian exports 202-2037.1 Sect oral shares of employment in India (UPS basis) 2097.2 Value and Share of India’s Manufactured Export in Total Merchandise Export 2127.3 Value and Percentage Share of Indian Manufactured Exports in World Manufactured Exports 2137.4 Leading Exporters of Manufactured Export in Post-WTO Period 2157.5 Share of Major Manufactured Exports of India in World Exports 2187.6 Share of Selected Manufactured Goods in India’s Total Exports 2197.7 Compound Annual Growth Rate of Manufactured Products in Pre and Post-WTO Period 2207.8 Growth of India’s manufactured goods by Principal Commodity classification 2217.9 Compound Annual Growth Rate of Selected Engineering Goods 2227.10 Value and Growth Rate of selected Engineering Goods 2237.11 Share of Selected Engineering Goods in India’s Total Manufactured Exports 2247.12 India’s Major Export Market for Engineering Products in Post-WTO Period 2257.13 Revealed Comparative Advantage of Selected Engineering Goods in Post-WTO Period 2267.14 Value and Share of Selected Indian Engineering Products in World market in Post-
WTO Period227
7.15 Compound Annual Growth Rate of selected Chemical and Related Products in Pre and Post-WTO Period
232
7.16 Value and Growth Rate of selected Chemical and Allied Products 2337.17 India’s major Export Market for Chemical and Allied Products in Post-WTO Period 2347.18 Revealed Comparative Advantage of Selected Chemical and Related Products in Post-WTO
Period236
7.19 Major Exporters of Chemical Products in World 2387.20 Major Exporters of Pharmaceuticals Products in World 2397.21 Value and Share of Indian Chemical and Pharmaceutical Product Export in World
market in Post-WTO Period240
7.22 Compound Annual Growth Rate of selected Textile and Textile Products in Pre and Post-WTO Period
244
7.23 Value and Growth Rate of selected Textile and Textile Products 2457.24(i) India’s major Export Market for Cotton Yarn, Fabric, Madeups etc. in Post-WTO Period 2467.24(ii) India’s major Export Market for Readymade Garments in Post-WTO Period 2477.25 Major Exporters of Textile in Post-WTO Period 2487.26 Major Exporters of Clothing in Post-WTO Period 2497.27 Value and Share of Indian Textile and Clothing Products in World market in Post-WTO Period 2507.28 Revealed Comparative Advantage of Selected Textile and Textile Products in Post-WTO Period 2507.29 Value, Growth Rate and Share in Total Manufactured Goods of Gems and Jewellery 2537.30 India’s major Export Market for Gems and Jewellery in Post-WTO Period 2557.31 Revealed Comparative Advantage of Selected Gems and Jewellery in Post-WTO Period 2567.32 Value, Growth Rate and Share in Total Manufactured Goods Leather and Manufacture 2607.33 Composition of India’s Leather Exports in Post-WTO Period 2617.34 India’s major Export Market for Leather and Leather Manufactures in Post-WTO Period 2627.35 Revealed Comparative Advantage of Selected Leather and manufacture in Post-WTO Period 2637.36 India’s Share in the World Export of Leather Products in Post-WTO period 2637.37 Value, Growth Rate and Share of India’s Handicrafts 2687.38 Tariff Rates Imposed by Selected Developed Nations 2697.39 Tariff Rate on Specific Commodities by Selected Developed Nations 2697.40 Tariff Rates Imposed by Selected developing Nations 270
7.41 Tariff Rate on Specific Commodities in Selected developing Nations 2707.42 Major NTMs that are maintained against Indian Manufactured Exports 2718.1 Sect oral shares in country’s GDP 278-2798.2 Sectoral Decomposition of GDP Growth 2798.3 Sectoral shares of employment in India (UPS basis) 2808.4 Equity FDI Inflows to India 2808.5 Share of Services Exports in Services Output and GDP 2818.6 Value, Share and Growth Rate of Export of Total Services of Developed Countries and
India in Pre-WTO Period285
8.7 Value of Services Export of Developed Countries and India in Post-WTO Period 2878.8 Share and Growth Rate of Services Export of Developed Countries and India in Post-
WTO Period288
8.9 Value, Share and Growth Rate of Export of Total Services of Developing Countries and India in Pre-WTO Period
289
8.10 Value of Export of Services of Developing Countries and India in Post-WTO Period 2908.11 Share and Growth Rate of Service Export of Developing Countries and India in Post-
WTO Period291
8.12 India’s Share in World Merchandise and Service Export 2948.13 Value, Growth Rate and Share of India’s Service Exports in World Export of Services 296-2978.14 Composition of India’s Export of Services by Major Categories in Pre-WTO 2978.15 Number of Foreign Tourist Arrivals in India 2998.16 Composition of India’s Export of Services by Major Categories 3018.17 Composition of Export of Miscellaneous Services 3048.18 India’s RCA in Major Categories of Service Exports (1990-1994) 3068.19 India’s RCA in Major Categories of Service Exports (1995-2011) 3078.20 RCA Index of India’s Service Exports as per the EBOPS (2000-2011) 3088.21 Destination of Export of Transportation Services from India 3098.22 Destination of Export of Travel Services from India 3098.23 Destination of Export of Other Commercial Services from India 3108.24 Evolution of India's Services Exports in key Destination Markets 310
LIST OF FIGURES
Figure No. Title Page No.
1.1 Top Export Items 41.2 Export Destination 2011-12 51.3 India’s Export of Services in Major Categories 62.1 World Market Share in Merchandise Trade 312.2 Share of Developing Countries Imports and Exports of Services in Total
World Imports and Exports of Services32
2.3 Volume of Exports of Developed, Developing and Transition Economies: 1990-2009 352.4 Share of Developing Economies in the Value of World Exports, by Region: 1990 to 2009 352.5 Evolution of Non-Tariff Barriers use by Broad Category 372.6 Receipts through Export of Goods and Services 412.7 Share of Few Export Items in Total Export Products 452.8 Share of Few Import Items in Total Export Products 452.9 Trends in Trade Openness in India 485.1 Compound Annual Growth Rate of Export of Selected Developed Countries and India 1215.2 Share of Merchandise Exports of Selected Developed Countries and India in World Exports 1225.3 Compound Annual Growth Rate of Export of Selected Developing Countries and India 1255.4 Share of Merchandise Exports of Selected Developing Countries in World Merchandise Export 1265.5 Annual Growth Rate in India’s Exports in Post-WTO Period 1315.6 Share in World Merchandise Exports 1325.7 Share of Principal Categories in Total Exports (In Pre WTO Period) 1355.8 Share of Principal Categories in Total Exports (In Post WTO Period) 1395.9 Share of Agriculture and Allied Products in Total Exports 1405.10 Share of Manufactured Goods in Total Exports 1425.11 Share of Petroleum Products in Total Exports 1435.12 Annual Export Growth Rate of Petroleum Products 1435.13 Share of India’s Export Markets in Pre-WTO 1465.14 Share of India’s Export Markets in Post-WTO 1485.15 Share of OECD Countries in India’s Exports 1495.16 Share of OPEC Countries in India’s Exports 1495.17 Share of Developing Countries in India’s Exports 1505.18 India’s Export to Top 6 Destinations 1506.1 Agriculture Exports as % Agriculture GDP 1596.2 Agricultural Exports as % of Total Exports 1596.3 India’s Share in World Agricultural Exports 1626.4a Leading Exporters of Agricultural Products in 2001 1636.4b Leading Exporters of Agricultural Products in 2005 1636.4c Leading Exporters of Agricultural Products in 2008 1636.4d Leading Exporters of Agricultural Products in 2010 1646.4e Leading Exporters of Agricultural Products in 2011 1646.5a Export Destination of Tea 1926.5b Export Destination of Coffee 1926.5c Export Destination of Rice 1936.5d Export Destination of Tobacco 1936.5e Export Destination of Spices 1936.5f Export Destination of Cashew incl. CSNL 194
6.5g Export Destination of Oil Meals 1946.5h Export Destination of Marine Products 1947.1 Share of Manufacturing Sector in Country’s GDP 2087.2 Labour Intensity across Manufacturing in India 2097.3 MSME Employment 2107.4 Share of India’s Manufactured Export in World Manufactured Export in Post WTO Period 2147.5a Leading Exporters of Manufactured Products in 2001 2167.5b Leading Exporters of Manufactured Products in 2005 2167.5c Leading Exporters of Manufactured Products in 2011 2177.6 Leading Exporters of Chemical Products in 2011 2387.7 Leading Exporters of Pharmaceutical Products in 2011 2397.8 India’s Share in World Exports of Gems and Jewellery 2568.1 Compound Annual Growth Rate of Services of Selected Developed Countries and India 2868.2 Compound Annual Growth Rate of Services of Selected Developed Countries and India 2878.3 Compound Annual Growth Rate of Services of Selected Developing Countries and India 2898.4 Compound Annual Growth Rate of Services of Selected Developing Countries and India 2918.5a Top 10 Exporters of Other Commercial Services (incl. India) in 2001 2928.5b Top 11 Exporters of Other Commercial Services (incl. India) in 2005 2928.5c Top 10 Exporters of Other Commercial Services (incl. India) in 2008 2938.5d Top 10 Exporters of Other Commercial Services (incl. India) in 2011 2938.6 Share of Merchandise and Service Exports in World Exports 2958.7 Annual Growth Rate in Export of Goods and Services 2958.8 Compound Annual Growth Rate of Major Categories of Services 301
CHAPTER I
INTRODUCTION
1. EXPORTS AND ECONOMIC GROWTH
Export plays a significant role in a country’s growth and development process. The
importance of export as one of the contributing factor in the development of any country
has long been recognised by many economists. Export growth is seen as a determinant of
import capacity, which, in turn, is a determinant of the level of domestic activity. However,
it is misleading to assess the contribution of the export sector solely in terms of foreign
exchange earnings, as many underdeveloped countries, while stressing exports, also hope to
reduce their relative dependence on foreign markets as economic development proceeds at a
more rapid pace. Thus, it is stressed that the export sector assumes a much broader and
useful role than that reflected in terms of foreign exchange earnings (Hultman, 1967)1. The
growth and expansion of global export facilitates the progress of global economy.
Export expansion can play an instrumental role in promoting rapid economic
growth. Since exports are a component of GDP, rapid export growth means an even faster
growth of GDP, through the Keynesian multiplier process. Moreover, export expansion
increases efficiency in the economy, which further stimulates economic growth. The
increase in income that comes directly from exports leads in time to a rise in demand for a
wide range of products, including non-tradable. These demand pressures are reflected in a
higher rate of capacity utilization and ultimately involves investment in facilities providing
such products. This tends to increase the scale of production and leads to various economies
of scale, which ultimately reduces the cost and price of the product. Export industries also
have the high intensity to absorb surplus of labour force of developing country which
thereby leads to the creation of employment and increase in income which leads to rise in
savings which is transferred into investment in physical and human capital, and thus in the
rate of economic growth. The expansion of exports sector leads to the inflow of foreign
direct investment, foreign loans and advance technology. Apart from above, through export
activities the international trade relations is developed between the foreign countries which
promotes healthy political relations among different economies of the world and at the time
of any economic and natural crisis the trading partner countries are the first to come to
rescue.
Consequently, export growth is that component of demand that provides the foreign
exchange and allows other components of demand in an economy to grow faster, such as
investment, consumption and government expenditure. The contribution of export growth
has varied from country to country depending on how the import capacity has been
deployed to promote overall economic growth. At the micro level, export creates exposure
to competitive global market that offers exporting industries greater incentive for
technological improvement and induce them to adopt more efficient management,
marketing and organisational technique.
The advantage of division of labour and specialisation as given by classical
economists like; Adam Smith and David Ricardo can be enjoyed only through the export of
commodities in which the country enjoys comparative advantage in production and through
import of those commodities where it has comparative disadvantage in production.
Until 1980s, most of the countries did not realised the significance of exports in their
economy but later on the countries emphasised on export expansion as it proved to be the
engine of economic growth for many emerging economies. Even the various studies
undertaken in the past showed there existed positive relationship between exports and
economic growth. The export led growth hypothesis, as it pertains to India has been
examined by Nandi and Biswas (1991), Sharma and Dhakal (1994), Mallick (1996),
Dhawan and Biswas (1999), Anwer and Sampath (2000) and Nidugala (2001). The study of
Nidugala revealed that the export had a significant role in influencing the GDP growth in
the 1980s2. Anwer and Sampath find that exports and economic growth in India are co -
integrated but do not find any strong evidence of causality from exports to economic growth
or vice versa3. Rashmi Banga (2005) found that export orientation of the industry have a
significant positive effect on employment4. Depending upon MPC and propensity to import,
exports has multiplier effect on Gross National Income (Bannock et al 1992)5.
As per few economists like; Chennery (1979), Kavoussi (1984), Ram (1987) and
Moon (1998), exports, by fostering specialization helps to benefit from comparative
advantage; utilizing the full capacity of plant size where domestic demand is less than full
capacity production, getting benefit of greater economies of scale due to large market;
expanding aggregate demand, increasing the rate of investment and technological changes,
enabling import of essential raw materials and capital goods, results in industrialization and
thus economic growth in developing economies6.
Jagdish N Bhagwati opines that a country can reap lot of benefit from an export
oriented trade policy as an export-oriented industrialisation encourages high taking and
seizing opportunities, which are basic requirement for economic development. Thus, we can
say that an export is of paramount importance in country’s growth and development
process. Owing to this growing importance of exports, many countries including India
adopted an export oriented outward looking strategy in 1980s and 1990s.
In 1991, India adopted economic reforms, which aimed at greater market orientation
and more liberalisation of country’s economy through deregulation of government controls.
With this objective India’s external sector has underwent significant changes and since 1991
India’s foreign trade policy focussed more on export expansion. Prior to reform, India’s
trade policy was very complex and adopted import substitution policies and imposed
quantitative restrictions on import and export of commodities but as it was realised that
export is vital for country’s growth, initiative was undertaken to promote and enhance
export. Since then several provision was made in India’s foreign trade policies to promote
exports like removing of quantitative restrictions on export, establishment of SEZs, EXIM
banks, ECGC, STC, IIFT etc., introduction of incentive schemes like DEPB, advance
licensing EPCG etc. Beside above measures, India entered into various regional, bilateral
and multilateral trade agreements with other countries. India being the founder member of
WTO underwent various trade negotiations with other member countries of WTO
conducive to it export growth. The WTO has provided an export friendly environment to all
its members with simplified procedure for trade facilitation.
2. PRESENT POSITION OF INDIA’S EXPORTS
In recent years, India’s export sector has exhibited remarkable resilience and
dynamism compared to that of many other developing economies. Though the recent period
of global recession in 2008 and 2009 has affected India’s exports leading to negative export
growth rate but marginally compared to other economies and soon it recovered to register a
high positive growth phase in succeeding years. The present position of India’s exports is
satisfactory and the value of merchandise and services exports has been more than the target
set.
The export-GDP ratio increased from 12.4 per cent in 2005-06 to 16.5 per cent in
2011-12. The value of merchandise exports reached to US$ 305 billion in 2011-12 from
US$ 103 billion in 2005-06 and US$ 185 billion in 2008-09. However during the global
recession period the export growth rate declined and recorded a negative growth rate of -3.2
per cent in 2009-10 but soon it recovered in the financial year 2010-11 with growth rate of
40.2 per cent and registered value of merchandise exports as US$ 251 billion (2010-11) and
US$ 305 billion in 2011-12. The Compound Annual Growth Rate of merchandise export
during the period 2005-06 to 2011-12 was 19.8 per cent.
Table 1.1: Recent Trends in India’s Value of Merchandise Exports(Values in US$ billions)
Year Value
2005-06 1032006-07 1262007-08 1632008-09 185
2009-10 1792010-11 2512011-12 305
CAGR (2005-06-2011-12) of 19.8 per centSource: Ministry of Commerce, Government of India
The share of India in world merchandise exports remained unchanged at 1.0 per cent
between 2005 and 2006 but thereafter it started rising and reached to 1.1 per cent in 2007,
1.3 per cent in 2009, 1.5 per cent in 2010 and 1.67 per cent in 2011.
There has been a major compositional change in India’s export basket in recent
years. The share of primary products in India’s total exports has continuously declined and
reached to 14.9 per cent in 2011-12 from 16.2 per cent in 2004-05. In agriculture and allied
products share and export growth rate of cereals, oil meals, marine products, and raw cotton
was better in 2011-12 while that of tea and coffee was less. Ores and minerals registered
negative growth in first half of 2010-11 due to ban on export of iron ore by state of
Karnataka and Orissa. The share of petroleum crude and products increased to 18.25 per
cent in 2011-12 from 8.4 per cent in 2004-05. During global recession, it recorded a
negative growth rate of -2.9 per cent in 2008-09 but soon recovered to register a growth rate
of 47.1 per cent in 2010-11. The share of manufactured goods in India’s total exports
declined to 61.3 per cent in 2011-12 from 77.8 per cent in 2003-04. The inter sect oral
compositional changes within the manufacturing exports have also been remarkable with
increase in the share of engineering goods from 15.7 per cent in 2000-01 to 22.2 per cent in
the first half of 2011-12. The share of electronic goods too increased, while the share of
chemicals and related products, gems and jewellery changed marginally in recent years.
There was decline in the share of labour intensive manufactures like textile, leather and
leather manufactures and handicrafts with share of 8.7, 1.6 and 0.3 per cent in the first half
of 2011-2012 from 23.6, 4.4 and 2.8 per cent in 2000-01.
Figure 1.1: Top Export Items (In FY 2012, in US$ billions)
Petroleum Products
Gems & Jewellery
Pharma Products
Transport Equipment
Readymade Garments
Machinery & Instrument
Manufacture of Metals
Electronic Goods
Cotton Yarn & Fabric
Rubber Glass & Products
0 10 20 30 40 50 60
Source: Ministry of Commerce, Government of India
The direction of India’s exports in recent years is more towards southern countries
particularly Asia and Africa region. The share of Asia, Africa and Latin American countries
increased from 47 per cent in 2001-02 to 62 per cent in 2011-2012, of this, share of Asian
region rose from 40 per cent to 52 per cent during this period. The UAE has become the top
most destination of India’s export since 2008-09 with export share of 13 per cent and had
displaced U.S.A. to the second position and China being at the third position. India’s export
to these top three destination countries registered a growth of 43.3, 30.8 and 69.1 per cent in
2010-11.
Figure 1.2
51.60%
6.60%
11.90%
4.50%
5.50%
19.00%
Export Destination 2011-2012(US$ 305 billion)
Asia
Africa
North America
LAC
Others
Europe
Source: Based on data from RBI, Handbook of Statistics on The Indian Economy
India’s services export has shown a robust performance in recent years. It has
reached to US$ 142.3 billion in 2011-12 from US$ 106 billion in 2008-09 and US$ 57.7
billion in 2005-06. Due to global recession, services exports declined to US$ 96 billion in
2009-10 but soon recovered to US$ 132.8 billion in 2011. During the period 2005-06 to
2011-12, the CAGR of services export was 16.0 per cent.
Table 1.2: Value of Services Exports in Recent Years(In US$ billions)
Year Value
2005-06 57.72006-07 73.82007-08 90.32008-09 106.02009-10 96.02010-11 132.82011-12 142.3
CAGR (2005-06-2011-12) of 16.0 per centSource: Reserve Bank of India.
The major category of services exports in recent years includes; software services,
travel services, business services and transportation services whose share in total service
export for year 2011-12 is given in figure 1.3. The India’s major service export destination
is U.K. and U.S.A.
Figure 1.3
12.77%
12.81%
1.84%0.33%
72.02%
India's Export of Services by Major Categories(In percentage share for 2011-12)
TravelTransportationIsuranceG.N.I.E.Miscellaneous
Source: Based on Data from RBI, Handbook of Statistics on Indian Economy.
So in the recent years there has been a resilient and sustained growth in India’s
merchandise and service exports making the present position of India’s overall export of
goods and services far better than many of emerging developing economies. This growth in
export is accompanied by change in structural composition of commodities and market
diversification. The major drivers of India’s exports are technology intensive commodities
like engineering goods and software services, which have reduced the role of low
technology and labour intensive commodities and services. At present, the share of
developed countries of Europe and others in India’s total export of goods and services has
declined and many of Asian and African and other developing countries have become
important export destination for India.
The present place of India’s exports is the result of government directed effort
towards the formulation of India’s foreign trade policies and other programmes and
measures of export promotion conducive to India’s export growth. Not only this, it has also
undergone various regional and bilateral trade agreements with many foreign countries to
promote its trade. It has developed a strong negotiation position at WTO and is trying to
gain more through its membership to WTO.
3. WTO AND EMERGING BENEFITS AND CHALLENGES TO INDIA
The world trade organisation established in 1995 had replaced GATT and covers
much more trade agenda than GATT. At present it has 159 countries as it members. Since
its creation it administered the trade agreements negotiated by its members, in particular the
General Agreement on Tariffs and Trade (GATT), Trade in Services (GATS) and the
Trade- Related Aspects of Intellectual Property Rights (TRIPS) Agreement and it rules
governs around 90 per cent of the world trade covering both goods and services. The WTO
provides multilateral trade framework of international trade, which is more rule based, non-
discriminate and transparent etc., which led to more open system of trade.
More than 2/3rd of the WTO members are the developing countries. These countries
consider trade as an important factor in their economic development and so have started
playing active role in the WTO. The creation of WTO aimed at promotion of the world
trade and to achieve it, one of the objectives was to have greater integration of developing
countries into global trading system. These developing countries face various domestic
structural constraints like poor infrastructure, low level industrialization, limited access to
advanced technology and low capital etc., this led to the incorporation of Special and
Differential provision for developing countries in almost all the WTO agreements. These
provisions requires developed countries to treat developing countries more favourably and
adhere to the concept of non-reciprocity in trade negotiations between developed and
developing countries i.e. when developed countries grant trade concessions to developing
countries they should not expect the same or other return from them. This stipulation in the
WTO agreements would provide developing countries extra time to full fill their
commitments and greater opportunity in market access.
The WTO agreement covers various trade issues that tend to create conducive trade
environment for developing countries like India. The Uruguay Round of trade negotiations,
provide numerous opportunities for developing countries to gain in trade. These
negotiations includes; fundamental reforms in agricultural trade, phasing out of quotas on
developing countries exports of textiles and clothing, reduction in customs duties on
industrial products, expanding the number of products whose custom duty rates are bound
under the WTO, making the rates difficult to raise etc.
India being a developing country and one of the active members of WTO is
expected to gain a lot through this membership in international trade. WTO directs its
activities towards liberalisation of trade through reduction and removal of tariff and non-
tariff barriers among member countries. This will help India in expanding its share in the
world trade and will help in accessing market of most of the WTO member countries.
Accelerated export growth results into more production, employment and income, which
will lead to faster economic growth within the country. WTO follows the principle of non-
discrimination i.e. not to discriminate between trading partners and adopted Most Favoured
Nation and National Treatment. India will be benefited by WTO membership, as it will
automatically avail of MFN and National Treatment in its trade with other countries.
Various WTO agreements on sectors like; agriculture, textile, services etc. opens greater
trade opportunities for India by making its products more competitive in the world market
and by providing better market accessibility. Liberalised trade in services is the integral part
of WTO agreements, which helps member countries in expanding their service trade. This is
definite that India will capture most of the share of developed countries in this area. India
enjoys comparative advantage in many services so this factor along with the lowering of
tariffs will make many developed countries to have business with India. Being the member
of WTO India is protected by multilateral dispute settlement system. Besides the above
benefits, many more advantages are expected to bestow upon India as a result of WTO
membership thereby making it more prosperous.
However, there are few challenges too coming ahead of country. India is expected to
lose its sovereignty as it will follow and make its trade policy under the influence of WTO
members. Likewise domestic market will be subject to increased threats as lowering of trade
restrictions will allow freer movement of goods within the country. Agreement on TRIPS
and Sanitary and Phytosanitary requires better standard to follow which may tougher job for
India. Most of the negotiations under WTO are dominated by developed countries and are
against the interest of developing countries. Now it would be challenging task for India to
come with better results in WTO negotiations.
With this background, we analyse the India’s export performance in pre and post
WTO era.
4. OBJECTIVES OF THE STUDY
Export plays vital role in the economy of the country and since independence,
India’s export has observed significant change in terms of growth rate, composition and
market. This structural transformation is due to many factors, which are both internal and
external to the economy like liberalisation of the economy in 1991, change in policies,
factors on the demand and supply side and the creation of trade institutions like WTO,
UNCTAD etc. The creation of World Trade Organisation has brought about multilateral
trading system, which has post lots of scope and challenges for export expansion. Many
member countries believe that they have been benefitted from WTO while many think that
the WTO agreements have taken away their sovereignty. So here, an attempt has been made
to study the following specific objectives:
To assess the role of international trade in country’s growth.
To assess the impact of WTO on India’s foreign trade policy and export
trends.
To assess the role of government institutions and foreign trade policy in
promotion of India’s export trade.
To examine the relative export performance of India in the context of few
developed and developing countries in the pre and post WTO period.
To analyse the growth, direction and structure of India’s exports during the
pre and post WTO period.
To study the main elements of AOA under WTO and to study changes in
pattern of India’s agricultural exports during WTO era
To examine the comparative advantage and diversification in India’s
agricultural exports in post WTO era.
To assess the tariff and non-tariff barriers imposed on India’s agricultural and
manufactured exports.
To study pattern of manufactured exports and the export competitiveness of
India in manufactured goods in post WTO period.
To analyse the performance of India’s services exports in the pre and post
WTO period.
To suggest remedial measures to promote India’s export trade.
5. HYPOTHESIS
The following hypothesis has been formulated:
India’s merchandise exports performed well in relation to few developing
countries in the post WTO period.
India’s exports recorded diversification in terms of commodities and market in
post WTO period
WTO had desirable effect on various aspects of India's Exports.
India’s services exports performed better than merchandise exports in post WTO
period.
6. SOURCES OF DATA
The present study is based on data compiled from secondary sources. Major data
sources are as follow: Monthly Statistics of Foreign Trade, Directorate General of
Commercial Intelligence and Statistics (DGCI&S), Kolkata; Economic Survey, Ministry of
Finance, Government of India (GOI), New Delhi; Handbook of Statistics on Indian
Economy, Reserve Bank of India (RBI), Mumbai; Statistical Abstract of India, Central
Statistical Organization (CSO), New Delhi; International Financial Statistics (IFS),
International Monetary Fund (IMF), Washington D.C.; Direction of Trade Statistics, IMF,
Washington D.C.; and Comtrade-WITS (World Integrated Trade System), United Nations
Organization (UNO), New York, WTO, International Trade Statistics. The published works
of eminent economists and materials available from websites, libraries, magazines, journal,
publications and standard books for theoretical concept has also been referred for the
present research work.
7. RESEARCH METHODOLOGY
The study is entirely based on the secondary data. The period covered under the
study is of twenty two years (i.e. from 1990-91 to 2011-12).
The time period of study is divided into two parts; one part relates to pre WTO
phase i.e. from the period 1990 to 1995 (WTO was established in the year 1995) and the
second phase is named as post WTO period (from 1996-2012); for comparison purpose and
observing the impact of WTO on India’s export.
The direction and composition of exports have been analysed with the use of
percentage and ratio methods by taking into account the yearly and over period changes in
trade flows.
The Compound Annual Growth Rates (CAGR) in export commodities is computed
by using the formula
Y=abte
Where,
Y= Dependent variable (export earnings);
a=Intercept;
b= Regression Coefficient;
t=Time variable;
e= Stochastic term
The above equation can be transformed into logarithmic form as follows:
LnY= Lna+tLnb+e
The compound growth rates were worked out as follows:
CGR= [Anti Ln of Ln (b)-1] x 100
The export competiveness is measured by Revealed Comparative Advantage (RCA)
method developed by Balassa (1965). RCA is calculated as the ratio of a country’s export
share in world trade for a specific commodity or a group of commodities. In particular, the
RCA for country ‘i’ and commodity ‘j’ (vis-à-vis the world) is given as:
RCAij = (Xij/Xwj)/(Xi/Xw)
Where,
Xij= ‘i’ th country’s export of commodity ‘j’
Xwj = world export of commodity ‘j’
XI = total exports of country ‘i’
Xw = total world export
An RCA (for a commodity) greater than unity implies that the country is said to
have a revealed comparative advantage in exports of that commodity.
The diversification in agricultural export is measured by Simpson Index. The result
is based on comparison among the triennium (both two sub-periods)
Simpson Index=1- ∑Ai2/A2
Where,
Ai= value of export of ith agricultural product
A= value of export of total agricultural products.
The value of Simpson Index varies from 0 to 1. A value of 1 indicates total
diversification; whereas a value of zero indicates perfect concentration of trade towards a
particular product in particular triennium.
8. REVIEW OF LITERATURE
Herberler, 1959; Emery's, 1967; Michaely, 1977; Krueger, 1978; Balassa, 1978;
Chenery, 1979; Tyler, 1981; Feder, 1982; Kavoussi, 1984; Ram, 1985; Chow, 1987; Alam,
1989; Fosu, 1990; Liang, 1992; Attri, 1996; are prominent country and cross country level
studies that contend that there exists a strong positive association between economic growth
and export growth and thus exports play a key role as an additional variable in the process
of economic growth by one way or the other.
Lewis (1978) adds that the engine of growth should be technological change with
international trade serving as lubricating oil not as fuel. Rodriguez et al., (1999) observed
open trade policies in the sense of lower tariff and non-tariff barriers to trade significantly
associated with economic growth7.
Ruggiero Renato (The Director General of WTO), writes about the WTO gains,
WTO which succeeded GATT as the world’s premier multilateral trade organisation on
January 1, 1995 had made a good beginning in its first year in the implementation of the
Uruguay Round but observes that this year will be even more crucial8.
Jha Prem Shankar (1994) studied the WTO gains. He noted that the role of WTO
will also depend on how effectively it can intervene in disputes involving the more powerful
economies. There are doubts on this score as the world’s major economies have often
treated the multilateral system as an extension of bilateral agreement that they have first
worked out among themselves. One hopes that these economies will now accept the
supremacy of the WTO and not resort to unilateral pressures against poor nations9.
Kathuria (1996) examined the impact of recent policy changes on India‘s exports
with special reference to export incentives during pre and post reforms periods10.
Joshi and Little (1996) described various dimensions of India‘s economic reforms as
whole. Various reforms of trade controls and reforms of tariff and protection during 1991-
2001 have been analyzed in fuller detail. Withdrawal of various quantitative restrictions,
reduction of tariff protection, and introduction of special export promotion scheme has been
highlighted as major reforms on trade front11.
Porter (1994) and Prasad (1997) assessed India‘s competitiveness in export of
garments in the MFA phase out and post MFA phase out periods and observe that India‘s
garment sector is one of the sectors where India have a competitive advantage and has a
wider scope of export expansion in post MFA phase out period12.
Mehta (1997) has analyzed the impact of India‘s trade reforms on external trade by
using the Cordon‘s measures of Effective Rate of Protection. The study concluded that the
liberalization process has enhanced the importance of international trade in our domestic
economy and the share of trade in GDP has increased to 24 per cent in 1995-9613.
Ghemawat and Patibandla (1999) examined export performance of Indian diamond,
garments, and software industries and also quantified the impact of economic reform on
competitiveness of these three exports. The authors argued that economic reform had
enhanced India‘s competitiveness in the labour and skill-intensive industries; helped to
reduce the dependence of competitive industries on inefficient domestic suppliers and
infrastructure14.
Bhattachariya et al; (2000) analysed India’s export performance in the post
liberalization era. The analyses showed that India’s exports have shifted more towards value
added product categories and the demand for knowledge and capital intensive product is
more than labour intensive product15.
Sharan and Mukerjee (2001) found that foreign trade reforms no doubt has brought
about favourable terms of trade and export diversification has been achieved in terms of
commodities and countries but trade deficit too has increased thereby making development
process vulnerable16.
Mukhpadhyay (2001) concludes that India does not seem to have gained much out
of Uruguay Round negotiations17.
Panagariya (2002) observes that it is the power of the WTO rules that protects
smaller nations from unilateral trade sanctions by the rich and powerful nations18.
Kathuria et al., (2003) gave an introduction to the economics of MFA and used
available empirical evidence to examine the impact of the MFA on exports of textile and
clothing, focusing particularly on India. A review of the basic economics of the MFA shows
the discriminatory character of the arrangement19.
Sekhar (2003) analyzed the likely implications of agricultural trade liberalization for
the rice sector in India with a special focus on determining the role of major exporters in
world rice market. The results indicate that the world markets for rice are mainly influenced
by reduction in income levels in the major importing countries. Demand functions showed
high elasticity with respect to Indian exports prices relative to that of Thailand and
Pakistan20.
Barua and Chakaborty (2004) analysed that in the post WTO period, scale efficiency
of the net exporting sectors has increased but from time to time Indian exports have been
subject to various non-tariff barriers, which inhabit the level of market access they enjoys21.
Chand (2004) has investigated India‘s agro export performance and competitiveness
in changed international scenario. He found policy of reducing controls over exports and
exchange rate adjustments boosted growth of farm exports. Study concluded that despite
several odds such as TBT-SPS issues and domestic infrastructural bottlenecks, in the new
international trade environment India performed much better in exporting horticultural,
livestock, and processed products whose demand is more elastic22.
Devi and Rao (2004) also examined the impact of economic reforms on India‘s
external sector as a whole and on exports in particular. They argue that reforms have
enhanced India‘s competitiveness in labour and skill intensive industries, reduced
dependence of competitive industries on inefficient domestic suppliers and infrastructure
and enhanced domestic competitive conditions. Exports have been growing at 20 percent in
dollar terms. What is more significant is that the share of manufactured goods in the export
basket has risen while that of primary goods has fallen23.
Economic Survey (2006-07), SEZ policy act 2005 supported by SEZ rules came into
effect on February 10, 2006 (. Apart from the SEZs, a number of export promotion schemes
such as Special Import License Scheme (SILS), Export Promotion of Capital Goods
Scheme (EPCGS), Duty Free Import Exemption Scheme (DFIES), etc. were also
introduced24.
Chakraborty et al; (2005) had made comparative study between India and China’s
export performance and studied India’s export competitiveness, diversification, instability
trends and also examined the recent stance adopted by India at WTO. The study has
revealed that diversification in export basket has increased, the instability index is quite
insignificant for a number of commodity groups at major export destinations and the
number of product group has declined in the post WTO phase25.
Kaundal (2005) examines the patterns, causes and determinants of growth and
instability of India‘s principal exports. He also evaluates the impact of trade policy reforms
and that of export growth and instability on economic growth. He observed the share of
important traditional items like tea, jute manufactured and cotton textile , raw jute and
cotton raw, has sharply gone down while that of new non-traditional items like machinery,
transport and metal manufactures including Iron and steel, chemical and allied products and
developmental imports have gone up during the period under study26.
Raju (2005) identified the problematic areas in the Agreement on Agriculture
(AOA) and other negotiations in this sector in the context of WTO. He argues that the
adoption of Doha Development Round (DDA) was in the right direction, but 2004 July
package undermined the spirit of DDA which is in favour of developed nations and also
pointed out that Special and Differential Treatment provisions are not properly implemented
in the agriculture sector27.
Vibha Mathur has studied the ‘Sectoral Analysis of India’s Foreign Trade’ and
found that there is an imperative need for India to enlarge its share of the world trade, which
has been gathering increasing momentum through the cascading effect of trade reforms and
the rapid integration of the world economies. She alleged that the GATT and the WTO have
helped to create strong and prosperous trading system contributing to unprecedented
growth. As far as India is concerned, the implications are that in the short run, gains may be
unimpressive, but certainly, it will pick up in the long run as the reform process gathers
momentum. It is important for a country like India to formulate new strategies to increase
its exports and market share in the world trade by effectively competing with rising
economic powers in the world markets28.
Chand Ramesh has discussed ‘Impact of Trade Liberalization and related reforms on
India’s Agricultural Sector, Rural Food Security, Income and Poverty’. He found that
India’s imports and exports during reform period showed the declining trend. India’s
agricultural export after 1997 is consistent with the trend in global trade in agricultural
products largely attributable to decline in the international prices. Trends in export show
that India has not been able to maintain steady flow of export of commodities like non-
basmati rice, wheat, cotton, sugar. In the post WTO period, export of oil, groundnut, spices,
tea and coffee has been affected adversely29.
Dev Raj has studied ‘Impact of World Trade Organisation on India’s Foreign Trade:
Trend and Prospectus’. This study has observed that during the last ten years, performance
of the WTO in promoting the international trade had a powerful and positive impact.
However the impact might has been uneven. Industrial member countries of the WTO have
been associated with large increase in imports estimated at about 40 per cent of world trade.
The same has not been true for most of the developing country members, although those
that joined after the Uruguay round have benefited from the increased imports30.
According to the chairperson of Trade Policy Review Division’ India’s active role in
the multilateral trading system was commended, and members encouraged continuing to
show leadership in bringing the Doha round to a successful conclusion. They also noted
India’s involvement in regional trade agreements. Some members encouraged India to adopt
an ambitious preferential trade regime, offering least developed countries better preferential
access to its market.
Srivastava and Tarique’s study has tried to find out the impact of WTO on Indian
agriculture for period 1990-91 to 2003-04. India’s total agricultural exports were at $3.35
billion during 1990-91, which corresponds to 4.91 per cent of GDP of agriculture sector.
Devaluation of exchange rate by 22.5 per cent in two quick stages in 1991 followed by
subsequent depreciation in the exchange rate, coupled with lifting of some restrictions on
export, helped the country to double its exports in next three years31.
Bakhshi (2005) explains how Sanitary and Phyto-Sanitary (SPS) Agreement acts as
non-tariff barriers to developing countries ‘agricultural exports with special reference to
India. The author argues that developed nations like EU and US are using this agreement for
discriminating against developing countries ‘exports32.
Karmakar (2005) addresses the world economy, post 1990s as “service economy”.
In fact, trade in services is fast catching up and comprised about a fifth of the total world
trade in 2001 (WTO 2001)33. India has a comparative advantage in Mode 1 and Mode 4 type
of services and is thus pushing its interests with the other member nations (Das 2006)34.
Kumar (2005) examined the strength of the South Asian countries and stated that
these countries have natural comparative advantage in labour intensive services. He
reviewed South Asian countries in the GATS framework of the four modes of supply and
concluded that all South Asian countries have RCA in Mode 4, i.e. movement of natural
persons. India also has a stronghold on Mode 1, i.e. cross border trade, and along with its
neighbouring countries like Sri Lanka and Nepal, India has a comparative advantage in
Mode 2, i.e. consumption abroad35.
Taganas and Kaul (2006) explore the strategies of firms in the Indian IT industry
and their innovative behaviour. The study concludes that India’s software industry has
generally been weak to spur innovation within the industry. The study point out that there is
wide scope for IT firms to collaborate with the more technologically competent MNCs. It
suggests that Indian IT firms should further increase their focus on R&D to sustain their
growth36.
Dutta et al., (2006) has examined environmental standards as problem of market
access in the WTO context with special reference to India‘s exports37.
Bandhyopadhyay and Sengupta (2006) examined implications of MFA phase out for
Indian textile exports. The study shows multiple positive effects of MFA phase out, i.e.
elimination of ATC quotas for Indian clothing and textile exports. They have also made an
attempt to identify factors responsible for relative poor performance of textile sector. They
also identify sectors in the textile industry where India has a comparative advantage or
disadvantage and also examined India‘s position vis-à-vis its competitors in the backdrop of
MFA phase out38.
Ghose (2006) argues that Indian pharmaceutical industry has come to age and it can
not only co-exist with TRIPS but can also make the use of it to its advantage39.
P.Leela has analysed ‘WTO and the Emerging pattern of India’s foreign trade’. The
study found that, India’s aggregate export performance showed a decline in the first three
years after the establishment of WTO, but showed an impressive and increasing trend in the
last three i.e. 2002-05, even surpassing the export growth of the year 1995-96, when WTO
became operational. The relative share of India in world exports continues to be less than 1
per cent. In agricultural exports, effort has to be made to persuade developed countries to
bring down heavy subsidies given in various form to their agricultural sector40.
The study by Dr. Dinesh Kumar Sharma and Prof. Masood Hasan found that the
world trade in commercial services amounted to US$ 1440 billion in the year 2001, which is
23 per cent of goods trade. The scope of the commercial and public services is bound to
vary overtime and between countries. However, there is a common denominator across
nations that the availability of certain services is in the general economic interest or even
more broadly, in the general interest of the country41.
Jayesh N. Desai’s paper deals with the recent developments in outsourcing business
services and the promise this sector holds in the future. The paper studies the trend in
outsourcing of services from India, its effect on employment and India’s position in world
business services export market42.
Ramphul (2007) analyses the impact of WTO on world agricultural trade and
agricultural trade performance of developed, developing, and least developed countries. In
WTO regime, the annual average growth rate of the world agricultural exports has worsened
implying deterioration in share of agricultural commodities in world total merchandise
trade43.
Sharma and Dietrich (2007) assesses empirically structural change in the Indian
manufacturing based export sector during the period 1980-2000 by using trade indices such
as Balassa‘s Revealed Comparative Advantage (RCA) index, and other variants commonly
employed in the literature are used. Three technology categories (high technology, medium
technology, and low technology) are analysed individually. The results of the study indicate
towards substantial industrial restructuring in manufactured exports. It also indicates
towards the specialisation within India‘s manufactured exports for the time period studied,
which is consistent with increasing specialisation in a subset of manufactured exports44.
Veeramani C (2007), “Sources of India’s export growth in pre and post reform
period”, this article has provided a brief view of the pace of India’s export growth in pre
liberalisation period {1950-1990} and post liberalisation period (1991-2005). The pace of
growth was increased due to world demand after 1991. He has analysed this paper to
determine the various sources of India’s growth of exports before and after 1991, mainly
focusing on years after 1993, because in that year government adopted full convertibility of
current account. The study of this article is divided into 3 parts; the first part provides a
historic review of export performance before 1991. Second part provides detailed analysis
of the exports trend and pattern since 1993. Last part decomposes the export growth on the
bias of world trade effect, market composition and commodity composition. The article also
concluded that the acceleration in growth was mainly due to real effective exchange rate
after 199145.
The study by NASSCOM (2007) focuses on growth of IT software and services
industry in China and India. The study indicates that Chinese IT-BPO has much to learn
from India. Even though the Chinese IT sector is expected to continue growing at a rapid
pace, it is unlikely to displace India in the near future. Strong Government support,
excellent quality of infrastructure, rapid pace of growth of domestic economy, etc., are the
major strength of Chinese IT-BPO sector. Further the geographical proximity and cultural
similarity to advanced markets like Japan and Korea is a great help to Chinese IT-BPO.
However, lack of transparency in procedures and weak intellectual property protection are
major weakness of China. The study puts forward a strong case for increased partnership
between India and China to tap the growing IT-BPO market in the world46.
Seyoum (2007) studied revealed comparative advantage indices to measure
developing countries comparative advantages in selected services for the period 1998 to
2003. His work included services like business, financial, transport and travel. Makoto
(2007) investigated the comparative advantage structure of US trade in services, using the
RCA index. He showed that the variances in the RCA deviations points out a similarity
between the export structure of the U.S. and the world. He thus concluded that the U.S. has
a strong comparative advantage in knowledge-based services47.
Pillania K Rajesh (2008), “An exploratory study of Indian Foreign Trade.” He has
provided a trade scenario of exports since 1950-51 to 2006-07. The paper shows the
progress in foreign trade through various statistical and graphical tools since 1950. The
analysis concludes that India’s trade has been dominated by manufactured goods and
services for past many decades. It provides a descriptive view of the commodity
composition of trade as well as the direction of trade. The author on the basis of his analysis
concludes that with a large size of economy, high growth rate, small share in world trade
and with the help of various economic theories, it is seen that there is huge untapped
potential for Indian foreign trade in years to come48.
Shinoj P et al (2008) examine the comparative advantage of India in agricultural
export vis-a-vis Asia in the post reform era. From 1991 to 2004, ten major agricultural
commodities group are studied. India has been able to maintain comparative advantage in
commodities like cashew and oil meals, but tea, coffee, spices, marine products have been
negatively affected49.
Nageshwara et al (2009), India is amongst top ten producers in the world for rice,
buffalo milk, wheat, cow milk, fresh vegetables, sugar cane, potatoes, groundnut, pepper
mint and buffalo meat. The technological developments, macro-economic reforms and
Uruguay Round Agreement have contributed to the changes in agricultural trade. The
progress of agriculture has made a lot of changes in the net trading position of India50.
T.P. Bhatt (2011) found, the pre-reform period did not see much of structural
changes in the foreign trade particularly, the export sector, but the post-reform period
witness significant changes in the trend, pattern and structure of external trade. The share of
primary products has fallen in exports and that of petroleum products showed an increase
whereas the share of the manufacturing has marginally fallen in the GDP and significantly
declined in the share of exports in recent years. The growth of services was more
pronounced in GDP growth and is reflected in the increasing share of services in exports.
Exports are still heavily dominated by labour-intensive products, characterized by a slow
growing international demand and protected markets51.
9. CHAPTER SCHEME
The Study consists of nine chapters. Chapter I deals with the introduction and
relevance of the study with review of the previous work in same area. It also describes
research methodology used in the various chapters in brief and highlights the major data
sources.
Chapter II describes the significance of international trade in growth and
development of developing country including India and highlights the views of different
economists on international trade. The chapter also illustrates the stages of adoption of trade
liberalisation policy by many developing countries and how it impacted their structure of
international trade.
Chapter III provides an overview of the impact of WTO on India’s foreign trade
policy and also highlights India’s negotiation position at different Ministerial Conference
held under the auspices of WTO, so far eight Ministerial Conferences has been held. The
establishment of WTO in 1995 along with economic reforms of 1991 has provided a lot of
opportunities and challenges for India and had influenced its foreign trade policies from
inward oriented import substitution to outward-oriented export promotion. The chapter
provides an outline of basic changes in India’s trade policy as per it commitments made to
WTO, which includes; substantial tariff reduction and elimination of most of the non-tariff
barriers, liberalisation in trade, simplification of procedures and improved access to export
incentive.
Chapter IV deals with the various export promotion measures adopted by the
Government of India since independence and illustrates brief highlights of the various
export and import policy that has been so far created by the Government of India. Since the
WTO was established with the objective of trade liberalisation, it requires all the member
countries to design their export promotion schemes and strategies according to the WTO
rules and agreement. India being the member of WTO is too bound to frame its export
promotion schemes keeping in mind the WTO rules. In this context, the chapter observes
the WTO status of export promotion measures in relation to India.
Chapter V presents a cross country analysis of export performance between India
and selected developed and developing countries and also gives detail of the scenario of
growth, direction, and structure of India’s exports during the pre and post WTO period and
finally exhibits the factors and forces underlying India’s export performance during the
concerned period.
Chapter VI deals with the analysis of commodity wise and country wise India’s
agricultural exports during pre and post WTO period. To measure the comparative
advantage in selected agricultural products Revealed Comparative Advantage (RCA)
method developed by Balassa (1965) has been used and the diversification in agricultural
export is measured by Simpson Index. The chapter covers the principal agricultural
commodities like tea, coffee, rice, tobacco, cashew nuts, edible oils, spices, sugar and
molasses and marine products etc. The chapter also embark on the role of WTO in Indian
agricultural exports and gives a brief underline of various tariff and non-tariff barriers
imposed on Indian agricultural products in its major markets.
Chapter VII analyses India’s manufactured exports performance under WTO regime
with special focus on major categories of commodities including; leather and manufactures,
chemical and related products, engineering goods, textiles, handicrafts and gems and
jewellery and also investigates their position in global export market and competitiveness of
these commodities in major export markets. The chapter also highlights key policy changes,
which could increase their export and finally deals with the impact of WTO on export of
these commodities and various tariff and non-tariff barriers faced on export of these
commodities in major markets.
Chapter VIII deals with the comparative study of services export performance of
India and world consisting of few developed and developing nations during pre and post
WTO. The chapter examines the growth in India’s exports of services and evaluates the
composition and direction of services exports and also its position in world export of
services. It also assesses India’s comparative advantage in exports of services and analyses
in which particular sub-sector of services, India enjoys a comparative advantage. In the end
role of WTO in India’s services exports has been assessed and various policy developments
undertaken by the Government of India along with other suggestive measures to increase
services exports has been outlined.
Lastly, Chapter IX highlights summary of the elementary chapters and the broad
conclusions emerged out of the analysis and also highlights some policy measures for
promotion of India’s export trade.
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CHAPTER II
INTERNATIONAL TRADE AND ECONOMIC GROWTH
1. IMPORTANCE OF INTERNATIONAL TRADE
International trade is immensely imperative to development as it creates jobs,
generates income and stimulates reform. All of the economic theories of international trade
suggest that it enhances efficiency. In this regard, international trade is like a new
technology. It adds to the productive capacity of all countries that engage in trade.
International trade creates an environment where countries from different cultural, social,
political and economic background come together to carry out trade so as to share their
specialised products with rest of the world and to have healthy trade and economic
relationship promoting world peace. International trade bestows all kinds of trade
advantages upon the country that is why trade and economic growth are always positively
correlated. Trade serves to minimize the real resource costs of worldwide production, which
is same as saying that trade serves to maximize the real value of production by allocating
worldwide resources efficiently. It does so by permitting and encouraging producers in each
trading country to specialize in those economic activities that make best use of their
country’s physical and human resources1. Over the years, government of many countries
have opened their economies to international trade, which links different aspects of nation’s
economy to the economies of its trading partners. This closer linkage of economies can be
mutually advantageous for trading partners. It permits producer in each nation to take
advantage of specialization and efficiencies of large-scale production among countries.2
International trade comprises of both the import and export of goods and services.
Both growing exports and imports are stimulant in growth process. Imports had made
possible the provision of capital, managerial skill and techniques, which are the drivers of
growth and development process, in addition to above, import meets the wider consumer
choice with respect to variety of goods and services available. An export on the other hand
is the major source of finance to meet import and a means to enlarge domestic income and
employment. Depending upon marginal propensity to consume and propensity to import,
exports have multiplier effect on gross national income (Bannock et al, 1992)3. Prior to
1970s many countries adopted inward oriented import substitution policies but as they
recognised the growing importance of exports, they switched to outward oriented export
promotion measures. A country can reap lot of benefits from an export oriented trade policy
as an export oriented industrialisation encourages high taking and seizing opportunities
which are basic requirement for economic development (Bhagwati, 1976)4. Owing to these
benefits many economists considers that some trade is better than no trade as it act as an
engine of growth and important tool for poverty reduction.
International trade promotes dynamism and innovation within a country and also
enhances the productive efficiency of all the factors within an economy. It generates
economies in scale of production through specialisation and division of labour. Such
economies in scale of production causes better quality and reasonable price product
available to all people of the world. As stated by Adam Smith, a classical economist,
international trade enables each nation to increase her wealth and national wellbeing by
making extended use of the principal of division of labour that makes specialisation in
production possible. The underlying factor behind the international trade is the unequal
distribution of various resources and factors of production among different nations causing
inability on the part of the country to be the producer of all products of vital need. Over
periods many trade theories have been developed by several economists like, Absolute cost
advantage theory of Adam Smith, Comparative cost advantage theory of David Ricardo etc.
to highlight the cause and significance of international trade. As Ohlin (1952) stated that
international trade mitigates the disadvantage of disproportionate geographical distribution
of productive resources. International trade decidedly increases the exchangeable value of
possession, means of enjoyment and wealth of country concerned. The driving forces
behind international trade being technological differences between nations. If another
country can produce a good (relatively) more cheaply than we can make it, it is better to
import this good from abroad as it will increase our welfare5. In present global trade
scenario no country can isolate itself from rest of the world and survive. Growing
integration of a country’s economy with rest of the world through international trade is
immense for global growth and development. The objective of all the major international
institution like World Bank, United Nations, IMF, WTO etc. is to assist least developed and
developing nations in their economic development and all of them have regarded
international trade as one of the several means to achieve that.
The barriers to trade tend to restrict the growth process. Many studies conducted in
the past have revealed the importance of unrestricted trade and the countries closed to trade
has always lagged behind in the growth process as compared with the countries more open
to trade. The integration of world economy through international trade has proved to be a
means of prosperity in many developing nations. Most fast growing economies also have a
dynamic trade sector. The importance of international trade is felt in both developed and
developing economies. So the countries should be more liberalized in their trade policies
and should positively respond to the emerging international economic order, particularly
after the establishment of WTO in 1995.
2. INTERNATIONAL TRADE AND VIEWS OF ECONOMISTS
Many economists in the past have developed different thoughts, views and theories
on international trade, wherein they have tried to explain the reason and causes of
international trade. Economic theories have moved a long way from mercantilism to the
present day of globalization. Mercantilists prevailed in Europe from 16 th to 18th century and
asserted that to make state wealthy and powerful there is a need to have stock of precious
metals like gold and silver and the accumulation of these precious metals depends upon
foreign trade. The mercantilists therefore advocated maximisation of exports and
minimisation of imports. Sir William Petty, an mercantilist writer postulate that “The great
and ultimate effect of trade is not wealth at large but particularly abundance of silver, gold
and jewels…so as to raising of such, and the following of such trade, which does store the
country with gold, silver and jewels, etc. is profitable before others.’’
Mercantilists believed in achieving surplus in balance of trade. The British
mercantilist writer Thomas Mun propose that “The ordinary means therefore to increase our
wealth and treasure is by foreign trade, where in we must ever observe this rule; to sell more
to strangers yearly than we consume of theirs in value.’’ All the mercantilist thinkers
favoured foreign trade but with the only objective of acquiring more gold from other nations
by maintaining favourable balance of trade. Their main slogan was ‘’ More gold, more
wealth and more power”. Those who possess gold were considered the master of everything
so the central idea was to have more value of export than import.
After mercantilists, classical economists too considered international trade as a
source of countries wealth and prosperity. The classical economists like; Adam Smith and
David Ricardo developed a separate theory on international trade advocating the cause and
gains of trade. Adam Smith refuted mercantilists view who considered trade as zero sum
game i.e. one country gain and others loss through international trade and asserted that
international trade is a positive sum game where all the nations gain. He laid down the
advantages of international division of labour and states ‘’ if a foreign country can supply
with commodity cheaper than we ourselves can make it, better buy it of them with some
part of the produce of our own country employed in a way, in which we have some
advantage…”. Adam Smith developed absolute cost advantage theory declaring due to
difference in distribution of products among various countries there is gain of trade to
everybody. David Ricardo gave comparative cost advantage theory where he too pleaded
the advantage of division of labour and specialisation and postulated “though Portugal could
make the cloth with the labour of 90 men , she should import it from a country where it
required the labour of 100 men to produce it, but it would be advantageous to her rather to
employ her capital in production of wine, for which she would obtain more cloth from
England than she could produce by diverting a portion of her capital from the cultivation of
vines to the manufacture of cloth.’’
Classical economists advocated free trade policy with no government restriction on
trade in the form of tariff and quota. Prof Habler declares” substantial free trade with
marginal insubstantial corrections deviations is the best policy from the point of view of
economic development.’’ The classical economists’ believed that free trade leads to
availability of variety of products from abroad along with capital goods, technology and
innovation and enlarges market leading to increased specialisation, division of labour and
production which reduces cost and competition from abroad and improves quality.
Richard Cobden believed that international trade could bring about world peace by
substituting commercial relationships among individuals for competitive relations between
states. Many economists were of the view that trade leads to dynamism and innovation
within an economy, which ultimately improves manufacturing quality and productive
efficiency of an economy.
Many of modern economists like Prebish, Charles P. Kindle Berger and Ragner
Nurkse have considered the various aspects of international trade from the view point of the
world’s poor countries and had found that free trade many a times leads to the exploitation
of developing countries by advanced nations. In place of working for equality in
international trade, says Myrdal,” have strong back-wash effects on the underdeveloped
countries” and are “in continuous danger of seeing even what they have of industry and, in
particular, small-scale industry and handicrafts priced out by cheap imports from the
industrial countries, if they do not protect them”6. Few others believe that international
trade leads to international inequality and the free trade as advocated by classical
economists have no relevance in the present economic scenario.
The new trade theory associated with researchers like Helpman (1981), Krugman
(1979), and Lancaster (1980) in the late 1970s and 1980s, were motivated by the failure of
more traditional theories to explain some of the most significant facts about post World War
II trade data. Paul Krugman, believed that trade leads to the increasing returns in the
production and it lead to maximum output from given resources. He wrote that international
economics a generation earlier had completely ignored returns to scale. The idea that trade
might reflect an overlay of increasing returns specialization on comparative advantage was
not there at all: instead, the ruling idea was that increasing returns would simply alter the
pattern of comparative advantage7.
Later on many economists in the 1970s ,80s and 90s believed that international trade
should not be a very restricted but liberalised as Krueger pointed out that the free
international trade leads to quick economic growth and development of developing and least
developed countries. However, the general consensus of most of the economists is that the
role of international trade is significant in global economy as none of the country is self-
reliant so it should be promoted taking in consideration the economic position and
requirement of the individual countries.
3. INTERNATIONAL TRADE AND DEVELOPING ECONOMYInternational trade has contributed to economic growth and development process of
developing countries through facilitation of greater employment and reduction of poverty.
The developing countries strive for rapid development, which is based on industrialization,
and for industrial base, they need capital and technique imported from advanced countries.
Trade enables country to participate in international division of labour and accelerate their
economic progress to catch up with industrialised countries. In the past few decades many
developing countries has realised that international trade in particular is critical to their
economic development.
Many economists believed trade is indispensable for growth and development of
developing countries and many insisted that trade creates dependency of developing nations
on developed ones. However, various research studies undertaken over time have proved
the importance of international trade for developing economy. The study undertaken by
Dollar (1992), Sachs and Warner (1995), Rodriguez and Rodrick (1999) showed positive
link between trade and economic growth. Using data for 87 countries, Hakura and
Jaumottee (1999) found that trade is the way to transfer international technology to
developing countries. Trade provides developing countries with access to investment and
intermediate goods that are vital to their development process. In words of G. Haberler in
International Trade and Economic Development, 1959-“My overall conclusions is that
international trade has made a tremendous contribution to the development of less
developed countries in the 19th and 20th centuries and can be expected to make equally big
contributions in the future and the substantial free trade with marginal, insubstantial
corrections and deviations is the best policy from the point of view of Economic
Development”8. In the past decade it has been observed that international trade has played
significant role in developing countries economy, its share in countries GDP has increased
significantly. The table 2.1 and 2.2 given below shows the trend in export and import of
goods and services as percentage of GDP of few developing countries.
Table 2.1: Export of Goods and Services as a Percentage of GDP. COUNTRY 1980 1985 1889 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
Argentina 5 12 13 8 7 10 11 10 12 25 25 25 21 22Brazil 9 12 9 9 11 7 11 9 12 15 15 13 11 12China 11 9 14 17 20 20 22 20 23 30 37 38 27 31Ethiopia - 6 7 4 6 10 11 12 12 13 15 13 11 12India 6 5 7 8 10 11 11 11 12 15 19 20 20 25Indonesia 34 22 24 26 27 26 28 36 39 30 34 29 24 31Iran, Islamic,Rep 14 9 10 15 27 22 17 21 21 27 33 32 - -Kenya 30 25 23 27 39 33 23 21 23 24 29 27 24 27Malaysia 57 54 71 78 79 94 93 121 110 107 117 110 96 -Mexico 11 15 19 16 15 30 30 31 28 25 27 28 28 31Philippines 24 24 28 30 31 36 49 45 46 47 46 43 32 29Russia Federation
- - 22 13 38 29 25 43 37 35 35 30 28 28
Saudi Arab 64 30 34 39 35 38 39 35 40 46 61 65 - 62South Africa 35 31 27 22 22 23 25 25 30 28 27 31 27 29Thailand 24 23 35 36 38 42 48 58 66 66 74 73 68 71Turkey 5 16 16 14 14 20 25 19 27 23 22 22 23 27Note: Most of the data for the year 2009 represents declining trend due to global recession. Source: World Bank Data.
Table 2.2: Import of Goods and Services as a Percentage of GDP.COUNTRY 1980 1985 1889 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011Argentina 6 6 7 6 9 10 13 12 10 14 19 20 16 20Brazil 11 7 5 8 9 9 9 11 13 12 12 12 11 13China 11 13 15 14 22 19 17 18 20 27 32 30 22 27Ethiopia - 11 11 9 14 16 18 24 29 27 35 32 29 29India 9 8 8 8 10 12 12 13 13 15 22 24 26 30Indonesia 20 20 21 24 24 28 28 27 31 23 30 25 21 25Iran, Islamic,Rep
27 14 17 30 20 13 15 15 19 26 25 22 - --
Kenya 36 30 30 29 34 39 31 27 33 30 36 38 37 46Malaysia 54 49 65 81 79 98 92 96 93 87 95 89 75 -Mexico 13 10 19 19 19 28 30 32 30 27 29 30 29 32Philippines 28 22 30 33 40 44 59 49 53 55 52 43 33 33Russia Federation
- - 21 13 30 26 23 26 24 24 22 22 20 21
Saudi Arab 27 37 38 37 34 28 26 23 24 24 28 38 43 31South Africa
27 23 21 17 18 22 23 23 26 26 28 34 28 29
Thailand 30 26 37 43 42 49 47 46 59 59 75 65 58 71Turkey 12 19 18 17 19 24 30 19 23 24 25 27 24 29Source: World Bank Data.
These developing countries have now become a major player in the world trade.
Their exports have grown faster than world average and accounts for 1/3 rd of world
merchandise trade. Initially they were the exporters of primary products but with
economical and technical advancement brought out by international trade, they have
transited into exporters of manufactured goods. The Role of these countries is not only
significant in world merchandise trade but also in world service trade and enjoys top rank
along with developed countries in world exports of services. The overall trade performance
of developing countries in recent years has been very impressive. In the past decade, the
share of developing countries in world trade has increased significantly and accounted for
36 per cent of total merchandise exports. The trade to GDP ratio increased for almost all
groups of countries, indicating a greater openness on the one hand, and trade dependence on
the other (table 2.3). The table 2.4 and 2.5 given below indicates that the annual growth rate
in the exports and imports of merchandise goods and commercial services in the past decade
(2001-2010) is more for developing countries as compared to the developed countries.
Table 2.3: Trade to GDP ratiosEconomy 1995 2000 2005 2011
World 43.3 50.3 56.4 63.0Developed economies
38.3 44.5 49.4 57.7
Developing economies
61.7 69.9 75.3 72.6
Least developed countries (LDCs)
46.7 53.1 63.8 63.0
Source: UNCTAD, Handbook of Statistics
Table 2.4: Annual Growth Rate in Merchandise Trade of Selected Economies (In percent)
Year Developing Economies Developed Economies All EconomiesExports Imports Exports Imports Exports Imports
2001 -4.9 4.0 -13.6 -8.3 -7.5 -5.22002 9.5 10.2 3.2 -0.3 7.8 7.42003 22.6 21.9 12.6 15.4 19.9 20.32004 26.7 28.3 20.4 19.7 25.3 26.22005 20.7 18.6 7.5 13.7 17.5 17.52006 20.8 17.8 9.7 11.6 18.3 16.42007 18.1 18.2 11.4 9.9 16.7 16.52008 18.2 20.8 13.2 21.8 17.2 21.02009 -19.0 -19.2 -23.9 -25.5 -19.9 -20.52010 28.8 31.5 33.4 24.5 29.6 30.2
2010 value( in $
million)
4504649 4215060 1013634 924891 5518283 5139951
Source: WTO, International Trade Statistics.
Table 2.5: Annual Growth Rate in Commercial Service Trade of Selected Economies (In percent)
Year Developing Economies Developed Economies All EconomiesExports Imports Exports Imports Exports Imports
2001 1.1 3.7 -6.8 -6.4 -1.2 0.22002 10.7 10.6 4.3 0.5 8.9 7.32003 12.6 13.1 12.5 5.3 12.6 10.72004 30.4 26.2 23.4 21.6 28.6 24.82005 17.0 15.9 12.2 3.9 15.8 12.52006 18.2 16.0 10.4 8.0 16.3 13.92007 25.8 21.9 13.2 13.7 22.8 19.82008 17.7 18.2 13.6 14.0 16.8 17.22009 -10.4 -9.2 -12.7 -13.0 -10.9 -10.12010 18.5 18.0 11.2 9.5 17.0 16.1
2010 value( in $
million)
804767 803145 194147 214041 998914 1017187
Source: WTO, International Trade Statistics.
Since the establishment of WTO the value share of developing countries in world
merchandise trade has increased from 29 to 41 per cent from 1995 to 2010, China’s share
increased from 2.6 to 10.0 per cent in the same period. India’s share is small but has
improved since 1995. On the other hand the share of developed countries in world
merchandise trade has declined from 69 to 55 per cent from 1995-2010 as the developing
countries has capture the part of their share since opening of global economy. The figure 2.1
given below shows the percentage share of different economies in world merchandise trade
(includes both exports and imports). Here the emerging economies include Brazil, China,
India, Mexico, the Republic of Korea, the Russian Federation and South Africa.
Figure 2.1: World Market Share in Merchandise Trade. (In per cent)
1995 2000 2007 20100
10
20
30
40
50
60
70
80
6967
60
55
29 30
35
41
4 4 5 5
1012
1820
2.65
710
1 1 2 3
Developed countries Developing economiesEconomies in transition Emerging economiesChinaIndia
Source: Compiled from data from WTO, International Trade Statistics.
In service trade the developed countries still accounts for most services exports and
services imports. The developed countries’ share of world exports and imports in
commercial services rose from 24 per cent in 2000 to 27 in 2008 and from 28 per cent in
2000 to 32 per cent in 2008. But however the developing countries share is increasing at
faster pace in the recent years as can be seen in the figure 2.2 given below.
Figure 2.2: Share of Developing Countries Imports and Exports of Services in Total World Imports and Exports of Services (in per cent)
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110
5
10
15
20
25
30
35
40
23.07 22.99 22.99 22.87 23.524.55 25.24 25.71 26.48 26.97
29.67 29.8327.39 27.11 26.93 26.34 27.03
28.3929.73 30.36
31.57 32.29
35.2436.31
Exports in % share Imports in % share
Source: UNCTAD, Handbook of statistics.
In recent years there has been shift in composition of trade of many developing
countries due to rapid industrial growth. The share of manufactured goods in total exports
has surpassed the share of agricultural products in recent years. The South-South trade
increased at a rate of 13.7 per cent per year between 1995 and 2010, well above the world
average of 8.7 per cent. Over the same period, the South’s merchandise exports to the North
increased by 9.5 per cent per annum.
All this growth in trade of developing countries had been possible due to more open
trade, resulting into growing trade with developed and developing nations that have
ultimately acted as a catalyst agent for sustaining and accelerating their growth process.
Thus we may say that in order to transit from developing economy to a developed one it is
essential to have more trade with advanced economies at initial stage of development
through import of means that increases the country’s export producing capacity along with
growth and development in other sectors of the economy and then export all those goods
and services in global market consisting of both developed and developing nations where in
the country enjoys competitive strength.
The policy of globalisation and liberalisation in trade adopted by developing
countries has helped them immensely in their rapid economic growth. India and China are
the best example whose economy has shown fast recent economic developments owing to
more growth in trade. Thus we can say that developing countries can be benefited more
through the international trade in the form of enlarged market for their products and better
access to advanced technologies, capital goods and managerial expertise of advanced
nations so it is strongly required to liberalised world trading system.
4. LIBERALISATION AND INTERNATIONAL TRADE
The benefit of open trade is known to the whole world. Constant increase in trade
calls for trade liberalisation, which could contribute to economic growth by facilitating
technology transmission, international integration of production and the associated
possibility for reaping large scale economies, reduction in price distortion and increase in
efficiency9. Those countries, which adopted an outward-strategy in their trade policies, have
grown at a faster pace than those with an inward looking approach. In past two decades the
developing countries of East Asia has shown rapid growth in their economy as compared to
many African and Latin American countries and the reason was that the former were more
open to trade and the later adopted conservative and protective attitude towards the trade
besides other structural complexities. Trade promotes economic resilience and flexibility, as
higher imports help to offset adverse domestic supply shocks. Greater openness can also
stimulate foreign investment, which could be a source of employment for the local
workforce and could bring along new technologies- thus promoting higher productivity10.
The IMF considers that low level of trade makes countries more volatile to debt crises.
Trade enables country to earn export revenues, which could be used in meeting debt
services. Trade liberalization has foster substantial benefit upon the developing countries in
the form of optimum utilisation of resources, creation of more jobs opportunities, reduction
of poverty etc.
In the 1950s, 60s and 70s, large number of countries, especially the developing
nations embraced protectionist views and advocated policy of import substitution but
however various research studies proved that open and outward oriented economies had
outperformed those pursuing protectionism. Krueger believes that by adopting protectionist
measures in 1950s and 1960s, the basic principle of international trade, the comparative
advantage was ignored. Also, it was considered that businesses would not respond to incentives;
export earnings were slowly growing; industrialization was necessary for development, and
developing economies were “different” comparing with industrialized countries. All of these,
says the author, prove to be wrong by the experience of East Asian newly industrialized
countries. Anne Krueger concludes that a well-considered trade theory provides a blueprint that
has to be embraced by governments. The author believes that there are no bad economic
theories but bad interpretations of them by politicians/economists and bad implementation of
non-economist practitioners. Dany Quah and James Rauch (1990) developed model where
freer trade resulted in acceleration in the equilibrium rate of growth. Gene Grossman and
Elhanan Helpman (1991) and Edwards (1992) emphasised the role of freer trade in
generating technological progress.
The 1980s were the decade of initiating reforms; the 1990s, of continuing them
though there was less of an urgent need to undertake trade reform in the 1990s than in the
1980s, many developing countries did so and fashioned more-liberal trade regimes11. The
trade policies under regime of liberalisation was characterized with elimination and
reduction of all kind of restrictions imposed on the imports and exports like quotas and
tariff. Besides, they formed regional groupings and followed the neo-liberal free trade
discipline of the WTO.
According to World Bank, 24 developing countries that become more integrated into
world economy in the 1980s and 1990s had higher income growth, longer life expectancy
and better schooling. Countries like China, India, Mexico, and Singapore showed increased
amount of their GDP accounted for by trade. Lowering down of trade barriers by
developing and developed nations has resulted into potential gains in world merchandise
trade ranging from US$250 billion to US$ 680 billion per year. This gain is shared by both
the economies. The table 2.6 given below shows the trade openness of many countries.
Table 2.6: Trends in Trade Openness at Major Trading Economies(In per cent)
COUNTRY Avg. 1980-84
Avg. 1985-89
Avg. 1990-94
Avg. 1995-99
Avg. 2000-04 2005 2006 2007 2008 2011
Argentina 11.6 12.8 12.2 17.9 28.5 38.0 38.0 38.6 39.2 34.6Brazil 24.9 13.4 12.8 13.8 21.5 22.2 21.4 21.5 24.2 19.9Chile 35.2 47.0 45.7 46.0 54.0 62.6 66.2 70.1 75.7 67.1China 14.8 24.6 34.2 34.3 46.5 63.6 66.3 64.3 58.2 50.4France 37.2 35.3 34.6 38.6 43.3 43.3 45.2 45.2 45.7 46.0Germany 48.8 48.8 41.3 43.5 56.0 62.9 70.1 71.7 72.6 80.6Hong Kong 153.1 191.6 226.2 229.8 267.2 331.2 343.0 344.0 348.5 370.0India 12.2 11.1 15.0 18.8 22.2 30.9 33.8 32.7 38.8 38.5Indonesia 35.9 31.5 38.2 51.3 53.8 56.8 50.0 49.0 54.2 43.4Japan 24.6 17.4 15.3 16.6 19.7 24.3 28.2 30.1 31.5 27.3Korea 60.1 57.5 46.3 53.3 59.7 64.6 66.7 69.4 90.5 96.3Malaysia 90.9 99.5 140.7 168.5 177.6 185.0 185.9 172.9 168.3 145.7Mexico 22.1 29.9 30.3 52.5 50.9 52.5 54.5 55.5 56.7 48.8Philippines 38.9 38.2 50.8 76.7 96.3 87.9 86.3 75.0 64.8 48.9Russia 61.6 48.8 52.3 50.0 49.0 46.4 47.3 45.9Singapore 321.3 296.3 285.5 273.4 293.5 355.3 366.8 336.9 361.6 307.8South Africa 48.4 45.0 35.1 40.9 47.8 46.9 53.1 55.8 55.4 49.8Thailand 44.8 51.0 67.7 80.3 109.7 129.5 125.4 119.4 128.7 123.6Turkey 16.6 20.2 18.9 27.1 37.0 39.4 42.5 42.7 45.8 48.3United kingdom 41.5 41.3 39.0 42.3 38.5 37.5 40.0 37.7 40.9 46.4United states 15.2 14.5 16.0 18.7 19.3 21.2 22.4 23.0 24.3 24.7Note: Trade Rate is measured by the Ratio of Export plus Import to GDP.Source: IMF data, International Financial Statistics.
Free trade lead to growth in world trade and ultimately to increase in global
employment and income. Global market offers greater opportunity for nations, apart from
access to capital, goods and technology it has provided access to knowledge and
information. The benefit of liberalize trade falls more upon the developing economies as it
provides them with means and opportunities which are more essential for their rapid growth
and development.
The adoption of trade liberalisation policy by many developing countries has
facilitated their participation in the global economy. Figure 2.3 shows that in the past 20
years (1999-2009), the volume of exports from developing countries grew constantly faster
than exports from developed countries or the world as a whole, in recent years the volume
of developing countries exports almost doubled. Even the share of developing countries
exports in world exports compared to the developed countries has increased. In the year
2009, almost all the economies suffered declining trend in their trade due to global
recession, however its impact was more intense on developed countries.
Figure 2.3: Volume of Exports of Developed, Developing and Transition Economies: 1990-2009
(Index, 2000=100)
Source: WTO Secretariat estimates.
However, it is worth noticing that all the developing countries are not equally open
to international trade. The Figure 2.4 given below represents, Asia tops with a 10 per cent
share of world exports in 1990 (US$ 335 million) which increased to 21 per cent (US$
2,603 million) in 2009 and Africa had the smallest share in world exports, at 3 per cent,
both in 1990 and 2009. The share of Latin America and the Middle East in world exports
too remained almost constant without any remarkable increase from 1990 to 2009. The
share of others constantly fluctuated between 1 to 2.8 per cent from 1990-2009. This shows
that there is need for adopting more outward oriented trade strategy for those countries
which are more conservative towards international trade.
Figure 2.4: Share of Developing Economies in the Value of World Exports, by Region: 1990 to 2009 (in percent)
Source: WTO Secretariat estimates
The various international institutions like World Bank, IMF, and WTO too
emphasised the need for developing countries to follow trade liberalisation and open their
external sector. The emergence of WTO trading system has brought about substantial
decline in trade barriers among countries over past few decades. The various trade
negotiations and agreement under WTO has favoured developing countries. The Fourth
WTO ministerial meeting in Doha in November 2001 had the objective to achieve the
development dimension of trade mainly for developing countries. This was part of larger agenda
set by the UN Conference on the Least Developed Countries held in May 2001 in Brussels
where it was decided to “lower trade barriers to LDC exports, reduce the debt burden through
quick and effective implementation of the enhanced ‘Heavily Indebted Poor Countries
Initiative; cancel outstanding official bilateral debt”12. The WTO trading system followed
policy of liberalisation which calls for greater market orientation through removal and
reduction of all tariff and non-tariff barriers. The phasing of Multi-fibre trade arrangement
in textile by 2005, MFN clause and transparency in trade rules is some of the best step
under WTO negotiations towards trade liberalisation which has to be followed by all the
member countries.
However in spite of all these efforts there are still many developed and developing
countries that follows traditional and new measures of protection like tariffs and non-tariff
barriers. In the table 2.7 given below for year 2006 we can see that tariffs of developed
countries have been falling steadily over the last two decades. The simple effectively
applied tariff average is as low as 3.91 per cent. The trade-weighted effectively applied
tariff is as low as 2.1 per cent. However, tariffs effectively applied on agricultural products
remain significantly higher than those effectively applied on non-agricultural products. The
former (trade weighted) are on average as high as 12.6 per cent, while the latter remaining
on average below 1.5 per cent. Not only this, developed country impose higher effectively
applied tariffs (trade weighted) on developing countries than on other developed countries,
while the reverse is true for simple tariffs averages. However, the rate of protection
effectively applied on agricultural goods is on average is higher for developed trade partners
than for developing trade partners. The tariff applied by developing countries are high in
contrast with the developed countries which is however viable because of their weak
economic structure. Besides the tariff, Non-tariff barriers (NTBs) are becoming more
popular in recent years and are of concern to developing countries, it includes technical
measures – including technical regulations, standards and sanitary/phytosanitary
regulations, and price control measures such as anti-dumping actions, customs and
administrative entry procedures, para-tariff measures (e.g. import surcharges and additional
charges), and other regulatory measures. Out of above, technical measures are more
common in recent years (fig 2.5).
Table 2.7: Trade Weighted Applied Tariff Average, in year 2006 – In %
ALL PRODUCTS NON-AGRICULTURAL AGRICULTURALEffectivelyapplied tariff
Most-Favoured-Nation tariff
Effectivelyapplied tariff
Most-Favoured-Nation tariff
Effectivelyapplied tariff
Most-Favoured-Nation tariff
Applied by developed countries on imports from:DEVELOPING ECONOMIES
2.3 3.3 1.8 3.1 10.3 13.8
ECONOMIES IN TRANSITION
0.9 2.3 0.6 1.9 13.4 19.4
DEVELOPED ECONOMIES
2.0 3.0 1.2 2.2 14.8 16.2
Applied by developing countries on imports from:DEVELOPING ECONOMIES
4.3 5.2 3.8 4.5 14.7 17.4
ECONOMIES IN TRANSITION
4.8 5.2 4.3 4.7 14.0 14.1
DEVELOPED ECONOMIES
5.7 7.3 5.0 6.5 16.2 19.4
Note: Developing countries excludes ChinaSources: UNCTAD, TRAINS/WITS
Figure 2.5: Evolution of Non-Tariff Barriers use by Broad Category - In %
tariff
mea
sure
(trq.et
c)
price c
ontrol m
easu
res
finance
mea
sure
s
refu
ndable
deposit
s for s
ensiti
ve p
roduct
s ca
tego
ries
auto
mati
c lice
nsing m
easu
res
quality
contro
l mea
sure
s
prio au
thoris
ation fo
r sen
sitive
pro
duct
qoutas f
or sen
sitive
pro
duct ca
tego
ries
prohib
ition fo
r sen
sitive
pro
duct ca
tego
ries
monopolis
tic mea
sure
s
tech
nical m
easu
res
0
10
20
30
40
50
60
70
5.8 7.12 0
2.8
49.2
18.1
0.22.5 1.3
31.9
0.3 1.8 1.5 0.600000000000001 1.7
34.8
17.1
0.2
6.81.5
58.5
1994 2006
Sources: UNCTAD, TRAINS/WITS
There is a need to realise by all the countries whether developed or developing the
growing significance of international trade in countries growth and development and should
adopt their individual trade policies accordingly to promote trade. The Developed countries
should provide special treatment to exports from the developing countries and should
provide greater freedom in access of their market by them. On contrary developing
countries should embrace that trade liberalisation policy which is conducive to their own
economy and do not adversely effects its own domestic industries, employment, income and
growth. As Rodrick argued in his paper ‘Trade Policy Reform as Institutional Reform’, that
“no country has developed successfully by turning its back on international trade” and no
country has developed by simply liberalizing its trade. He used data from the last 50 years
to prove that there is no evidence that trade protection has a systematic correlation with
growth. In the same time, Rodrik suggests that the tendency to overestimate trade openness
has no strong empirical evidence. He brings the example of East Asia, China and India in
the early 1980s to show that a partial and gradual institution building in combination with a
partial and gradual opening up to imports and foreign investment could also provide a
significant source for growth. He suggests that countries that are in early stages of reform
might follow similar paths. Rodrik does not refute the concept that liberalization of trade
does go hand-on-hand with development, but he believes that each country has to adopt its
own trade policy and investment strategy: a mixture of “orthodoxy [enlightened standard
view] with unconventional domestic innovations”13.
Thus it could be seen that the fruits of liberalization has been enjoyed by all the
economies. Yet, in any economy, liberalization has costs and benefits that must be weighed
carefully. It is thus important to design liberalization policies – of goods and services - in a
way that costs are absorbed without significant social stress and that additional measures are
taken to ensure that the expected benefits will be actually forthcoming. A crucial factor to
consider is the adequate liberalization pace and sequence, in particular, the time needed for
the development of long-term comparative advantage in some economic activities. Thus,
the process should proceed by stages, synchronizing liberalization with the country’s
economic conditions14.
5. INTERNATIONAL TRADE AND INDIA
India being a developing country is set on a path of development. Its economy too
has experienced many favourable effects of international trade. International trade has
always been at a core of our country. Whether to talk about present or ancient India, Indian
products have always capture an important place in international market. Economic history
of country reminds us of the heritage of the country’s richness. Ancient India was powerful
and prosperous and the products of Indian industry enjoyed a worldwide reputation. India
excelled in cotton fabrics, woollen cloth, and silk of all kinds and also in varieties of artistic
goods like enamelled jewellery. Besides, above goods, its export also consisted of
handicraft goods, brass, textile goods, copper, pots, spices etc. and imports consisted of
brass, tin, wine etc.
In early days, the foreign trade of India was in advanced stage. Indian goods were
sent to European market in large quantities. Later on the East Indian Company founded in
the country, which secured complete monopoly over trade, and the British rule established
in India. Indian products like indigo, cotton, silk, wool, pepper etc. were supplied in huge
quantity to England. In the second half of 19th century, our country became major supplier
of foodstuff and raw material to industrialised countries and an importer of manufactured
goods. The production of finished product was discouraged at home this led to decline in
industrialisation at home, and a result of competition from British manufactures, the
indigenous handicrafts suffered a severe blow. Finally, India got independence on 15th
August 1947 and since then India’s foreign trade has undergone significant transformation.
At the time of independence, Indian economy was stagnant as it was ruined by
British rule so need arise to adopt massive development programme. A big task of transition
of economy from stagnant to dynamic was ahead India. The strategic objective of Indian
policy makers at the outset of independence was the creation of a self-reliant economy and
the reduction of the high levels of poverty that existed (Kelkar, 2001)15. History has
revealed that the country with rapid industrialisation has grown at much faster pace so India
too adopted the objective of industrialisation in the second five-year plan. The role of
foreign trade is inevitable in countries, which set up in motion the process of
industrialisation. An import of capital goods and technical knowhow, which cannot be
produced at home in the initial stages of country’s development, becomes essential. These
imports are very important for utilising the productive capacity of the country and starting
up various projects. Thus, India, in the process of development rested upon advanced
countries for supply of essential commodities. However, its export constituted of primary
products.
At early stage of development imports tends to be more this formed Balance of
payment problem, this necessitates the exports to play major role. Exports enable a country
to earn foreign exchange that is used to finance imports. It constitutes the key factor in
deciding sustained rate of economic growth. At initial stage of development countries like
India exports traditional items like raw material and foodstuff but with economic
development non-traditional items like manufactured goods takes major share in India’s
exports.
The role of international trade in India economy is significant in different sphere.
Where the importance of the export sector to the development process has long been
recognized by many economists. Exports, by fostering specialization helps to benefit from
comparative advantage; utilizing the full capacity of plant size where domestic demand is
less than full capacity production; getting benefit of greater economies of scale due to large
market; expanding aggregate demand; increasing the rate of investment and technological
changes; enabling import of essential raw materials and capital goods, result
industrialization and thus rapid economic growth in developing economies (Chennery,
1979; Kavoussi, 1984; Ram, 1987; and Moon, 1998). Export had significantly contributed in
countries national income and output. The contribution of country’s exports in its GDP at
market prices has continuously increased since economic reforms from 6.7 per cent in 1991-
92 to 16.5 per cent in 2011-12, as represented by the data on value of exports as a
percentage of GDP at market price in the table 2.8 given below.
Table 2.8: Exports as Percentage of GDP at Market PriceYear Exports as Percentage of GDP
1950-51 6.01956-57 4.61960-61 3.71966-67 3.61970-71 3.31976-77 5.661980-81 4.61986-87 3.951990-91 5.71991-92 6.71992-93 7.11993-94 8.01994-95 8.11995-96 8.91996-97 8.61997-98 8.51998-99 8.01999-00 8.12000-01 9.72001-02 9.22002-03 10.42003-04 0.82004-05 11.62005-06 12.42006-07 13.32007-08 13.12008-09 15.12009-10 12.92010-11 14.22011-12 16.5
Source: Calculation is based on data taken from RBI bulletin
Exports not only contribute in countries GDP but also provide employment to large
number of domestic resources. In India there are many export industries which absorbs huge
labour force of country and had created around 14 million jobs directly or indirectly from
2004 to 2009.
Exports has enabled India to earn foreign exchange which is imperative to finance
growing imports of the country and since independence India has earned huge amount of
revenue through international trade as given below in the figure 2.6. The figure is drawn on
the basis of receipt through export of goods and services extracted from the record of
country’s balance of payment.
Figure 2.6
1955-56
1960-61
1965-66
1970-71
1975-76
1980-81
1985-86
1990-91
1995-96
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
0
50000
100000
150000
200000
250000
300000
350000
1520
1675
2015
2323
5539
1129
0
1222
0
2269
4
3914
1
6082
8
6096
7
7348
2
9071
1
1267
85
1607
50 2001
94 2534
74 2912
58
2745
10
2966
79
Receipt through Export of Goods and Services( In Million Dollars)
Source: Figure is computed on the basis of data from RBI, Handbook of Statistics on Indian Economy and Economic Survey (various issues).
Like exports India’s imports too is important as it meets the countries growth
requirement and changing demand pattern of people. Since independence India’s has
imported bulk of consumer goods which meets countries food requirement and provides
consumer with variety of products of foreign country, import of capital goods facilitates
domestic industrialisation and provides tool for infrastructure development within the
country, likewise import of export related items helps in smooth growth of export
production and petroleum and other products meets fuel and other requirements of the
country. The table 2.9 given below shows the pattern of countries imports as per the
significance.
Table 2.9: Composition of India’s Imports (In Million Dollars)
Year Petroleum, Crude and Products
Consumption Goods
Capital Goods Export Related Items
Total Imports
1990-91 6028.1 556.5 5835.6 3680 24072.51995-96 7525.8 969.7 10330.2 5257.5 36675.32000-01 15650.1 1443.2 8941.1 8058.6 50536.52001-02 14000.3 2043.2 9882.2 8260.0 51413.42002-03 17639.5 2411.0 13498.2 10313.7 61412.12003-04 20569.5 3072.8 18278.2 12716.8 78149.12004-05 29844.1 3013.5 25135.0 16649.1 107166.12005-06 43963.1 2766.6 37666.2 18641 1491662006-07 56945.3 4294.1 47069.1 17871.7 185735.22007-08 79644.5 4600.3 70110.5 20768.3 251439.22008-09 93671.7 4975.3 71833.1 31930.8 298833.92009-10 87135.9 9012.7 65865 31270 288372.92010-11 106068.2 8720.3 71627.2 49639.4 352575.0Source: RBI, Handbook of Statistics on the Indian Economy.
The international trade and FDI are inter-linked and growing trade had facilitated the
flow of FDI within the country, which is important for growth of export sector and also the
domestic industry and infrastructure. In some years, annual growth rate in FDI has
registered negative growth rate due to depressed world economy.
Table 2.10: In Flow of FDI in IndiaYear FDI( In US$ million) Annual Growth Rate
1992-93 315 144.21993-94 586 86.01994-95 1314 124.21995-96 2144 63.21996-97 2821 31.61997-98 3557 26.11998-99 2462 -30.81999-00 2155 -12.52000-01 4029 87.02001-02 6130 52.12002-03 5035 -17.92003-04 4322 -14.22004-05 6051 40.02005-06 8961 48.12006-07 22826 154.72007-08 34835 52.62008-09 37838 8.62009-10 37763 -0.192010-11 30380 -19.5
Source: RBI, Handbook of Statistics on the Indian Economy.Data for 2009-10 and 2010-11 are provisional Data on FDI have been revised since 2000-01 with expanded coverage to approach international best practice. Data from 2000-01 onwards are not comparable with FDI data for earlier years
Initially during early years of independence, India had it major trade with Britain
and other commonwealth countries. Since there was dearth of industrialization, it
principally exported raw materials and agricultural products and imported light consumer
goods and other manufactures. However, in the past 65 years there has been a substantial
change in countries economic and organisational structure, which has resulted into
considerable change in India’s foreign trade in terms of composition and direction.
Prior to economic reforms of 1991, the external sector of the country was strictly
regulated by the government through various kinds of rules, policies, restrictions and
licence. In the latter half of eighties, Indian economy started opening up and in 1991,
Government of India introduced several reforms to do away with regulations and control on
major sectors of the economy like; trade, industry, agriculture, foreign trade and investment,
financial sector and so on. As analysed by Arvind Virmani, there has been two phases in
India’s development history since independence. These phases were characterized by two
different policy regimes. The period of 30 years from 1950-51 to 1979-80 was the phase of
socialist experimentation, in which the ‘Indian version of socialism’ was developed and
instituted. The second phase of economic development started at the beginning of the
eighties (1980-81) and continues till today. This was the phase of ‘Market
Experimentation’, in which the oppressive control regime set up during the first phase was
modified and physical controls gradually removed. This first step towards the liberalization
and globalisation of Indian economy has benefitted the country, as Dr. C Rangarajan said in
his address on current economic trends that the decade of the 90s has seen India rapidly
transforming into high growth economy. There has been an enormous change in the
economic environment since 1991, with the introduction of reforms as part of a
comprehensive stabilization and structural adjustment16. With the opening of the economy
along with other structural transitions within the country, both exports and imports of the
country have undergone significant change in terms of value, volume, composition and
direction.
The share of India in world merchandise exports was 2.1 per cent in 1950-51, 0.6
per cent in 1970-71 and 0.5 per cent in 1990-91. This declining trend was basically the
result of adoption of inward oriented development strategy which made India insulated from
world trading system. But however after the opening up of economy since 1991, the share
in world merchandise exports has improved and it was recorded 0.6 per cent in 1995-96
which rose to 1.0 per cent in 2005-06 and 1.67 per cent in 2011-12. The share of India in
world services exports is better than that merchandise exports and has risen to 3.3 in 2011-
12 from 2.2 in 2003 and 0.59 per cent in 1990-91. The total value of merchandise trade has
gone up from US$ 2542 million in 1950-51 to US$ 794040 million in 2011-12 (see table
2.11). However India, with some exceptions, always faced deficit in its balance of trade i.e.
imports always exceeded exports. This was because as India being a developing country
constantly struggled for rebuilding and modernization of its economy and hence imports
increased because of increasing requirements of capital goods, defence equipment,
petroleum products, and raw materials whereas the exports remained relatively sluggish
owing to lack of exportable surplus, competition in the international market, inflation at
home, and increasing protectionist policies of the developed countries. But however India’s
service trade have shown a remarkable performance since independence and export of
services remained more than import of services.
Table 2.11: Trends in India’s Merchandise and Service Trade(In US$ million)
Merchandise Trade Service TradePeriod Exports Imports Trade
BalanceExports Imports Trade
Balance
1950-51 1269 1273 -4 244 155 891955-56 1275 1620 -345 245 139 1061960-61 1346 2016 -673 329 209 1201965-66 1693 2944 -1251 322 232 901970-71 2031 2162 -131 292 281 111975-76 4665 6084 -1419 874 515 3591980-81 8486 15869 -7383 2804 1507 12971985-86 8904 16067 -7163 3316 2124 11921990-91 18143 24075 -5932 4551 3571 9801995-96 31797 36678 -4881 7344 7544 -2002000-01 44560 50536 -5976 16268 14576 16922001-02 43827 51413 -7587 17140 13816 33242002-03 52719 61412 -8693 20763 17120 36432003-04 63843 78149 -14307 26868 16724 101442004-05 83536 111517 -27981 43249 27823 154262005-06 103091 149166 -46075 57659 34489 231702006-07 126414 185735 -59321 73780 44311 294692007-08 163132 251654 -88522 90342 51490 388522008-09 185295 303696 -118401 105963 52047 539162009-10 178751 288373 -109622 96045 60029 360162010-11 251136 369769 -118633 132880 84064 488162011-12 304623 489417 -184794 142325 78227 64098
Source: RBI, Handbook of Statistics on Indian Economy.
The composition of India’s exports has shifted moderately away from primary
products to manufactured goods. Initially India was typically the exporter of primary
products like agricultural raw material and allied products consisting of tea, coffee, cereals,
raw cotton etc. but with growth of industrialisation within the country the share of non-
traditional items like engineering goods, electronic goods, chemical products, machinery
goods, readymade garments, textile goods etc. has increased. In recent years the share of
petroleum products in India’s exports has increased (table 2.12)
Table 2.12: Composition of India’s Exports (In per cent)
PRODUCT GROUP 1960-61
1970-71
1980-81
1990-91
1995-96
2000-01
2005- 06
2011-12
I. Primary Products 52.3 42.4 36.8 24.0 22.28 15.99 15.89 14.9a. Agriculture and Allied products
44.2 31.7 30.6 19.4 19.13 13.40 9.91 12.3
b. Ores and Minerals 8.1 10.7 6.2 4.6 3.7 2.59 5.98 2.6II.Manufactured products 45.3 50.3 55.8 72.9 74.69 77.05 70.39 61.3III. Petroleum Products 1.1 0.8 0.4 2.9 1.43 4.20 11.29 18.25IV. Others 1.3 1.06 2.76 2.44 5.4Source: RBI, Handbook of Statistics on Indian Economy
Figure 2.7: Share of Few Export Items in Total Export Products (in per cent)
Eng
inee
ring
Good
s
Petr
ole
um
Pro
du
cts
Gem
s a
nd
Jew
ellery
Readym
ad
e garm
ents
Agri
cult
ure
an
d A
llie
d P
rod
ucts
Ore
s a
nd
Min
era
ls
Ele
ctr
on
ic G
oo
ds
Leat
her
and L
eath
er
Go
od
s
Mari
ne p
roducts
Chem
icals
and r
ela
ted P
rod
ucts
0
10
20
30
40
50
1960-61 1970-71 1980-81 1990-91 2000 01‐ 2011 12‐
Source: RBI, Handbook of Statistics on Indian Economy
The composition of imports basically consists of consumer goods, capital goods,
petroleum products and export related goods. Since independence the petroleum crude and
products and capital goods had remained the top import item for the country and much of
diversification in India’s import items has not been observed in the recent years (table 2.13
and fig 2.8)
Table 2.13: Composition of India’s Imports (In per cent)
Commodity/Group 1980- 81
1985-86 1990-91 1995-96 2000-01 2005-06 2006-07 2007-08 2008-09 2011-12
Petroleum crude and products
42.2 26.5 25.0 20.5 31.0 29.5 30.8 33.2 30.8 31.6
Bulk consumption goods
7.5 12.1 2.3 2.6 2.9 1.9 2.3 1.9 1.6 2.3
Other bulk items 5.6 3.9 17.7 15.9 7.4 9.6 12.4 11.9 13.2 9.8Capital goods 14.5 20.2 24.2 28.2 17.7 25.3 25.3 24.4 23.6 20.3Mainly export related items
17.9 19.2 15.3 14.3 15.9 12.5 9.6 8.7 10.5 11.13
Others 12.3 18.0 15.4 18.5 25.2 21.3 19.6 20.0 20.1 24.6Total Imports (US$ billion)
15.9 16.1 42.2. 36,7 50.5 149.2 185.7 251.6 291.5 489.4
Note: Due to change in commodity classification since 1987-88, prior data are not strictly comparable.Source: Directorate General of Commercial Intelligence and Statistics, Kolkata.
Figure 2.8: Share of Few Import Items in Total Export Products (In per cent)
Petr
ole
um
Cru
de a
nd
Pro
du
cts
Cere
als
an
d C
ere
al
Pre
para
tio
ns
Ed
ible
Oil
s
Iro
n a
nd
Ste
el
Ele
ctr
on
ic G
oo
ds
Tra
nsp
ort
Eq
uip
men
t
Pearl
s,P
recio
us a
nd
Sem
i-P
recio
us S
ton
es
Go
ld a
nd
Sil
ver
Ch
em
ical
Mate
rials
an
d P
rod
ucts
0
10
20
30
40
50
1960-611980-811990-912000-012010-11
Source: RBI, Handbook of Statistics on Indian Economy
The table 2.14 shows that structure of India’s services exports too has changed in the
past decade and had concentrated more towards software exports as compared to travel and
transportation in decades of 80s and 90s.
Table 2.14: Structure of India’s Services ExportsYear Value of
service export(in
$ bn)
Share in Total Services Exports (Per cent)Travel Transport -
Insurance- GNIE Software Miscellaneous*
1980-81 2.8 43.5 16.3 2.3 4.0 0.0 33.91985-86 3.3 29.3 14.9 1.9 2.9 0.0 51.01990-91 4.6 32.0 21.6 2.4 0.3 0.0 43.61995-96 7.3 36.9 27.4 2.4 0.2 0.0 33.12000-01 16.3 21.5 12.6 1.7 4.0 39.0 21.32005-06 57.7 13.6 11.0 1.8 0.5 40.9 32.12006-07 73.8 12.4 10.8 1.6 0.3 42.4 32.42007-08 90.1 12.6 11.1 1.8 0.4 44.7 29.42008-09 101.2 10.8 10.9 1.4 0.4 46.4 30.12009-10 95.7 12.3 11.6 1.6 0.4 51.9 22.02010-11 131.9 11.5 10.8 1.4 0.4 44.7 31.1
*: Excluding Software Services. GNIE: Government not included elsewhere.Source: calculation based on data from RBI, Handbook of Statistics on Indian Economy
The direction of India’s international trade has gone through substantial change in the past decade and the share of OECD countries in country‘s trade has declined and that of OPEC, Asian and African region and other developing countries has increased.
Table 2.15: Trends in Direction of India’s Foreign Trade.(In US$ million/RS. crore)
Year OECD countries OPEC countries Eastern Europe Developing Countries Total Trade
1960-61*
Exports 425 26 45 95 642Imports 875 52 38 132 1122
1970-71*
Exports 969 99 323 305 1535Imports 1042 126 220 239 1634
1980-81*
Exports 3126 745 1486 1286 6711Imports 5740 3488 1296 1966 12549
1990-91Exports 10248.8 1020.4 3243.2 3098.7 18145.2Imports 13773.0 3924.0 1882.2 4490.4 24072.5
1995-96Exports 17705.1 3079.0 1340.0 9198.4 31794.9Imports 19209.2 7644.4 1673.8 8145.0 36675.3
2000-01Exports 23473.6 4850.0 1317.8 13012.6 44560.3Imports 20157.9 2688.8 850.2 11156.2 50536.5
2005-06Exports 45836.8 15242.2 1980.4 39736.4 103090.5Imports 51796.8 11171.1 3793.9 37890.5 149165.7
2007-08Exports 64272.1 26989.7 1836.7 69171.1 162904.2Imports 89048.8 77310.0 3813.5 79260.8 251439.2
2009-10Exports 64141.6 37648.6 1793.3 70099.8 178751.4Imports 94143.0 92360.5 6157.3 93716.9 288372.9
2010-11Exports 84600.6 54733.1 2973.3 105693.3 254402.1Imports 105302.3 119117.3 5606.7 115239.1 353575.0
Note: The values for year 1960-61,70-71,80-81 are in crores for rest of the years it is in US$ millionSource: RBI, Handbook of Statistics on the Indian Economy.
India has also entered into many regional, bilateral, and multilateral trade
agreements. India views Regional Trading Arrangements (RTAs) as ‘building blocks’
towards the overall objective of trade liberalization. Hence it is participating in a number of
RTA’s which includes; Free Trade Agreements (FTA’s); Preferential Trade Agreements
(PTA’s); Comprehensive Economic Cooperation Agreements (CECA’s); etc. Some of the
major ones are; Agreement on South Asia Free Trade Area (SAFTA), Asia-Pacific Trade
Agreement (APTA), BIMSTEC (Bay of Bengal Initiative for Multi-Sectoral Technical and
Economic Cooperation), Association of South East Asian Nations (ASEAN), India-
Mercosur Preferential Trade Agreement (PTA), Indo- Japan Trade Agreement etc.
India’s foreign trade policy too underwent significant changes since independence.
At the time of independence policy aimed at self-sufficiency and consequently minimising
the dependence on international trade through a variety of restrictions on imports and
exports. During 1950s and 60s, India faced balance of payment problem due to heavy
imports for development reasons this forced policy makers to adopt inward oriented import
substitution policy until 1970s. However, this did not proved helpful so ultimately and soon
it was realised that the boosting up country’s exports is much more important and later on
country-adopted policy of export promotion. Exports not only provides foreign exchange
required to finance imports, in absence of which economic growth be retarded but also
enhances domestic production which ultimately leads to increased national income and
employment. Therefore, in order to correct adverse balance of payment situation expansion
of exports should be the prime motive of the government. During 1980s and 1990s, many
developing countries liberalised their external sector and gained advantage through it,
owing to this since 1991, India too liberalised its foreign trade policy. One of the major and
prominent components of policy of liberalisation was progressive integration of the Indian
economy with the global economy by reducing the tariff and non-tariff barriers to trade.
Some liberalization measures were unilateral undertaken by the government and some
under various international obligations and commitments with WTO and other international
regional and bilateral trade arrangements. The process of liberal foreign trade policy
adopted by Government of India resulted into greater trade openness of the country in past
two decades. The figure 2.9 given below represents the trade openness of India.
Figure 2.9
1950-51
1960-61
1970-71
1980-81
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-110
5
10
15
20
25
30
35
40
45
12.9
10.5
6.8
13.2
13.2
8
14 15.5 16.4
16.9
5
19.1
9
18.6
18.5
9
18.1 19.1 20
.68
19.9
5
22.5 23
.8 27.1 30
.3 32.9
33.4
39.5
33.7
34.5
Trends in Trade openness in India(In percent)
Source: Computed on the basis of data taken from RBI bulletin
After the process of liberalization India has gained more from international trade in
the form of increase in national income and employment and also the living standard of
people have improved. In past decade India has become one of the fastest growing major
economy among the developing economies of the world.
Thus the liberalisation of 1991 and the reduction and removal of import and export
barriers have supported India’s international trade and have resulted into its strong
performance in recent years. The performance of service trade has been better than the
merchandise trade and has observed surplus in balance of payment receipt. The growing
international trade of India has resulted into its growing significance in countries domestic
economy. So there is need for the country to adopt all those measures which facilitates its
trade so that this growing trend is maintained. The unilateral effort of the country should be
supported by the multilateral approach of the various international trade institutions
especially the role of WTO is significant for India’s trade.
The WTO is based on the principles of non-discrimination and provides forum for
negotiating trade liberalization, resolving trade disputes and improving policy transparency.
It provides rule based multilateral trading system with special and differential treatment to
the developing and least developed countries enabling them to adjust and come up to the
required standards. The WTO membership can foster India with greater opportunities in
global trade.
REFERENCES
1. Kenen, B. Peter (2002). The International Economy, Cambridge University Press,
New Year, p.19.
2. Carbaugh Robert, (2008), The International Economy and Globalization, in
International Economics (twelfth edition), South Western College Publisher, Boston
p.2.
3. Bannock, G., Baxter, R.E. and Davis, E. (1992). The Penguin Dictionary of Economics,
Penguin Book Ltd., London, England.
4. Bhagwati, J.N. and Srinivasan, T.N. (1976). Foreign Trade Regimes and Economic
Development: India, Mcmillan Company of India Ltd, New Delhi.
5. Arrewijk Van M Charles, Ottens Daniel and Schueller Stephan, (2006),
International Economics, Oxford University Press, p.48
6. Myrdal, G. (1957). Economic Theory and Underdeveloped Regions, G. Duckworth,
London. p.3
7. http://en.wikipedia.org/wiki/New_Trade_Theory
8. Haberler G, (1959) International Trade and Economic Development, Cairo,
National Bank of Egypt.
9. Report on Currency and Finance, Reserve Bank of India,2000-01
10. www.imf.org
11. Rajapatirana Sarath, (2000), The Trade Policies of Developing Countries: Recent
Reforms and New Challenges, AEI Press, Washington D C, P.5
12. UN Conference Mandates 10-Year Programme for LDCs. International Center for
Trade and Sustainable Development. May 22, 2001
13. Rodriguez, Francisco and Dani Rodrik (1999). Trade Policy and Economic Growth: A
Skeptic’s Guide to the Cross-National Evidence, Working Paper No. 7081, National
Bureau of Economic Research, Cambridge, available at:
http://www.nber.com/papers/w7081.
14. Meier, G.M. “Trade policy Development”, in Maurice Scott and Deepak lal (ed.),
Public Policy and Economic Development (Oxford, 1990), p.159
15. Kelkar, V L (2001), India’s Reform Agenda: Micro, Meso and Macro Economic
Reforms, Fourth Annual Fellow Lecture, Centre for the Advanced Study of India,
University of Pennsylvania
16. Rangarajan, C (July 25,1997), address on “Current Economic Trends” at the All
India Manufactures Organization’s Meet, Mumbai
CHAPTER III
WORLD TRADE ORGANIZATION AND INDIA
1. WTO: A BRIEF HISTORY
Origin of WTO
The World Trade Organization is an international institution which came into being
on January 1, 1995 with the object of promoting global trade in more liberalised way. The
WTO is the successor of General Agreement on Tariffs and Trade and is formed to cover
much larger agenda than GATT. The General Agreement on Tariffs and Trade came into
existence on 1948 with the objective of growth and development of all member countries.
During the Second World War the allies put considerable effort into planning the post-war
economic order. It was universally agreed that the trade restrictions and competitive
devaluations of 1930s had been counter-productive and the plans were made to create a
world trade body, so the International Trade Organisation (ITO) was proposed to set up
along with the World Bank and IMF on the recommendations of the Bretton Woods
Conference held in 1944, however ITO was not set up but in its place GATT was
established by the US, UK and some other countries in 1947. GATT became effective from
January 1948 after being signed in 1947 at Geneva by 23 countries.
GATT has played a major role in expansion and promotion of international trade.
Since its formation it had played vital role in reduction of tariffs and other forms of
protection imposed by member countries on trade. This continued effort of GATT finally
increased it members from 23 countries to 123 countries. According to GATT’s own
estimates, the negotiations created 123 agreements that covered 45,000 tariffs items that
related to approximately one-half of world trade or $10 billion in trade1. So far eight rounds
of negotiations have been held under GATT accord. The early round of negotiations
conducted under GATT aimed at reducing tariff and non-tariff barriers especially in the
developed countries. The GATT also provided framework for settlement of trade disputes.
Continued reduction in trade barriers helped trade growth consistently outpaced production
growth.
In spite of these achievements criticisms against the working of the GATT appeared
in the early 1980’s, its limited effect in eliminating non-tariff barriers to international trade
and ignoring trade in agriculture goods, textile and clothing and services ultimately lead to
question about GATT’s institutional structure and its dispute settlement system. Conflict
between developed and developing countries for access of markets of each other became
complex and could not be solved by GATT. Countries were not treated equally and there
were two groups of countries one, ‘free riders’, not active participant in trade negotiations
but enjoyed all the benefits under MFN treatment and other group known as ‘foot-draggers’
countries so dominating that their consent was required in all Agreements. World trade
became more and more complex and GATT failed to apply its principles into practice.
Ultimately the above factors led GATT members to have fresh round of trade
negotiations, the eighth round of multilateral trade negotiations popularly known as
Uruguay Round, it covered new areas like agriculture, textile, TRIMS, TRIPS, services etc.
The eighth and the most popular round known as Uruguay Round commenced in 1986 at
Punta del Este. It was to be concluded in 1990 but this could not be happened as the issues
involved in it faced huge dissatisfaction among the participating countries. At the Uruguay
Round, developing countries took on unprecedented obligations not only to reduce trade
barriers, but to implement significant reforms both on trade procedures, custom valuation
and on many areas of regulation that establish the basic business environment in domestic
economy (example, technical, sanitary standards and intellectual property law)2. On
December 20, 1991, the Director General of GATT and the Chairman of the trade
negotiations committee, Arthur Dunkel, finally drafted a proposal covering all negotiation
areas including TRIPS, which was finally accepted by 117 countries after years of
discussions on 15th April, 1994 in Marrakesh, Morocco. Uruguay Round enclosed mandate
to have negotiations in 15 areas, in part 1, negotiations on trade in goods to be concluded in
14 areas and in part 2 negotiations on trade in services. Thus this new round of negotiations
also known as WTO agreement not only covers traditional GATT subjects but also new
areas like Trade Related Intellectual Property Rights (TRIPS), Trade Related Investment
Measures (TRIMS) and Trade in Services etc. and with conclusion of the Uruguay Round,
GATT was transformed from a temporary body into formal international organisation
named World Trade Organisation with effect from January 1995. The WTO seeks to
promote international trade in fairer way by implementing new trade agreements.
Organisational Structure of WTO
The Ministerial Conference is the highest authority of WTO which meets at least
once in every two years. It is composed of representative of all WTO members that is
empowered to make important policies and decisions on all matters relating to international
trade. The General Council sees the regular business of WTO. The General Council forms
the Dispute Settlement Body and Trade Policy Review Body. Three other bodies were
established by the Ministerial Conference to report to the General Council. The Committee
on Trade and Development looks into problems of least developed countries and developing
countries. The Committee on Balance of Payments deals in matters relating to BOP
difficulties faced by member countries and lastly Committee on Budget, Finance and
Administration deals in matters related to finance and budget. So far eight round of
Ministerial Conference has been held by WTO since its establishment which are as follow;
Table 3.1: Various Ministerial Conferences at WTO
Ministerial conference
Place Year Objective
First Singapore 09th-13th Dec. , 1996
To conduct various multilateral, plurilateral, bilateral business session and to assess the work of WTO since its formation.
Second Geneva, Switzerland
18th-20th May , 1998
To ensure the Implementation of negotiations.
Third Seattle, Washington
30thNov-3rdDec,1999
Developed countries were interested in incorporating labour and environmental standards under the WTO, however failed.
Fourth Doha 09th- 14th Nov, 2001
To discuss on new issues besides the old like investment, competition policy and transparency in government procurement.
Fifth Cancun, Mexico
10th- 14th Sep , 2003
To see the progress of negotiations and take up Doha development Agenda.
Sixth Hong Kong 13th- 18th Dec., 2005
To get reduction in agricultural subsidies and better market access for developing countries and concluded Doha development Agenda.
Seventh Geneva, Switzerland
30thNov-2ndDec,2009
Discussion 0n the multilateral trading system and the current global economic environment.
Eighth Geneva, Switzerland
15th- 17th Dec., 2011
Discussion on ‘importance of multilateral trading system ,’trade and development’, Doha development agenda’
Source: Compiled from WTO Ministerial Declarations
Basic Objectives and Principles of WTO
The main objective of WTO was to promote and expand international trade so as to
secure world economic prosperity and to achieve this it followed policy of liberalisation
which necessitates removal and reduction of all tariff and non–tariff barriers. The preamble
to the GATT mentioned certain objectives which are same for WTO i.e. raising living
standards and income, ensuring full employment, optimum utilisation of the resources of the
world and expansion of international trade. The WTO agreement has wider subjects to
cover like trade in services, TRIMS, TRIPS etc., so WTO not only efforts to increase
merchandise trade but also the service trade. An underling objective of WTO is to enhance
the rule-oriented approach of world trade and to direct efforts towards increase in share of
developing countries in world trade.
To meet out above objectives and to ensure liberalised, fair and smooth flow of
international trade WTO adopted following principles:
1. Trade without Discrimination/MFN Treatment, National Treatment: Under this
principle member country cannot discriminate with each other in the conduct of
international trade. WTO follows principle of most favoured nation treatment i.e.
granting of a special favour to a country would automatically entitle all other WTO
members for the same. However, there are number of exceptions to article 1,
particularly those covering custom unions and free trade areas. MFN treatment generally
ensures that developing countries and other with little economic leverage benefit freely
from the best trading conditions wherever and whenever they are negotiated. National
treatment requires once goods have entered a market it should be treated equivalent to
domestically produced goods.
2. Rule Based Trading System and Transparency: WTO makes trade rules clear and
transparent and administers trade review mechanism. This requires all WTO members to
release their trade policies and practices.
3. Free Trade Principle: Liberalised trade is one of the main objectives of WTO. It has
tried to remove quantitative restrictions and lower tariff rates. Countries with BOP
problem are granted few exceptions.
4. Fair Competition: It has laid down rules for open and fair competition.
5. Environment Protection.
6. Inflation Stability.
Functions of WTO
Article III of Agreement has laid down the following functions of WTO:
1. To direct the implementation, administration and operation of multilateral
trade agreements.
2. To provide a forum to member countries where they can assemble to
negotiate among themselves on matters relating to their multilateral trade
relations dealt with under agreements.
3. To administer the understanding on rules and procedures governing the
settlement of trade disputes.
4. To administer Trade Review Mechanism (TRM) forming part of the
agreement.
5. To facilitate implementation of the results of the negotiations as decided by
the ministerial conference
6. With a view to achieve greater economic coherence in global economic
policy, WTO shall cooperate, as appropriate with IMF and World Bank.
WTO Agreements
WTO agreements often called as its trade rules, contains various important subject
out of which the most important and popular one are discussed below3
Agreement on Agriculture
The Agreement on Agriculture aims at reducing export subsidies and to provide
scope of better market accessibility. As subsidization in developed countries tends to lower
the prices of agricultural products and developing countries finds it difficult to compete
with the products of advanced countries and thereby fails to access their market. WTO
agreement requires commitments in market access, domestic support measures and export
subsidies. It requires import restrictions in the form of non-tariffs barriers like quotas to be
converted into tariffs and that to be reduced by 24 per cent over period of 10 years in the
case of developing countries and by 36 per cent over period of six years in case of
developed countries, the least developed countries were exempted from this reduction.
Members were also required to open up at least a small minimum access of 3 per cent of
domestic consumption which would rise to 5 per cent by the end of adjustment period under
tariff rate quotas (TRQ). The domestic support to agriculture was quantified through a
measure called the Aggregate Measure of Support (AMS). A country whose product
specific and non-product specific AMS did not exceed 5 per cent of the total value of
agricultural products in case of developed countries and 10 per cent in case of developing
countries, are not subject to any reductions commitments. In case the AMS exceed the de-
minimise level, the country was committed to reduce domestic support-by 20 per cent in
case of developed countries over a period of six years and by 13.3 per cent in case of
developing countries in ten years taking 1986-88 average price as the base. The value and
volume of export subsidies is reduced by 36 per cent and 21 per cent in case of developed
countries over period of six years. In case of developing countries value and volume of
export subsidies be reduced by 24 per cent and 14 per cent over a period of ten years, base
period 1986-90.
General Agreement on Trade in Services
Service sector plays dominating role in country’s economy as its contribution in
countries output, employment and income has outpaced other sectors i.e. primary and
manufacturing. One of the important features of Uruguay Round agreement is the inclusion
of service trade. The General Agreement on Trade in Service is the set of multilateral rules
and discipline that manages trade in service like finance, telecommunications, transport,
tourism and professional service as well as movement of workers. GATS cover four modes
of internal delivery of services
1. Cross-Border Supply (trans-border service flows).
2. Commercial Presence (supply of services abroad through FDI or
representative offices).
3. Consumption Abroad (to enter other country and obtain services there like
tourism).
4. Movement of Person (to enter other country and then provide services like
individual consultants etc.)
GATS lays down certain obligation for member countries like providing most
favoured nation status that prevents discrimination among nations with regard to trade in
services. Another obligation is to maintain transparency which requires each member
countries to publish all its relevant laws, policies, and regulations relating to services.
GATS also requires obligation of liberalisation of service trade for this the member
countries have to follow principle of national treatment and commitments in market access.
The countries with BOP difficulties can impose certain restrictions on trade in service.
GATS provide member countries to decide the services in which they will undertake
commitment and undergo negotiations with other member countries. Further it facilitates
the participation of developing countries in service trade negotiations and also establishes
the basis for progressive liberalisation in trade in services through consecutive round of
negotiations.
Agreement on Trade in Textile
This agreement requires phasing out of Multi-Fibre Arrangement (MFA) where the
developed countries used to apply quotas on import from underdeveloped countries through
bilateral or unilateral agreements. This practise by countries was inconsistent with
multilateral trading rules and principles followed by WTO and adversely hinder export of
developing countries. So the agreement required import quotas under Multi-Fibre
Arrangement are to be phased out over a period of 10 years ending December 31, 2004.
Agreement on Trade Related Intellectual Property Rights
TRIPS was introduced in Uruguay Round Agreement with the objective of
stimulating and ensuring fair competition among producers, to recognise and reward
innovation and creative work, to protect consumers and to ease transfer of technology. The
Trade Related Intellectual Property Rights lays down common rules and discipline and
minimum standard for many form of intellectual property regulations.
Intellectual property right is defined as ‘information with commercial values’. The
WTO agreement on TRIPS covers following seven intellectual property rights copyrights,
trademarks, trade secrets, geographical indications, industrial design and patents.
The main features of TRIPS are as follow;
Basic principles of trading system and other intellectual property agreements should
be applied.
The adequate standard of protection should be provided by each member countries.
Domestic procedures and remedies for the enforcement of intellectual property
rights.
To settle dispute on intellectual property rights among the WTO members.
Special transition arrangement during the period when the new system is being
introduced.
It envisages 5 years transition period for developing countries and 11 years transition
period for least developed countries.
Sanitary and Phytosanitary Measures
It is also known as SPS Agreement aimed at protecting human, animal, plant life and
health. It sets basic rules on food safety and animal and plant health. The countries are
required to make standards based on science and should not discriminate between countries
when same and identical conditions exist. Counties are encouraged to use international
standards, guidelines and recommendations and should inform in advance on any change in
their sanitary and phytosanitary regulations. Agreement also includes provision on controls,
inspection and approval procedures.
Agreement on Technical Barriers
Different countries adopt their own technical regulations and standards that may
cause hindrance to trade. So to ensure these standards, regulations, testing and certification
procedures do not create obstacle in trade, Agreement on Technical Barrier to Trade (TBT)
was introduced. The Countries are not prevented from having their own standards but in
order to have more uniformity they are encouraged to adopt international standards. The
agreement encourages member countries to be aware of the latest technology, standards and
procedures being followed in their market so that their product is accordingly. For this
WTO members are required to establish national inquiry points.
WTO Trade Disputes and Anti-Dumping Measures
WTO provides the rules and procedures that enforce the settlement of disputes. The
Uruguay Round agreement had laid down detail procedure and time for resolution of
disputes. If a case runs its full course to a first ruling, it should not normally take more than
about a year, 15 months if the case is appealed. The time limits are not rigidly defined but
ensure flexibility depending upon the cases like in some urgent case it may take 3 months
less. A dispute arises when any member country follows trade policy or takes action which
other members considers inconsistent with WTO agreements. WTO members follow
multilateral system of setting dispute i.e. if they find members are breaking rules then
instead of taking up unilateral actions they will follow agreed procedure. The dispute
settlement function of WTO is performed by General Council under the Dispute Settlement
Understanding (DSU) through The Dispute Settlement Body (DSB). The DSB establishes a
panel of three to five experts to hear the evidence and render a ruling. The Panel and
Appellate Body report considers an appeal and renders a decision. Those found guilty must
rectify their act in due course of time otherwise DSB may initiate retaliatory tariffs or other
trade sanctions for non-compliance with WTO ruling.
The WTO agreements have clearly defined the rules relating to the method of
determining dumping, procedure for anti-dumping measure and duration of anti–dumping
measures. Dumping is the act of selling a product in foreign market at a price lower than its
nominal value. Anti-Dumping measures is employed only when if dumped product causes
serious injury to competing domestic industry. There many different ways of calculating
whether a product is being dumped heavily or lightly. The agreement requires member
countries to inform the committee on Anti-Dumping practices about all preliminary and
final anti-dumping actions, promptly in detail.
Subsidies and Countervailing Measures
The WTO agreement on this aspect defines the measures in following ways:
It disciplines the use of subsidies, and It regulates the actions countries can take to counter the effect of subsidies.
The agreement defines subsidy. It defines ‘specific subsidy’ as a subsidy provided to an
enterprise, industry, group of enterprises or group of industries in the country. The
disciplines set out in the agreement only apply to specific subsidies. The other forms of
subsidies are prohibited and actionable subsidies. One more category of subsidies non-
actionable subsidies originated for five years and ended on 31st December 1999. The
agreement applies to agricultural and industrial goods.
2. WTO AND INDIA
India is one of the founder members of WTO and has actively participated in the
rule based system of international trade as laid down by the WTO. India joined WTO with
the expectation to strengthen her trade under the strong multilateral trade system. The WTO
aims at trade expansion through trade liberalisation. The WTO includes in its scope of
liberalisation “non-tariff barriers (NTBs) along with tariffs and conceived many new norms
and disciplines such as sanitary and phyto-sanitary measures, anti-dumping measures,
dispute settlement procedure, safeguard measures etc., with the view to ensuring liberalised
effective market access and rule based trade”(Panchmukhi, 2001)4. The WTO also accord
specific benefits like special and differential treatment and technical assistance to
developing countries like India. The S&DT is designed to provide essential ‘breathing
space’ to developing and least developed countries enabling them to adjust and come up to
the required standards. Such privileges also include flexibility in meeting WTO
commitments in general terms of requirement and greater opportunity to resort to safeguard
measures. There is long list of over 150 such provisions provided in WTO5. The WTO
endorsed technical assistance program, which the developing and least developed country
may receive from various international agencies including WTO towards basic capacity
building, and towards raising their ability to get improved preferential access to
international markets6. These WTO issues have the paramount effect on the India’s foreign
trade. India’s membership to WTO is likely to foster some benefits in the form of
diversified and expanded trade, but then certain hold-ups are also anticipated. In the coming
chapters we will analyse the India’s export performance since the establishment of the
WTO, the current chapter only analyse the effect of WTO on India’s trade policies and
India’s stand at WTO.
The WTO agreement obliges all the member countries to adhere to greater
transparency in their trade policy. They are required to inform in advance of any alteration
made in rules regarding import system and subsidy programmes. With the increase in the
scope of WTO activities the domestic policy measures and the instruments are now
included in the scope of international negotiations. Thus, the government of India is now
bound to frame its trade policy compatible with the WTO agreements. Traditional trade
policy was to effect resource allocation and to provide certain level of protection to
domestic producers, but now it covers issues like competition policy, investment, labour
standards, environment and human rights. Hence, after the establishment of WTO India’s
trade policies have been changed periodically with the WTO guidelines and direction.
WTO and India’s Foreign Trade Policy
India’s foreign trade policies had underwent significant changes since independence.
The trade policy aims at promoting countries trade to pace up countries growth and
development process. Both export and import are important in growth process so these trade
policies lays down various schemes and measures that facilitates trade. These foreign trade
policies tends to be influenced by international obligations of the country on account of its
membership to international, regional and bilateral trade arrangements and other
multinational conventions. The economic reform of 1991 has liberalised India’s foreign
trade policy, however liberalisation also reflects the multilateral commitment of country to
the WTO.
India’s Foreign Trade Policy Prior to Economic Reforms of 1991.
Before independence India did not had any clear trade policy, it was only after the
independence 1947 that India embarked on the path of development and adopted trade
policy as part of the general economic policy and plan. At the time of independence, Indian
economy was stagnant and completely ruined by the British colonial power and the external
sector too faced constant trade deficit. This necessitated India to adopt an inward looking
trade policy where in import substitution constituted a major element of both trade and
industrial policies. At the initial stage of development planners focused on home
industrialisation and to protect them from foreign competition implemented effective
protective measures. This strategy of restrictive trade practices and import substitution
created self-fulfilling biases against the export producing sectors and underestimated the
export earning possibilities. As a result, import policy continued to be very restrictive and
the restriction was placed on exports in view of the domestic shortages.
In the pre-reform period, India’s export and import policy was guided by the export
and import control Act of 1947. In the year 1952-53, India adopted liberal trade policy but
soon it was changed to restrictive import policy in 1957 after realizing that it may not help
in planned economic development. In 1950s and 60s, heavy protection was applied on
imports in the form of import licensing, import quotas, import duties etc. In 1957, QR
regime on imports was introduced. However, from early 1960s export promotion measures
were introduced. In 1962, export subsidies were introduced in order to compensate the
disadvantage faced by exporters due to QRs on import. The export promotion was given
impetus through the acceptance and the implementation of the recommendations of
Mudaliar Committee (1962)7. The major recommendations included increased allocation of
raw material to export-oriented industries, income tax relief on export earnings, export
promotion through import entitlement, removal of disincentives, and setting up of Export
Promotion Advisory Council and a Ministry of International Trade. Owing to growing
adverse balance of trade since 1951 and acute shortage of foreign exchange, the government
of India undertook devaluation of rupee in 1966 but it was not successful in improving trade
deficit. During the same year various modifications was introduced in the export policy to
boost export.
Until 1970s, the trade policy continued to promote export, and domestic industries
continued to be shielded from import competition. In the early 1970s, government State
Trading Corporation canalized almost all the imports except those commodities listed in the
Open General License (OGL) category. Capital goods were classified into restricted capital,
for which import license was required and for OGL category, license was not required.
Intermediate goods were classified into banned, restricted and limited permissible plus OGL
category. The import of consumer goods was banned, except for few necessity one, through
government canalised agencies. In the late 1970s and early 1980s, the trade regime was
based on a complex system of licensing. India’s trade policy heavily relied on quotas rather
than on tariffs8.
Later in the 1980s, it was clear that the production for exports cannot be isolated
from production for the home market and that the trade policy would have to be integrated
with the policy for domestic industrialisation. The Alexander Committee, 1978,
recommended simplification of import licensing which was followed by the government to
make import of capital goods easier. Again in 1981, Tandon committee recommended a
policy of robust export promotion and further import liberalisation as a means of export
promotion. It was realised by that time by many policy makers that more liberal policy of
imports of capital goods and technology would enable the country to enjoy benefits of
international division of labour. The trade policy of 1985 was based on the recommendation
of Abid Hussain committee and it emphasized on the need for striking a balance between
export promotion and import substitution. The first three year Export-Import policy from
1985 to 1988 was announced by the then Union Commerce Minister V.P. Singh. The
number and value of incentives offered to exporters were increased and administration
procedures were streamlined. Restrictions on imports of capital goods were further relaxed
to encourage technological modernization. By 1987-88, the unweighted average of tariffs
on manufactured goods was 147 per cent with most tariff lines for manufacturing clustered
around a range of 140-160 per cent9. So the highly regulated trade policy slowly started
giving way to more open system during 1980s.
The EXIM policy for 1988-91 was designed to do away with some restrictions on
trade. Many items were put in the category of Open General Licence around 1110 items
from nil in 1975. Many intermediate goods were put in the OGL category. However QRs
was still imposed on many import items. The export promotion measures too were given
due consideration. To sum up, the ‘export-expansion through import-liberalization’ of the
mid 1980s culminated in the gradual movement of the Indian Economy towards the pursuit
of a ‘market-oriented and export-led growth’ policy at the beginning of the 1990s10.
With this background country moved towards the more open and liberal external and
internal economic system and finally in 1991 India adopted liberalised trade policy thereby
deregulating various kind of restriction on export and import.
India’s Foreign Trade Policy since 1991 and the Creation of WTO11
The economic reform of 1991 has brought about remarkable changes in India’s
foreign trade policy. The trade policy reforms focused on liberalisation, openness,
transparency and simplification of trade procedure and practices. Further the creation of
WTO had provided an export friendly environment and wider scope of access to new
markets through greater liberalisation in international trade rules. Since 1991 India’s foreign
trade policies is more outward oriented focussing more on export promotion than on import
substitution. India has introduced trade reforms as it commitment made to WTO. These
reforms include substantial tariff reduction and elimination of most of the non-tariff
barriers. The tariff has been reduced, quantitative restrictions have been withdrawn and
liberalisation in trade, simplification of procedures and improved access to export incentive
has been introduced.
The EXIM policies significantly reduced trade restrictions and allowed free import
of capital goods and raw materials. An assessment of the trade policy of 1991 by B K
Prasad highlights that the new trade policy of 1991 aims at cutting down administrative
controls and business which act as an obstacles to the free flow of imports and exports. The
basic instrument developed by the policy is the EXIM scrip in place of REP licenses. The
objective of this instrument is to permit imports to the extent of 30 per cent on 100 per cent
realization of export proceeds. It will bridge the gap of balance of payments, the success of
the policy was to be judged by the decrease in trade balance deficit that will be affected
during 1991-92 and extreme caution was exercised in liberalizing imports12.
India being the founder member of WTO has committed itself to various agreements
under WTO relating to trade liberalisation and transparency and has structured its foreign
trade policies accordingly. So far India has done well in observing its commitments to
WTO. The import restriction on most of the products have been removed except for those
with reasons such as protection of human, animal or plant life or health or protection of
public morals, conservation of exhaustible natural resources etc. Import tariffs on non-
agricultural products have also been reduced gradually from the level of 150 per cent and,
barring a few tariff lines, the peak duty is 10 per cent. Various export incentives schemes
like Cash Assistance and Blanket Exemption for Profits from Exports have been phased out
as the WTO agreement required removing such export subsidies that distort trade. The
scheme like Duty Drawback, Advance Authorisation for Duty Free Imports of Inputs and
EPGC still continues that provides rebate and reimbursement of import duties.
The EXIM policy 1992-97 has reduced tariff from an average of 71 per cent in 1993
to 35 per cent in 1997, however, the tariff structure remained complex and escalation
remains high in several industries, notably in paper and paper products, printing and
publication, wood and wood products, food and beverages and tobacco. The custom tariff
have been brought down from peak rate of about 300 per cent in 1990-91 to peak rate of 40
per cent in 1997-98. As of Dec 1995, more than 3000 tariff lines covering raw materials,
intermediaries and capital goods were freed from import licensing requirements. In the
same period, the weighted tariff average fell from 75 per cent to 25 per cent. Tariff rates fell
across the board, on intermediate, capital and consumer goods13. The bound tariffs are
substantially higher than applied rates, especially for agricultural products. The number of
items subject to import licensing had decreased; some restricted items had also been
liberalized by permitting their importation through freely transferable Special Import
Licences (SILs), see table 3.2. The import license requirement especially for capital and
industrial goods have been reduced but not for consumer goods. However, the export
subsidies and incentive was not reduced. The FDI policy was also liberalized and opened up
a number of sectors to foreign direct investment. This was the case in manufacturing where
foreign participation of up to 51 to 74 per cent can take place automatically in a number of
sectors. Major changes since 1993 include automatic permission for foreign equity
participation of up to 50 per cent in some mining activities. This also applies to oil
exploration and offered incentives such as tax holidays. FDI policy has been further
liberalized. Investment is allowed in greater number of sectors and made eligible for
automatic investment procedures14. However, FDI was not permitted in a few sensitive
sectors.
The WTO agreement provides member countries to use countervailing duties and
anti-dumping measures against countries dumping their goods to other countries and
thereby hurting the industry in the importing country. Hence, India has also become
vigorous user of anti-dumping measures.
Table 3.2: Non-tariff Barriers (NTBs) on India’s Imports, 1996-97 to 1998-99(Number of Tariff lines, 10 digit level)*
Type of NTB
As on 1.4.1996 As on 1.4.1997 As on 1.4.1998 As on 1.4.1999
No. of lines Per cent Share
No. of lines
Per cent Share
no. of lines
No. of lines
Per cent Share
No. of lines
Per cent Share
Prohibited 59 0.6 59 0.6 59 0.6 59 0.6Restricted 2984 29.6 2322 22.8 2314 22.7 1183 11.5Canalised 127 1.2 129 1.3 129 1.3 37 0.4SIL 765 7.6 1043 10.2 919 9.0 886 8.7Free 6161 61.0 6649 65.1 6781 66.4 8055 78.8Total 10096 100.0 10202 100.0 10202 100.0 10220 100.0*As per harmonized system of India Trade Classification, HS-ITC classification of export and import items.Source: Directorate General of Foreign Trade, Ministry of Commerce, Government of India
Some more Items were included in to the free list like, 99 textile items, 49
agricultural items, 26 marine products, with most of the balance in consumer goods. All
capital goods, assemblies etc., were already included in the free list. The tariffs were
further reduced and rationalized. The simple average tariff had fallen to 35%, but the
import-weighted average had declined from 87% in 1990-91 to 20% in 1997-98, even
taking into account the temporary duty of 5% and the applied tariffs were maintained well
within bound rates. The number of import and export items in canalised list was also
reduced. The service sector too was liberalised. The table 3.3 given below shows the
reduction of average tariffs in India.
Table 3.3: Reduction of Average Tariffs in India(In per cent)
Year Consumer goods Intermediate goods Capital goods All1991-92 97.8 69.5 94.8 72.51992-93 83.2 62.6 85.2 60.61993-94 68.7 47.6 58.4 46.81994-95 55.9 38.4 45.5 38.21995-96 36.1 22.9 29.1 25.91996-97 39.0 21.9 28.8 24.61997-98 33.8 46.1 25.1 25.41998-99 37.9 31.1 29.4 29.21999-00 37.4 33.1 31.0 31.42000-01 56.2 36.2 34.4 35.72001-02 67.2 34.8 31.8 35.1Source: Planning Commission (2003).
The EXIM policy 1997-2002 aimed at achieving 1 per cent share in world trade in
2002 with export of US$ 90-100 billion. Under this policy the government has further
simplified tariff and eliminated quantitative restrictions on import and Import of 6161 tariff
lines out of total number of 10202 was freed. Import restrictions on 488 tariff lines were
removed in 1996-97, 391 in 1997-98, 894 in 1998-99 and 714 in 1999-2000 refer table 3.4.
Table 3.4: Removal of Quantitative Restrictions in India
Number of tariff lines as on 01/04/1996 at HS 10-digitlevel 10202Number of tariff lines without QRs as on 01104/1996 6161Number of tariff lines of which QRs were-removed during 1996-97 488Number of tariff lines of which QRs were removed quring-1997-98 391Number of tariff lines of which QRs were removed during 1998-99 894Number of tariff lines of which QRs were removed during 1999-00 714Number of tariff lines of which QRs were removed during 2000-01 715
Note: The QRs in respect of 1,429 tariff lines were withdrawn preferentially for imports from SAARC countries with effect from 01/08/1998. Source: Government of India, Economic Survey.2001
The import restriction on 894 items of consumer goods, agricultural products and
textiles was liberalised and by march 2001, India removed all quantitative restrictions
maintained earlier on account of BOP measures. Import weighted means tariffs have slowly
increased from 24.6 per cent in 1996-97 to 30.2 per cent in 1999-2000. The additional
bindings was taken by India in the WTO, the share of tariff lines that are bound was
increased. The average (final) bound rate was 50.6 per cent, higher than applied MFN rate.
With the removal of import restrictions, tariff on several agricultural products have been
raised. As a result overall average MFN tariff for agriculture has risen from 35 per cent in
1997-98 to 41 per cent in 2001-02. While removing QRs on imports in 2001, the
government has raised the tariff rates from the lower applied to higher bound levels. In case
of agricultural commodities, India engaged in ‘dirty’ tarification by setting very high
bounds way above applied levels. Thus, raising tariffs to their bounds in effect would
virtually shut of any imports15. In the 1999-00 trade policy it was announced to reduce the
existing 7 major ad-valorem rates of customs to 5 basic rates and rationalise both import
and exercise duty structures. The trade procedure was simplified and import duties were
declined. This liberalisation of the trade practice was necessitated by the commitments
made by India at the World Trade Organisation.
Later 1340 items were shifted from restricted list to open general license (OGL) and
another 414 items were removed from the restricted list. The licensing and quota restrictions
on 714 import items were lifted which was in line with India’s WTO obligations, on the
remaining 715 items licensing and quota was abolished in April 2001. The table 3.5 below
shows the non-tariff barriers imposed by India on its imports.
Table 3.5: Non-Tariff Barriers (NTBs) on India’s Imports,(Number of Tariff lines, 10 digit level)*
Type of NTB As on 1.4.2000 As on 1.4.2001
No. of lines Per cent Share No. of lines Per cent Share No. of lines
Prohibited 59 0.6 59 0.5Restricted 968 9.5 479 4.7Canalised 34 3.3 n.a. n.a.
SIL 226 2.2 n.a. n.a.Free 8854 87.3 9611@ 94.7Total 10141 100.0 10149 100.0
@ includes 29 tariff lines shifted to state trading. *As per harmonized system of India Trade Classification, HS-ITC classification of export and import items.Source: Directorate General of Foreign Trade, Ministry of Commerce, Government of India
The custom duty realisation as a percentage of the value of imports has been
declined to 21.9 per cent in 1999-00 (see table 3.6). In 2002, custom duties included only
four rates (i.e. 35, 25, 15 and 5 per cent). India in Uruguay Round of multilateral trade
negotiations has increased its binding coverage in industrial goods to 69.8 per cent of its
tariff lines from 6 per cent. The average MFN tariff rates during 2001-02 for raw material,
semi manufactured and finished goods were 23.6, 32.4, and 31.4 per cent.
Table 3.6: India’s Peak Duties and Custom Duties
Year Peak Duties (in per cent) Custom Duties as percentage of imports
1999-00 40 21.92000-01 38.5 21.252001-02 35 17.232002-03 30 152003-04 25 13.6
Source: DGCI&S, Kolkata.
To protect the domestic industry, India used measures like sanitary and phyto-
sanitary (SPS) measure, levying of anti-dumping and countervailing duties as per the WTO
rules.
The policy also calls for the creation and strengthening of export processing and
special economic zones which would facilitates export of the country. To promote export
SEZs was introduced in 2001. The Duty Export Promotion Capital Goods Scheme was
extended to all software products. The Agricultural Export Zones was set up and number of
duty remission and exemption scheme have been in place to facilitate exports. The interest
rate on pre-shipment and post-shipment export credit in rupees was reduced from 11 per
cent to 9 per cent. The bond furnishing procedures for exporters was also simplified. The
Export prohibition and restrictions have remained unchanged since 2002.
All the QRs on exports were removed in the EXIM policy 2002-07, except in case of
a few sensitive items. QRs on export of wheat and rice, coarse grains, butter and packaging
restrictions on pulses have been removed; ceiling on onion exports has been enhanced.
India’s export regime continues to be complex. Export prohibitions and restrictions have
remained unchanged since 2002. In order to reduce the anti-export bias inherent in import
and indirect tax regime, a number of duty remission and exemption schemes have been in
place to facilitate exports. The schemes are open to all exporters who use imported inputs.
The scheme of tax holidays are offered to sectors such as electronics, farm products,
services, EPZ, EOUs and SEZs.
The EXIM policy 2004-09 further liberalise trade. India opened to more foreign
direct investment and greater orientation towards more market based exchange rate regime.
The average applied MFN rate fell to 29 per cent in 2002-03 and to almost 16 per cent in
2006-07, except for that on agricultural product which retained an average duty of 40.8 per
cent. The government raised tariff substantially on 27 agricultural products between the
years 2002-2007 but continued to reduce applied MFN tariff on non- agricultural products
to meet its goal of reaching ASEAN tariff levels on these products by 2009. The peak rate
of tariff was reduced from 35 per cent to 30 per cent. As a result of additional bindings
taken by India in the WTO, the share of tariff lines increased from 67 per cent to 72 per
cent, new bindings were made primarily in textiles and clothing, India also renegotiated
bindings in some agricultural item. The government intended to simplify and lower the
tariff to two tiers by 2004-05, 10 per cent for raw materials, intermediate and components
and 20 per cent for final products. To simplify tariff structure, the peak rate of custom duty
on non-agricultural products was down to 10 per cent in 2007-08 from 40 per cent in 1999-
00. There has been the reduction of tariffs to an average of 14.9% in 2006/2007, in
manufacturing sector although peak tariffs are still applied in some sectors such as
automobiles. However, Indian tariffs are still high as compared to the levels of many
emerging markets. The WTO estimated that in 2005, the simple average of India’s MFN
Tariff was 18.3 per cent with a bound average of 49.8 per cent. This provides great deal of
latitude to raise tariff rates if circumstances warrant. By comparison, China’s average bound
and applied rate was 10 per cent and South Korea’s 11.2 per cent16.
The custom duty realisation as a percentage of the value of imports has declined
from 21.9 per cent in 1999-00 to 7.4 per cent in 2008-09 (refer table 3.7), which in fact is an
encouraging signs of liberalization. India regulates imports of around 300 sensitive products
and allows state trading companies in agriculture in order to insure the country’s food
security. Tariffs have further been reduced on account of free trade agreements. India
became the first country to extend duty free quota free (DFTP) access to all least developed
countries (LDCs) in line with the WTO’s Hong Kong ministerial mandate. The duty free
tariff preference (DFTP) scheme for LDCS came into effect in April 2008 with reductions
spread over five years. The table 3.8 shows simple average applied tariff rates for
agricultural and non-agricultural products.
Table 3.7: India’s Peak Duties and Custom Duties
Year Peak Duties (in per cent) Custom Duties as percentage of imports
2004-05 20 11.082005-06 15 9.642006-07 12 9.642007-08 10 9.652008-09 10 7.4
Source: DGCI&S, Kolkata. 2004– 2005– 2006–2007-2008-2009.
Table 3.8: Simple Average Applied Tariff Rates
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07Agricultural Products 44.2 41.3 41.3 36.8 36.9 36.9Non-agricultural products 35.9 32.6 29.5 20.8 15.5 13.3
All commodities 37.1 33.7 31.3 22.9 18.3 16.5Source: Planning Commission (2011)
Export restrictions like registration and packaging requirement are being removed
from many commodities and restrictions is confined only to few sensitive items. An
additional 108 items, including 30 items in the category of textile products, including
hosiery, were identified for de-reservation from the ambit of small scale industries to help
textiles and clothing exports in the post quota regime. The basic duty for capital goods in
the general case is 7.5 per cent. The EPGC duty was 3 per cent for export oriented and other
sectors in 2008-09. Different categories of advance license were merged into single
category for procedural facilitation and easy monitoring. India also made frequent use of
anti-dumping measures. The FDI has also been liberalised except for in few sectors. The
FDI in 2006-07 rose to US$ 23 billion from US$ 6.2 billion in 2000-01. India also
concluded number of regional and bilateral agreements, giving a further push to its
integration to the world economy.
Recent foreign trade policy of 2009-14 has been drawn in the background of world
recession with the objective of improving the declining trend in export growth. India has
continued to liberalise its trade policy obviously keeping in mind the interest of its own
industries.
Export and import of many goods were made free except for those regulated by
foreign trade policy or any other law in force. Imports of second hand capital goods,
including refurbished/re-conditioned spares shall be allowed freely. However second hand
personal computers/laptops, photocopies machine, air conditioners, diesel generating sets,
will only be allowed against a license. India continued to reduce its tariff and other barriers
to foreign trade. The simple average MFN tariff rate declined from 15.1 per cent in 2006-
07, to 12 per cent in 2010-11. Both the average agricultural and industrial average tariffs
have declined over time. The tariffs on 71 per cent of over tariff lines are between 5 and 10
per cent. The widening gap between over bound and applied tariff rates reflects India’s
gradual movement towards a lower tariff regime as required by WTO commitments.
Non-advolerm rates applies to 690 tariff lines of which 5 are specific rates while 685
are alternate rates effecting textile and clothing. The simple average applied MFN tariff
including AVE was 13.4 per cent (12 per cent without AVEs) in 2010-11(see table 3.9). The
inclusion of AVEs in the tariff analysis affects only industrial average tariffs, which, when
including AVEs, increased from 8.6 per cent to 10.3 per cent (or 10.6 per cent for WTO
non-agriculture). The custom duty was raised from zero to five per cent on set top boxes for
receiving TV broadcast. A reduction in custom duty was effected on LCD panels (from 10
to 15 per cent), permanent magnets used for wind-operated electricity generation equipment
(from 7.5 to 5 per cent), certain vaccines and specified lifesaving drugs (from 10 to 5 per
cent) and on a specified life saving devices used in the treatment of heart disease (from 7.5
to 5 per cent).
Table 3.9: India’s MFN Applied Tariff in All Products
Year of MFN applied tariff
Simple average MFN applied
Non-AD-volerm duties MFN applied
No. of MFN Applied tariff lines
2008 13 5.1 118932009 13 5.2 113572010 12 5.0 11377Source: WTO, World Tariff Profiles.
The foreign trade policy of 2009-14 has focused on export promotion measures. The
interest subsidy of 2 per cent on pre-shipment credit has been extended till March 31, 2010;
the income tax exemption to 100 per cent EOUs and to STPI units continued until March
31, 2011 and the Duty Entitlement Passbook Scheme (DEPB) has been extended to Dec 31,
2010. In order to reduce transaction time and cost, a provision of self-assessment, both for
imported and exported goods, was introduced by amending the custom act 1962 in the
budget of 2011-12.
In order to diversify India’s exports specially to the markets of Latin America,
Africa, parts of Asia and Oceania, 26 new countries have been included within the ambit of
focus market scheme and incentive under this scheme have been increased from 2.5 to 3 per
cent.
Under EPCG scheme, import of capital goods is allowed at a concessional custom
duty of 3 per cent, subject to an export obligation equivalent to eight lines the duty saved on
capital goods imported under the scheme. The zero duty EPCG scheme has been introduced
for certain items like engineering and electronic goods, basic chemical and pharmaceuticals
apparel and textiles, plastics, handicrafts, chemicals and allied products and leather and
leather products.
Most of the sectors are free to FDI with few exceptions. In 2010 FDI regulating was
consolidated into single document which is updated every six months. In WTO Agreement
on Subsidies and Countervailing Measures (ASCM), India is one of the listed annex VII
countries not subject to prohibition on export subsidies on manufactures. However, if
subsidized exports cause material injury to domestic industry, the importing countries is
entitled to take countervailing action.
India is one of the most active users of anti-dumping measures among the WTO
with a cumulative 425 initiations from 1995-2005. By contrast, the US had initiated 366
cases, the EU 327 and Argentina 204 cases. However, antidumping actions have diminished
in recent years. Now, there were only 205 cases on investigations at the end September
2010. The table 3.10 shows India’s Anti-Dumping Measures in past decade. Largest number
of actions was initiated against China by India which amounted to 52 per cent of the total
measures. Steps are being taken to align national standards with international norms; so far
there are some 73 per cent of national standards for which corresponding international
standards exist. These are aligned with international norms. In terms of safeguard measures,
India is also the world's leading user of safeguards with 12 measures at the end of 2010.
India has also entered into various regional and bilateral trade agreements with other
developed and developing nations.
Table 3.10: India’s Anti-Dumping Measures in Past Decade.Year Anti-Dumping Measures2000 412001 782002 812003 462004 212005 282006 352007 472008 552009 312010 41
Source: WTO, International Trade Statistics.
So it is clear that the recent trade policy and the India’s trade policies since 1991 and
the establishment of WTO has concentrated on liberalising trade through removal and
reduction of quantitative restrictions and tariffs and focus more on simplification of trade
procedure and reduction of transaction cost that would facilitate both exports and imports of
the country and finally to expand market for exports, it have adopted various export
promotion measures.
Thus, it could be concluded that India’s participation in the multilateral trade
negotiations of Uruguay Round and the WTO had significant impact on India’s foreign
trade policy. India used to impose quantitative restrictions on its imports and exports but
under the WTO regime, it has removed all the QR as per the agreement. Not only this, it has
undertaken various measures for procedural simplification and export promotion. India has
now started taking active part in the negotiation process in the WTO, which has influenced
its recent trade policies and will affect its forthcoming foreign trade policies.
India’s Stance at the WTO
India unlike many of the developing countries adopted inward-looking development
strategy during sixties and seventies and hence adopted a restrictive import policy, to
develop on the notion of self-reliance and to protect the interest of the domestic industries.
On the export front, no special measure was directed by the government to promote it as the
Soviet bloc countries was the major export market, which weakened the incentive to search
for new markets. It was only in the late 1980s the policy makers realised the growing
significance of liberalised trade in countries growth and development. Initially the
government adopted various restrictive measures to control import but as we all know that
none of the country in the world is fully content with all the resources and so can’t be the
producers of all the goods and for the developing countries like India advance techniques of
foreign country along with capital is imperative in growth process, so this realisation
ultimately led the country to depart from protectionist policy regime and move on the path
of liberalisation. It was in the year 1991, India adopted massive economic reforms package
that consisted of complete shift in policy making that emphasised on liberalisation of
government controls, freer operation of market and competitive forces, in order to boost
efficiency and greater integration of countries economy with the world economy through
free and unrestricted trade flows.
To promote and liberalise international trade GATT and WTO, successor of GATT,
formulated various policy and agreements binding upon all the member countries. India was
one of the founder members of General Agreement on Tariffs and Trade, 1947. Since the
creation of GATT many negotiations on removal and reduction of non-tariff and tariff
barriers was held. In the eighth round of the multilateral trade negotiations that is, Uruguay
Round under the auspices of the GATT, The World Trade Organisation was created to
subsume the GATT in 1995. The WTO promotes multilateral trading system and provides
negotiating forum to its member countries to have discussion on trade matters, where the
tariff and non-tariff barriers is the important issue of debate. The three basic principle apply
in tariff negotiations are 1) such negotiations are to be on reciprocal and mutually
advantageous basis 2) concessions are to be bound 3) they are to be applied on MFN (most
favoured nation) basis ( article 1 of the GATT). So far eight Ministerial Conference has
been held under the WTO to discuss trade and other related issues. Until the Doha
Ministerial (2001), the developing countries were not very active at the negotiating table.
However from Cancun (2003) onwards and since then the developing countries has become
much more active and vocal at the multilateral trade forums on the protectionist policies of
the developed countries. At the end, India was quite happy with the Doha outcome, because
of its success on three issues: several concessions on implementation issues, weakening of
the TRIPS to accommodate access to medicine and public health concerns of developing
countries, and most significantly keeping the Singapore Issues at bay17. The table 3.11
displays India’s participation in WTO meetings.
Table 3.11: India at the WTO Ministerial Conference
No. of Ministerial Conference
Year Place of Occurrence
Outcome India’s Role
First 9-13 Dec. 1996 Singapore Information technology agreement was signed and discussion over the issue of trade and investment, competition policy, transparency in government procurement and trade facilitation was held.
Mere presence
Second 18-20 May 1998 Geneva Global E- commerce Agreement was signed.
Mere presence
Third 30 Nov.-3 Dec.1999 Seattle The negotiations were not successful as developed countries wanted to incorporate environmental and labour-standard related issues which were opposed by developing countries.
Was vocal for the first time and opposed Introduction of environmental and labour- standard related issues under WTO.
Fourth 9-13 Nov. 2001 Doha It included new round of negotiations keeping in mind interest of developing countries. The market access and implementation issues were given due notice.
India for the first time strongly presented its dissatisfaction over several issues.
Fifth 10-14 Sept. 2003 Cancun The developing countries formed coalition, G-20, G-33 to represent their interest. Meeting ended without any important conclusion.
Formed coalition, with other developing countries, G-20, G-33, and protested against EU-US draft on agriculture.
Sixth 13- 18 Dec. 2005 Hong Kong Countries agreed to phase out all their agricultural export subsidies by the end of 2013.Further Concession to developing countries included an agreement to introduce duty free, tariff free access for goods from the Least Developed Countries.
To open up agricultural and industrial markets in various countries and how to cut nation farm subsidies.
Seventh 30 Nov-2 Dec. 2008 Geneva Broke down after failing to reach a compromise on agriculture import rules
India insisted on reduction of tariffs and subsidies in developed countries and to impose special tariff on certain agricultural goods in the event of an import surge or price fall.
Eighth 15- 17 Dec. 2011 Geneva New Members added – Montenegro, Russia, Samoa and Vanuatu. However most of the trade issues remained unsettled
Stressed on reductions in overall trade distorting domestic support (OTDS) of the US and EU, self-designation of an appropriate number of special products (SPs), an operational and effective special safeguards mechanism.
Source: Compiled from WTO Ministerial Declaration.
After the formation of the WTO, the first two ministerial meetings were held at
Singapore (1996) and Geneva (1998), where various provision of the agreement were
discussed and the state of their implementation was reviewed. This phase saw multiple
occasions of loss of mutual confidence among negotiating partners. The developed
countries tried to use Singapore (1996) Ministerial Conference as a platform to broaden the
agenda of WTO to areas popularly known as the ‘Singapore issues’, namely, investment,
competition policy, transparency in government procurement and trade facilitations. They
also wanted to incorporate labour and environment issues, which was much to the
annoyance of their developing counterparts. The developing countries including India
objected to such designs, arguing that the Singapore issues were essentially the non-trade
issues and for negotiating labour standards, ILO should be the right platform and not the
WTO. Further service sector has fast emerged as an important sector in international trade
and so need was felt to liberalise service trade especially in Mode 3 and Mode 4 supply of
services. As far as trade barriers were concerned, tariff barrier was reduced to certain extent
in the post WTO period but many other WTO-compatible non-tariff barriers e.g. SPS-TBT
measures etc. was introduced limiting the impact of elimination of traditional NTBs i.e.
import quota. Beside above, the issues pertaining to agriculture, non-agriculture market
access and services was not completely negotiated and proposed level of market access in
the developed countries was not realised which ultimately led to major source of
dissatisfaction among developing countries like India.
Initially, India represented only its mere presence in the negotiation rounds but the
outcome of the dispute settlement cases involving her made her to play active role in the
WTO negotiations. During the period between the First and the Second Ministerial
Conference, there was an increase in the number of cases against her in the WTO’s dispute
settlement mechanism. Many of the developed countries moved to the dispute settlement
body complaining about the WTO compatibility of India policies, this ultimately made
India vocal at the WTO negotiations.
The Third Ministerial Conference was held in 1999, Seattle, India was vocal at the
multilateral forum for the first time and along with other developing countries strongly
protested against the initiatives of the developed countries to incorporate labour and
environmental standards under the aegis of the WTO. This led to failure to incorporate this
element in the agenda. The developed countries especially US, EU and Japan did not
liberalised their market for developing countries and it is worth noting that even towards the
end of the Uruguay Round (Seattle in 1999), they remained stubborn on anti-dumping and
agricultural subsidies18. The meeting ultimately ended in failure and no satisfactory or
mutually agreeable solution was obtained to the trade issues. After this India realised the
need to be strong and active in the WTO negotiations forum and started communicating its
dissatisfaction on various issues at the WTO and other international trade forums.
Doha Development Agenda and Various Rounds of Trade Negotiations
The agenda for the negotiations was adopted in 2001 which kept in mind the special
interests of the developing countries and hence came to be known as ‘The Doha
Development Agenda’. This ambitious work programme covered negotiations on
agriculture, non- agriculture market access (NAMA), services, dispute settlement measures,
anti-dumping etc. In the Doha Ministerial Declaration, WTO members expressed their
resolve to find appropriate solution to the implementation related concerns raised by the
developing countries. Since 2001, several rounds of negotiations have been held like in
Cancun (2003), in Geneva (2004), in Hong Kong (2005), in Geneva (2009) and the last one
in Geneva (2011). While the Cancun Ministerial meeting ended up without any outcome, it
was in Geneva that the package of framework agreement was reached, referred to as the
“2004 Package Framework”. The Hong Kong Ministerial meeting in 2005 was too
suspended and the decisions on most of the issues were postponed until 2006. The revised
package drafted in July 2008 was again unsuccessful. In the recent Ministerial Conference
of 2011 in Geneva progress was made in few issues but again most of the issues of Doha
Mandate remained unresolved.
Since the Doha Round of negotiations 2001, India has played strong role in
negotiations, so here an attempt has been made to find out India’s negotiation position at the
WTO on main areas of negotiations like agriculture, non-agriculture market access and
services in the various rounds of negotiations at different Ministerial Conference.
Doha Development Agenda (Fourth Ministerial Conference, Doha-2001 to Eighth Ministerial Conference, Geneva-2011)
The present work will confer the main issues in Doha Development Agenda that is
agriculture, non-agriculture market access (NAMA), and the services.
Agriculture
Prior to Uruguay, the developed countries allowed high level of domestic support
and export subsidies to their agriculture sector. This resulted into severe distortions in the
production and the trade of agricultural products. The Uruguay Round of agreement on
agriculture intended to have greater market oriented agricultural trading system. The Doha
round of negotiations was expected to reduce or eliminate these trade distortions. The
negotiations on agriculture included Domestic Support, market access and the export
competition. The on-going discussions on agriculture also include Special Products (SPs)
and the Special Safeguards Mechanism (SSM) for developing countries. In most of the
developing countries agriculture is more a matter of livelihood than trade. The WTO
negotiations is the only means to seek reduction in developed country subsidies and by
providing concessions to the developing countries in commitment their agricultural trade
can grow leading to the better economic condition of those dependent on it. Most of the
developing countries have formed coalition to promote their common interest like G-20
formed at the Cancun Round of negotiations in 2003 and G-33 formed in 2003. In both
these groups India has played a leading role. The table 3.12 gives the detail of the
coalition’s where India being the part to play important role.
Table 3.12: Coalitions of which India is part to Play Important Role
Coalition (Date of Formation) Focus of the coalition Members
G202003
Agriculture – elimination of export subsidies and domestic support and the liberalization of market access in agriculture.
Argentina, Bolivia, Brazil, Chile, China, Cuba, Ecuador, Egypt, Guatemala, India, Indonesia, Mexico, Nigeria, Pakistan, Paraguay, Peru,Philippines, South Africa, Tanzania, Thailand, Uruguay, Venezuela and Zimbabwe. (Colombia, Costa Rica and El Salvador were previously members )
G332003
Agriculture – Initially formed as the Alliance for Special Products and a Special Safeguard Mechanism and objective is to include provisionson Special Products (SP) and Special Safeguard mechanism (SSM) in a revised agreement on Agriculture.
Antigua & Barbuda, Barbados, Belize, Benin, Bolivia, Botswana, China, Cote d’Ivoire, Congo, Cuba, Dominica, Dominican Republic, El Salvador, Grenada, Guatemala, Guyana, Haiti,Honduras, India, Indonesia, Jamaica, Kenya, Korea, Madagascar, Mauritius, Mongolia, Mozambique, Nicaragua, Nigeria, Pakistan, Panama, Peru, the Philippines, Saint Kitts and Nevis, St Lucia, St Vincent and the Grenadines,Senegal, Sri Lanka, Suriname, Tanzania, Trinidad and Tobago, Turkey, Uganda, Venezuela, Zambiaand Zimbabwe.
NAMA 112005
NAMAPrime concerns- Liberalisation of Market access in developed countries, safeguard the concept of LTFR, and against making sectorals mandatory
Argentina, Brazil, Egypt, India, Indonesia, Namibia, Philippines, South Africa, Tunisia and Venezuela.
LMG1996
Formed in opposition to the Singapore issues but current focus TRIPS.
Cuba, Dominican Republic, Egypt, Honduras, India, Indonesia, Kenya, Malaysia, Pakistan, Sri Lanka, Tanzania, Uganda and Zimbabwe, withJamaica and Mauritius as observers
Core Group on Singapore Issues1991
Emerged in opposition to the treatment of the four Singapore issues as a single basket.
Bangladesh, Cuba, Egypt, Kenya, India, Indonesia, Malaysia, Nigeria, Pakistan, Rwanda, Venezuela, Zambia and Zimbabwe.
Friends of Geographical Indications1998
To extend GIs to products beyond wines and spirits
Dominican Republic, Egypt, Honduras, India, Jamaica, Kenya, Pakistan, Sri Lanka and Thailand.
G24 on Services To address guidelines and procedures on negotiating services.
Argentina, Bolivia, Brazil, Colombia, Cuba, Dominican Republic, Ecuador, El Salvador, Honduras, India, Indonesia, Malaysia, Mexico,Nicaragua, Pakistan, Panama, Paraguay, Peru, Philippines, Sri Lanka, Thailand, Uruguay and Venezuela.
Source: Compiled from WTO Ministerial Conference
In the recent Eighth Ministerial Conference of the WTO in Geneva, 2011, an
attempt was made to finalise few issues favouring least developed countries like duty free
quota free market access, the rules of origin for DFQF market access, and issues relating to
cotton (domestic and export subsidies for cotton and tariffs), in addition of trade facilitation
and the export competition pillar of the agricultural negotiations but however many
members did not agreed to it, ultimately leading to its failure.
The three important pillar of agriculture negotiations in Doha Mandate are given
below.
Market access
For greater market access for agricultural products the developed countries and the
developing countries have constantly demanding the reduction of agricultural tariff. The
scale of tariff reduction should be high for the developed countries compared to the
developing countries as excessive fall in tariff in developing countries will adversely affect
their domestic farmers.
In the July 2004 framework and then in 2005 Hong Kong Declarations, it was
agreed that the developing countries would have the right to self-designate their certain
products as Special Products (SPs) based on criteria such as food security, livelihood and
rural development, which would be subject to flexible reductions. The 2007 draft modalities
called for a tiered formula of reduction of tariffs with different tiers for the developed and
the developing countries19. The G-20 consisting of developing countries supported this
formula within tiers with each tariff being subject to a linear (uniform) cut for both
developed and the developing countries. It also calls for overall tariff reduction by the
developed countries of at least 54 per cent on an average and by developing countries of
maximum of 30 per cent on an average. The Special Products (SPs) and the Special
Safeguard Mechanism (SSM) was supported by G- 20 and considered it as a part of Special
and Differential Treatment for the developing countries but however the group was never
active in making proposal on the above two mechanism, and supported G-33 on the issues.
The G-33 states that the Special products are important as they protect the commercial and
development interest in the developing economies. It also asserted that the developing
countries should independently determine the Special Product and seek flexibility to
designate at least 20 per cent of tariff lines as Special Product. The group laid, a distinction
be drawn between SSM and SPs, where the latter is a long term exemption from
aforementioned reasons, SSM is a short term mechanism to help countries cope with
adverse circumstances like fluctuations in price and import surges. The G-33 also
emphasised that like SPs, SSM should be open for all agricultural products and for all the
developing countries and to be applied to imports from all countries whether these are
subsidised or not20. The revised draft modalities of 6 December 2008 propose an SP
entitlement of 12% of agricultural tariff lines. The average tariff cut on SPs is proposed as
11%, including 5% of total tariff lines at zero cuts.
At the Seventh WTO Ministerial Conference, held at Geneva from November 30 to
December 2, 2009, the Doha round was not on the agenda but the ministers meeting did not
ignore the subject and the actual negotiations remained confined to technical discussion and
did not address serious issues. In agriculture, some progress was made on the identification
of the base date and the appropriate tables and on the preparation of the templates to be used
for scheduling specific commitments. However most of the issues remained unsettled like,
no reduction in the number of substantive issues on which gaps remain to be bridged viz.,
the special safeguard mechanism, tariff simplification, tariff rate quotas, sensitive products,
cotton subsidies, tropical products and tariff preference. In fact on many issues
disagreement widened like US wished that developed countries other than Canada and
Japan, should be allowed to exceed of 4 per cent for sensitive products.
Domestic Support
The agricultural subsidies provided by developed countries restrict the access of
developing country export and also depresses the world food prices. This subsidized export
by developed countries poses a threat to food and livelihood security in developing
countries by depressing domestic prices. So one of the goals of developing countries is to
get the reduction of agricultural subsidies by the developed countries.
The G-20 aim is to have effective cuts in subsidies provided by the developed
countries to its farmers and to ensure the central linkage between the effective cuts in other
trade distorting subsidies (OTDS) and product specific discipline is maintained. The July
2004 framework distinguish between two broad categories of domestic support, trade
distorting support and non-trade distorting support (support with no or minimal impact on
trade and production). The developing countries wish to get Special and Differential
Treatment under each category of agricultural negotiations.
The developing countries further wants, with respect to formula on the reduction of
OTDS, those countries offering higher subsidies compared to the value of agricultural
production should have additional cut than as imposed under the tiered approach. The
developing countries without Aggregate Minimum Support (AMS) entitlements are
exempted from undertaking reduction commitment on trade distorting domestic support.
With respect to the tiered formula for cuts in final bound total AMS support under the
Amber box, they wish for developing countries to make less than 2/3 rd of the cuts than
would be required from the developed countries in the same band. The agriculture
negotiations also provide an opportunity for review and clarification of criteria of Green
box subsidies’ the so called non-trade distorting subsidies’, with a view to ensure that these
subsidies have no, or minimal , trade distorting effects on production. Under the Uruguay
round commitments, countries can provide Green box subsidies without any ceiling
provided these subsidies have no trade or production distorting effects. On Product specific
cap G-20 favours development of product specific caps in AMS and Blue box, on an
individual product level, to limit expenditure per commodity.
Table 3.13: AMS Reduction Tiers Suggested in the WTO NegotiationsUS: 4 bands G-20: 4 bands Australia: 4 bands
$10 billion or less.
all other countries
$2 billion or less Most developing few developed countries
$1 billion or less Most developing countries,Australia, New Zealand
Between$10-$20Billion
US Between$2-$12Billion
Mexico, other developedCountries
Between$1-$10Billion
Thailand, other developedCountries
Between$20-$40Billion
EU Between$12-$25Billion
US US Between$10-$25Billion
US, Mexico
More than40 billion
Japan More than$25 billion
Eu, Japan More than$25 billion
Eu, Japan
Source: Aggarwal (2005)
Export Competition
The export competition includes the elimination of various forms of export subsidies
like export credits, export insurance, food aid etc. At the Hong Kong ministerial meeting it
was decided to eliminate export subsidies by 2013. In terms of the draft proposals of 6
December 2008, developed countries are required to eliminate all forms of export subsidies
by 2013 and developing countries have to do so by 2016. Under the WTO’s Agreement on
Agriculture, developing countries had the flexibility to provide certain subsidies, such as
subsidising of export marketing costs, internal and international transport and freight
charges etc. According to the current proposals, this provision would continue to be
available to developing countries till 2021 i.e. 5 years beyond the year 2016 when they
would be required to phase out all other forms of export subsidies. The G-20 suggested the
following steps for the implementation period, at least 50 per cent in the first year by virtue
of front loading, an additional 30 per cent to be progressively implemented by the middle of
the implementation period and the remaining potion to be implemented by the end of 2013.
For the developing countries the implementation period would be longer. The G-20 has
insisted on the need to eliminate export credit guaranteed by the developed countries21.
In July 2008 Mini Ministerial Conference some progress was made like cuts in
OTDS but SSM not reached to conclusion and for this India, china and U.S. was blamed.
India’s negotiation position at the WTO
The agriculture sector is crucial sector for India as it employs around 56 per cent of
the total population and contributes to around 20 per cent in countries GDP; however in
recent years it has declined due to increased share of manufacturing and service sector. It is
the main source of income and livelihood to large number of Indian farmers so in order to
protect this vulnerable group and to ensure food security India adopted protectionist trade
policy in agriculture.
This sector is of strategic and economic importance to India and hence India has
adopted defensive and offensive position at the WTO negotiations on agriculture. India’s
main concern is to have 1) Special and Differential treatment 2) effective reduction of
domestic support and tariffs in agriculture in developed countries and 3) to regard certain
product as Special product (SPs) and Special Safeguard Mechanism (SSM).
According to the initial submission made by India at the WTO, it is seen that
product specific support in India is negative while total amount of non-product specific
support is well below the de minimus level22. This amount to negative Aggregate Measure
of Support for India, implying that Indian agriculture is net taxed. The aggregate AMS is
therefore still below de minimis level of 10 per cent, in product specific subsidies. India
does not have Blue Box support either. Therefore, the subsidy reduction formula suggested
in the July framework is unlikely to cause any problem for India. However the subsidies
provided by the developed countries has adverse effect on export of other developing
countries as these subsidies causes the international price of agricultural products to
fluctuate and decline. In order to protect the interest of farmers, India emphasised on the
reduction of subsidies in the developed countries. India’s non-product specific support is
given below in the table 3.14.
Table 3.14: India’s Non Product Specific Support and Support under the S&D Provision
Year S&D Non Product Specific Support
total value of agricultural production
S&D Non Product specific support
In million US$ As a percentage of total valueof agricultural production
1995-96 254.31 5772.062 76736 0.33 7.521996-97 4855.09 930.34 85280 5.69 1.091997-98 5171.8 1003.48 84972 6.09 1.18Source: Calculated from G/AG/N/IND1 (for 1995-96)
In Doha 2001 negotiations, in order to improve market access, India demanded that
the developed countries must bring down their bound tariff rates and suggested the creation
of a separate safeguard mechanism and also emphasised on regarding certain sensitive
agricultural products as Special Products (SPs) so as to grant them additional or adequate
tariff protection and to ensure food security in developing countries. However the post
Doha, EU and US failed to cut down their high farm subsidies and so the failure of the
commitment.
In the Cancun Ministerial Conference 2003, both US and EU formed alliance and
come as joint text on agriculture. On the other hand prior to Cancun 20 developing countries
including Brazil, China, India, and South Africa etc. ,formed coalition called G-20, where
India played active role to represent the interest of other developing countries and to secure
the fulfilment of objectives of the Doha round of negotiations. India also formed the part of
G-33, where it strongly supported the need for developing countries to have Special
Safeguard Mechanism (SSM) which would enable them to impose additional tariffs when
faced with cheap imports or when there is a surge in imports. India further resisted on not
making any deep tariff cuts on agricultural products but emphasised that the developed
countries should reduce their farm support. The G-20 including India was concerned with
Green box and Blue box and in Cancun 2003, they had sought a cap on Green box subsidies
and rejected any expansion of Blue box subsidies. In July 2004 framework both these
demand was abandoned. However Cancun failed because of strong opposition of the chair’s
text (the Derbez Draft) by the G-20, the African, Caribbean and Pacific group. India
strongly objected to the Derbez Draft on the basis of its concerns pertaining to the issue of
domestic farm support as well as the draft’s intention to initiate negotiations on Singapore
issues without explicit consensus23.
However, India as a part of G-20 made a constant effort through informal
negotiations with the US and EU and other members to break the stalemate. In the March
2004, agricultural negotiating group consisting of US, EU, Australia, India and Brazil came
up with a July 2004 draft, emphasising on the elimination of export subsidies, reduction in
farm support, promises of substantial market access and lower reduction commitments
(S&DT) for developing countries.
The Hong Kong negotiations too ended with minimal progress. The EU agreed to
eliminate export subsidies by 2013. India was successful in getting conditional flexibilities
in determining the products under Special Products, which need to be safeguarded to ensure
food security, rural development and the livelihood of poor farmers and in case of special
safeguard mechanism to use both price and quality instruments in curbing import surges24.
The post Hong Kong, EU appeared to be somewhat flexible towards market access but US
was not much reluctant in offering greater reduction in farm support. Later on G-6 group
consisting of EU, US, Australia, Japan, India and Brazil was formed to take forward the
negotiations on agriculture but failed to meet it and led to the suspension of the Doha
Development Agenda in July 2006 at Geneva. Later G-6 shrunk to G-4 consisting of US,
EU, Brazil and India.
Under the December 2008 revised draft modalities for Agriculture, the allowable
OTDS for the US is to be cut by 70%. Thus the present $48.3 billion allowable level is cut
to $14.4 billion. But under the recent 2007 notifications the US applied OTDS level was
much lower, around $7 billion, giving it a lot of leeway.
In recent Eighth Ministerial Conference held in Geneva, 2011, India again stressed
on the few basic issues to be concluded like substantial and effective reductions in overall
trade distorting domestic support (OTDS) of the US and EU, self-designation of an
appropriate number of special products (SPs), an operational and effective special
safeguards mechanism (SSM) and the simplification and tapping of developed country
tariffs but however yet again many of the issues remained unsettled. The table 3.15 shows
India’s average bound and applied tariffs in agriculture.
Table 3.15: India’s Bound and Applied Tariffs in Agricultural ProductsYear Simple Average Final Bound Simple Average Final Applied2006 114.2 37.62008 114.2 34.42009 114.2 32.22010 113.1 31.82011 113.1 31.82012 113.1 31.4Source: WTO, World Tariff Profiles 2006-2012.
The main highlight of India’s proposed priorities at WTO agricultural negotiations:
Overall tariff reductions on bound rates of not more than 36%; Self-designation of an appropriate number of Special Products guided by indicators based
on the three fundamental and agreed criteria of food security, livelihood security, and rural development needs;
An operational and effective Special Safeguard Mechanism to check against global price dips and import surges, which is more flexible than the existing special safeguard available mainly to developed countries;
Substantial and effective cuts in OTDS by the US and the EC and tighter disciplines on product-specific limits on AMS and the Blue Box;
Thresholds of the four band tariff formula with linear cuts to be adequately higher for developing countries to take into account their ceiling bindings.
Simplification of non-ad valorem tariffs on agricultural products, by the developed countries, as has already been done by developing countries;
Capping of tariffs on agricultural products, over and above the tariff reduction formula, to address the issue of some very high tariffs imposed by some developed countries on agricultural products; and
Safeguarding India’s export interests in the negotiations on tropical products and preference erosion.
Non Agricultural Market Access (NAMA)
The WTO requires member countries to bind their tariffs at mutually negotiated
rates with a commitment that the applied custom duty in a member’s territory will not
exceed the negotiated level, which is referred to as the bound level. When a country
undertakes the obligation to ‘bind tariff’ on a product, it cannot raise the tariff on that
product beyond the bound level. It may however apply a lower tariff at its own discretion.
The WTO has kept the record of all the schedule of bound rates for a country. The countries
who have not bound the tariff on a particular product are free to apply any tariff rates as per
its policy.
The negotiations on industrial tariffs has two issues that is on what formula tariff
reduction is based and the percentage of the products to be covered under the tariff
bindings, where the tariff on those products would not be raised more than the committed
bound levels. Under the WTO there are different approaches to commitments on tariff
reduction. The least onerous approach requires reducing the average tariff, with low
reduction on products requiring high tariff protection and higher reduction on products not
requiring special protection. A more onerous approach is to reduce tariff on each tariff lines
on the basis of a linear formula, under which tariffs are proportionately cut by a fixed
percentage. The most onerous method for taking action on tariff reduction commitment is
through a non-linear formula, under which higher tariffs are cut more than lower tariffs.
The Doha declaration, on NAMA, has the following four elements
1. Coefficient for the tariff reduction formula and involves reduction
/elimination of tariffs, including tariff peaks, high tariffs and tariff escalation,
as well as no-tariff barriers, in particular on product of export interest to
developing countries.
2. Flexibilities for protecting sensitive NAMA products.
3. Sect oral initiatives for elimination of customs tariff in specific sectors.
4. Non-Tariff Barrier (NTB) textual proposal.
Doha mandate is basically to protect the interest of the developing countries but
however the progress in negotiation is not satisfactory. The July framework laid down that
the countries should follow non-linear formula for tariff reduction, to be applied on a line by
line basis, with certain flexibilities for the developing countries. At the Hong Kong
ministerial meeting of the WTO in 2005, it was decided that NAMA tariff reductions would
be undertaken through Swiss formula. The simple Swiss formula with coefficients is as
under:
Tf = (Ti x A)/ (Ti + A)
Where, Tf is the final bound customs tariff , T i is the initial bound customs tariff and A is
the Swiss coefficient.
This takes into consideration special needs and interest of the developing countries
including through less than full reciprocity (LTFR) in reduction commitments. The
developed countries have taken that high Swiss coefficient for developing constitutes
LFTR. While the chairman in his draft modalities of July, 2007 has suggested Swiss
coefficient of 19-23 for developing countries and 8-9 for developed countries. The WTO
Mini Ministerial Meeting from 21-29 July, 2008, proposed a coefficient of 8 for developed
countries and a 3 tiered coefficient of 20, 22 and 25 linked to flexibilities for developing
countries (table 3.16). These numbers are also reflected in the NAMA modalities of 6
December, 2009.
Table 3.16: Coefficients and Flexibilities
Coefficient Flexibilities20 At least half the formula cuts on 14% tariff lines
subject to Imports not exceeding 16% of value or No cuts or binding on 6.5% tariff lines subject to imports not exceeding 7.5% of value
22 At least half the formula cuts on 10% tariff lines subject to imports not exceeding 10% of value or No cuts or binding on 5% tariff lines subject to imports not exceeding 5% of value
25 No flexibilitiesSource: Ratna, R.S, ‘WTO NAMA Negotiations; Present State of Play’, Presentation at ICRIER
These coefficients would be against the mandate of ‘Less Than Full Reciprocity’
since Developing countries would have to engage in steeper cuts than developed countries
since existing bound tariff levels in developing countries are much higher. (See table 3.17).
Table 3.17: LTFR Principle (% cut in dutiable Lines)Brazil India EC US
Developed Country ProposalSwiss 10 & 15 66% 73% 33% 35%NAMA 11 ProposalSwiss 10 & 35 45% 54% 33% 35%Swiss 5 & 30 49% 57% 49% 51%Chairman's ModalitiesSwiss 8 & 20 59% 68% 38% 40%Swiss 8 & 22 57% 66% 38% 40%Source: Ratna, R.S, ‘WTO NAMA Negotiations; Present State of Play’, Presentation at ICRIER
Flexibilities under NAMA are proposed to protect the sensitive industrial products
of the developing countries both from the Swiss formula cuts and from taking a binding
commitment. In the negotiations, one of the options for the developing countries is to take
at least half the formula cuts on a specified percentage of tariff lines subject to a limitation
of imports. The other option is take no formula cuts or binding commitments on a specific
percentage of tariff lines subject to a limitation on imports. India as a part of the NAMA-11
negotiating group has been supporting a differential of 25 in the Swiss coefficient for
developed verses developing countries, since this would respect the LTFR mandate. NAMA
-11 is against any trade-off between formula on tariff reduction and flexibilities as desired
by certain developed countries. NAMA -11 coalition along with the African Group and
small and vulnerable economies (SVEs) have sought revision in the numbers proposed by
the chairman, since it entails higher reduction commitments by developing countries and
thereby contravenes the mandate of less than full reciprocity in reduction commitments.
NAMA -11 is against mandatory sect orals. There are around 14 proposals in NAMA text of
6 December 2008, spanning nearly all the sub-sectors of NAMA namely automobiles,
bicycles, chemicals, electronics, enhanced healthcare, fish products, forestry products, hand
tools, raw materials, sports goods, textile and clothing. NAMA-11 does not wish to see any
linkages been drawn between negotiations on sect orals and coefficients and flexibilities. In
the mini-ministerial conference in Dec, 2008, discussion are said to have failed on account
of effort of US seeking to make these sect oral initiative mandatory and India and China
opposing the same.
On the other hand non-tariff barriers are also very important for developing
countries as it act as a constraint on export from developing countries. The July 2004
framework recognised non-tariff barriers as an integral part of the negotiations. In the draft
NAMA modalities of 6 December, 2008, there were 13 NTB textual proposals listed in
Annex 5 categorised as; horizontal proposals (those related across sectors), vertical
proposals (related to specific sectors), export related proposals and TBT (Technical Barriers
to Trade) related proposals. So far not much progress has been made and hence negotiation
on this subject has lagged behind those on tariffs. However the developing countries should
emphasis on quick negotiation process on non-tariff barriers.
India’s negotiation position at the WTO on NAMA
The Tariff barriers exist in the form of tariff peaks and tariff escalation that
discourage the growth of the processing industry in developing countries. Like, European
Commission imposes sector wise tariff of less than 4 per cent on Indian yarns, but the tariff
rate escalates to 12 per cent if the yarn is woven into garments. So India is interested in
getting these tariff barriers reduced. On the other hand non-tariff barriers are new emerging
trade constraint for India’s export. These NTBs are in the form of sanitary and phyto-
sanitary (SPS), standards such as testing, destructions of allegedly contaminated or
damaged consignments and other more innovative forms of NTBs.
India has submitted its initial approach to NAMA, where it is not in favour of least
onerous approach to tariff reduction through average tariff cuts, but favoured the relatively
more onerous approach of simple percentage cut on each product. In Hong Kong Ministerial
Conference, 2005, this approach was abandoned and the non-linear formula, which is a
variation of the Swiss formula, was favoured. While the United States and the European
Union are in favour of the simple Swiss-formula, in April 2005 Argentina, Brazil and India
(ABI) submitted a Proposal on NAMA including a modified Swiss-formula in order to
attend to the concerns of developing countries25. India’s initial negotiating stand was that
developing countries should have the flexibility not to bind certain tariff lines still
considered domestically sensitive or strategically important. In a joint submission by
Argentina, Brazil and India (in 2005), India has stated that increasing the binding coverage
to 100 per cent is a desirable objective of this round.
The Doha mandate provide for the reduction or elimination of tariff and non-tariff
barriers on product of export interest to developing countries. India has more interest in
export of apparel, leather, footwear etc. which faces huge tariff barriers from the developed
countries, so the tariff reduction through the Swiss formula would cut into the developed
country tariffs and would be a gain to India. At the initial negotiation, India proposed that
the developing countries must get their credit for autonomously binding their tariffs after
the Uruguay Round. Credit for autonomous liberalisation can be obtained in the form of less
onerous tariff reduction commitment. The table 3.18 shows India’s bound and applied
tariffs in Non-Agricultural Products. As India has bound a large number of tariff lines
autonomously after the Uruguay round, it stand to gain significantly if the agreement is
reached on the methodology for getting credit. India made proposal on this issue in 2006 but
so far not discussed in the WTO. India is interested in getting NTBs removed but much of
progress has not been achieved. In the Hong Kong Ministerial Declaration, the ministers
have only taken note of the work done for the identification; categorisation and examination
of notified NTBs and have recognised the need for specific negotiating proposals which
should be submitted as quickly as possible. In the Seventh Ministerial meeting held at
Geneva 2009, the US wished-for for key developing country members, including India, to
adhere to the proposed sectoral agreements for elimination or deeper reduction of tariffs,
particularly in chemicals, electrical products and environment goods. This was not agreed
to many developing countries and India and finally no progress on this issue was made.
In recent Geneva negotiations, 2011, India proposed adequate and appropriate
flexibilities for protecting economically vulnerable industries, participation in sect oral
initiative only on a non-mandatory and good faith basis without prejudgement of the final
outcome, with substantial special and differential treatment provisions for developing
countries and serious consideration for non-tariff barriers (NTBs) textual proposals with
wide support such as horizontal mechanism.
Table 3.18: India’s Bound and Applied Tariffs in Non-Agricultural Products
Year Simple Average Final Bound Simple Average Final Applied
2006 34.9 16.42008 36.2 11.52009 34.7 10.12010 34.4 10.12011 34.6 10.12012 34.6 9.8Source: WTO, World Tariff Profiles 2006-2012.
The main highlights of India’s proposed priorities at WTO NAMA negotiations
Application of the principle of “less than full reciprocity” in tariff reduction commitments for developing countries
A fair mark up on the applied tariffs for unbound tariff lines Appropriate and adequate flexibilities to protect the sensitive tariff lines Sectoral agreements to be purely on voluntary basis and a supplementary modality.
Services
The agreement on trade in services was brought under the purview of Uruguay
round of negotiations with the objective to have more liberal commitment in all the four
mode of supply of services that is, mode 1 ( cross border supply), mode 2 (consumption
abroad), mode 3 (commercial presence) and mode 4 (movement of natural person). The
service negotiations among the WTO members have taken several forms, bilateral
negotiations consisting of request and offer among the countries for specific commitments
on market access and national treatment in specific service sector, plurilateral negotiations
where more than two countries negotiate jointly on the basis of some formula. However the
common method of negotiation is the request and offer. The negotiations are being
conducted within the broad framework of a decision adopted on the 28th March, 2001,
called “Guidelines and Procedures for the Negotiations on Trade in Services”, which was
later endorsed by the Doha Ministerial Declaration. The service negotiations basically aim
to expand sect oral and modal coverage of commitments and improve their quality with
particular attention to export interest of the developing countries.
India’s negotiation position at the WTO
The service sector in India has emerged as a priority sector in Indian economy. Its
contribution is significant in country’s GDP, employment and export revenues and hence
had contributed in country’s growth and development. The share of India’s service trade in
world trade of services is more than that of India’s merchandise trade. India is among the
top 10 leading exporters of services in the world. Initially India opposed the inclusion of
service in the WTO agreement but however after realising the growing significance of
service trade in its economy, has become the demander of services and wants more liberal
commitments on the part of its trading partners for cross-border supply of services and
mode 4 that is, the movement of natural person abroad. With respect of mode 2, which
requires consumption of services abroad, India has an offensive interest. On the other hand
developed countries like US and EU are more interested in mode 3 that is, to have
commercial presence in developing countries. India has received request for more liberal
policies on FDI in sectors like insurance etc. India is actively participating in both the
bilateral request offer process and also in plurilateral negotiations. India has also offered to
make significant improvements over its Uruguay round commitments in the revised offers
submitted to the WTO26.
The post 1995 negotiations continued on four major services, financial, telecom,
maritime transport and mode 4. The agreement on first two reached in 1997. The
negotiations on maritime transport were suspended and India was reluctant in undertaking
any commitments in mode 4 and the same for energy, distribution, environment, education
and professional, services. Under Doha development agenda 2001, India and other
developing countries stressed on the importance of bilateral request-offer approach as the
main method of negotiations. Under this approach India submitted request to more than 60
countries consisting of both developed and developing countries like US, EU, Japan,
Australia, Canada, New Zealand, China, Mexico, Brazil, Malaysia and Indonesia in audio
visual services, architectural services, computer related services, tourism and travel
services, health and maritime transport services across all modes with significant focus on
Mode 4.
Although in the conditional initial offer of January 2004, India was regarded as
conservative in its revised offer the very next year. India was practically offensive in all
four modes with improved horizontal commitments and minimal restrictions under market
access or national treatment. India had export interest in information technology (mode 1)
and seeks greater access to the market of EU and US in terms of the movement of natural
person mode 4. However there has been lots of opposition in EU and US regarding mode 4
supply of services.
India would like to see issues like economic needs test; portability of health
insurance and other such barriers in services is removed. As far as delivery of services
through commercial presence (mode 3) is concerned, there is an increasing trend of Indian
companies acquiring assets and opening business in foreign markets in sectors such as
pharmaceuticals, it, non-conventional energy etc. So India has interest in seeking
liberalisation in mode 3.
In Hong Kong (2005), a new methodology of plurilateral request-offer was
suggested, where a group of members may place a collective request on a specific sector or
modes, directly to a target country, which in turn is obliged to consider it while submitting
its revised offer. India is the coordinator of the plurilateral request on mode 1 (cross border
supply) and mode 4 (movement of natural person), the core areas of its interest in the
service negotiations. India is also a co-sponsor of plurilateral request on computer related
services and architectural, engineering and integrated services. India wants more
forthcoming offers from the developed countries, particularly the US and the EU on mode 4
with respect to her professionals and across sectors. India has received plurilateral request
for greater liberalisation in 14 different service sector including, telecom, finance, maritime
transport, environment, education, air transport, energy, audio-visual and retail services.
India has submitted ‘requests’ to our trading partners in Computer Related services,
Architecture services, Health services, Audio-Visual services, Tourism services, Maritime
services and Financial services27. The demander have high ambitions in terms of the market
access they want, however they are willing to open their own economies to the same degree,
particularly in mode 4. While the EU is fully committed to the plurilateral process, the US
continues to give more importance to bilateral request-offer.
An important issue relating to the delivery of services and liberalisation is domestic
regulatory reform. Any market access commitments that India might make during the on-
going negotiations must be preceded by an effective regulatory framework. In the recent
negotiations India stated that it was willing to undertake new commitments in services, it
would depend on how well they were reciprocated by the trading partners. India formed
coalition “Friends Group” on mode 4 and mode 1 negotiations for greater market access
however did not yield much result.
In Geneva, 2011, Ministerial Conference India proposed need for qualitative
improvement in the revised offers especially on modes 1 (cross border supply) and mode 4
(movement of natural persons) and an appropriate disciplining of domestic regulations by
developed countries.
The main highlight of India’s proposed priorities at WTO Service negotiations.
In Cross Border Supply of Services (Mode 1), India has requested for broad based commitments across a wide range of sectors (IT Enabled Services, Business Process Outsourcing, etc.) where trade is becoming commercially meaningful and India has a comparative advantage.
Various limitations existing in Mode 4, particularly in terms of disciplining domestic regulations and overcoming impediments like non-transparent visa procedures, Economic Needs Tests, Work Permit Norms, etc. need to be removed to ensure the free movement of natural persons for supply of services.
Without bankable commitments from major developed countries in services at the time of finalizing the modalities in agriculture and NAMA, it may be difficult for India to agree to the modalities in agriculture and NAMA. An ambitious outcome in services has to be an essential part of any breakthrough package.
Any future work in services must be anchored in Annex ‘C’ of the Hong Kong Ministerial declaration. Members need to spell out clearly how they intend to meet the model objectives outlined in Annex ‘C’
The developed countries would need to provide clear signals of market opening in sectors, particularly in Mode 1 and Mode 4.
Thus it is concluded that in the past decade India has emerged as a major player in
the world economy, which has made many developed and developing countries to build
more strong trade relations with India, as it is considered as one of the potential and
enormous market for their products. This growing attention of the world in India has made
it an important player even in the WTO negotiations. Initially India exhibited its mere
presence in the ministerial meeting, but after opposing the inclusion of Singapore issues, it
ultimately played significant role in Doha (2001) negotiations, where it established itself as
a tough negotiating counterpart. This brought India to the attention and has been branded a
hardliner with ‘defensive strategy’.
At the WTO negotiations, India has adopted the strategy of constituting coalition to
bring in greater bargaining power. So far India has been part of many group formed
indifferent ministerial meeting like G20, G33, G4, NAMA-11, and ‘Friends Group’ etc. for
agriculture, non-agricultural market access and services. These coalitions have range of
interest both offensive and defensive and it provides voice to many developing countries
and safeguards their interest in the negotiations. Initially, the US and EU use to easily drive
the WTO agenda due to its strong bargaining power, but later on it was difficult to supress
the voice of developing countries formed into groups where India played the leading role.
India’s aim is to secure individual interest and also those of other developing countries in
coalitions with India. There is large overlap between India’s domestic interest and the
interest of the developing world especially on food security, livelihood and market access.
So far in the ministerial meeting India has been insisting on the special and differential
treatment for developing countries and also on special products and special safeguard
mechanism. India has also constantly emphasised on the reduction and elimination of
domestic support and farm subsidies in the developed countries. On the other hand there is
no need for India to reduce its bound rates.
In NAMA, India has asserted developed countries to reduce their tariffs through
Swiss Formula to provide greater market access to the developing countries. India has
received request in few services and made request for liberalise mode 1 and mode 4 form of
supply of services in EU and US. Before meeting the demand the demand of the developed
countries India wants commitment too from them in areas of their interest.
The growing contradiction between the developing and the developed countries on
many trade issues in the various negotiations round had ultimately resulted into the
incompletion of the Doha Development Agenda so far and the recent discussions in eighth
ministerial meeting too ended without any substantial conclusions.
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CHAPTER IV
EXPORT PROMOTION MEASURES IN INDIA
Amongst the other strategic sectors of an economy, export sector is considered as a
catalyst agent for sustaining and accelerating process of economic growth (Aggarwal, 1982)1.
Exports, being a major part of a India’s external sector, have assumed a place of paramount
importance and play a significant role in economic development process through generating
investible surplus and financing imports by earning foreign exchange (Kaur, 1993)2. Greater
export orientation is considered as a key to long run growth so the government of any country
especially the developing ones should adopt appropriate export promotion measures to
strengthen their export sector. The export promotion measures are the basic efforts to boost
the exports of the country through the provision of different types of incentives and
assistance to those engaged in export trade. The various export promotion measures helps in
reducing and removing export barriers thereby creating market opportunities for existing
and potential exporters. It includes the activities meant to encourage increased sale of the
domestic product abroad. The key to successful national export promotion measures is the
government policy decisions. The government of any country tends to conduct various fairs,
buyers sellers meet, market development programme and other facilities and programme as
a part of export promotion measures to assist exporters. Initially trade liberalization and
least government interference were considered as the way to expand export. But however in
many developing countries the poor economic structure and other market failures act as an
obstacle in the expansion of export which could be removed only by the effort of the
government. Even the World Bank has debated that the government should eliminate the
obstacles to the well-functioning of the market forces and should provide information to
exporting firms about the destination markets and foreign competitors. Increasing export is
the utmost priority of any government in both the developing and the developed countries as
it leads to higher growth and so the export promotion programmes is universal in all the
economies. It includes regulation and practices that forms the part of the foreign trade
policies.
The major objectives of export promotion measures have been highlighted below:
To accelerate the export growth of the country. To remove all the structural and infrastructural bottlenecks in the development of
export.
To provide production, marketing and financial facilities to the exporters. To compensate the exporters for high domestic costs of production through
various financial assistance and concession. To encourage new and potential exporters operating whether in small scale or
large scale through required assistance. To promote overall growth and development of the country through the expansion
of export sector leading to creation of more job opportunities and income for people involve in export industries.
In developing countries like India both imports and exports are crucial for
strengthening its economic position and condition. The growing imports can be best
financed through the export earnings so it becomes crucial to boost exports and export
promotion measures are the way towards it. The export promotion measures helps in
extending market for domestic products which in turn leads to the economies of large
scale production, which by reducing the cost of production makes the product competitive
in the international market. The expansion of competitive strength means the expansion of
export and so the removals of deficits in the balance of trade, specially accruing to the
developing country like India.
Initially, India adopted the import substitution policy to protect their domestic
industries from foreign competition and also to bring about viability in India’s Balance of
payments and so the export promotion was not the priority in government policy
measures. But this strategy led to a serious balance of payment crisis in 1957 and hence it
was soon realised by the government the key importance of export in country’s growth
and development and then the Government of India initiated the various programme and
measures to promote the export of the country.
India’s export sector faces many problems which has contributed in the modest
performance of exports in many years since independence and had resulted into to slow
progress in India’s export sector compared to its potential. The following are the hurdles
faced by Indian exports:
Technological backwardness that results into low productivity and high costs
which reduces the competitiveness of the domestic product in international market.
Many Indian products have poor quality image abroad which tends to decline its
demand.
Exporters are not prompt in providing after sale services.
Infrastructural shortages like power failure, lack of proper finance, inadequate
transport and communication facilities, adversely effects export as it leads to
inadequate and irregular supply of several products and also the undue delays
causing bad impression on foreign business partners.
Trade facilitation cost like cost of shipment, procedural and documentation
formalities etc., is also high in India.
Many exporters are unaware of the latest international trade system.
Many of the products faces marketing problem abroad.
And in the recent years meeting international standards like sanitary, phyto-
sanitary and technical standard and others, is a big challenge for India.
In order to overcome the above obstacles in the expansion of exports, the
Government of India has adopted various export promotion measures. The government
measures can be classified into two important ways:
1. Firstly, the Unilateral Effort, which involves the government individual effort
without having any negotiations or agreement with another country, like institutional
set up, improving export infrastructure, Export Oriented Units, SEZs, some product
specific and market specific incentives, devaluation of currency, various promotional
measures under foreign trade policy announced from time to time and others
programmes etc.
2. Secondly the Multilateral or Bilateral or Various Regional Grouping, where the
government enters into different agreements and negotiations with different country in
order to promote its export, like SAARC, SAPTA, etc.
In India, since independence many committees and commission has been constituted
from time to time like Gorwala Committee, the Murdaliar Committee, the Tandon
Committee, Abid Hussain Committee etc. and all of them have given important
recommendation on measures to promote export. The first Tandon Committee (1980),
which was set up to recommend as export strategy for the 1980s, explicitly recognized the
anti-export bias and recommend provision of cash subsidies to exporters to offset the
same. Taking their recommendation in consideration and recognising the other
requirement of India’s export sector the government of India has adopted the series of
export promotion measures like institutional setup, various schemes and incentives for
exporters and industry engaged in export etc.
1. INSTITUTIONAL SETUP FOR EXPORT PROMOTION
The government has established various organisations which provide different types
of assistance to export sectors for the promotion of the export. This assistance are like
identification of potential export products and export markets, education and training in
export marketing, collection and dissemination of information on matters relating to
export, financing foreign trade, conducting and participating in trade fairs and exhibition,
pre-shipment inspection and quality control and etc. A brief description of these of
organisation and institution is given below:
Ministry of Commerce
It is the primary government agency concerned with the promotion and regulation of
the foreign trade of the country. The Department of Commerce have the following eight
divisions, namely: 1) The Administrative and General Division to look at the general
administration. 2) The Economic Division is engaged in export planning, export strategies
and periodical appraisal and review of policies. 3) The Finance Division looks at financial
availability and need to the exporters. 4) The Trade Policy Division is responsible for
maintaining India’s compatibility with other trade agreements and organisation like WTO,
SAARC etc. and formulates trade policies. 5) The Foreign Trade Territorial Division
looks after the development of trade in different regions and territories. 6) The Export
Product Division looks at the problems faced by the exported products and also the
development of export products. 7) The Services Divisions looks after the issues relating
to service export and 8) The Industries Division deals with issues of industries.
The Advisory Bodies
The advisory Board facilitates coordination among various departments and
ministries concerned with the promotion of trade. It also maintains mechanism for
continuous dialogue with trade and industry. The Board of Trade established in 1962
advices the government on policy measures for the preparation and implementation of
both short and long term plans.
Commodity Organisation
There are many commodity organisations, such as, Export Promotion Councils,
Commodity Boards and Autonomous Bodies to look at sector specific exports.
Export Promotion Councils
The Export Promotion Councils are registered as non-profit organisation under the
companies act. There are many Export Promotion Council in India each responsible for
the promotion of a particular group of products, projects and services. These Councils
assist in proper understanding and implementation of the export policies and assistance
schemes formulated by the government and collect data on matters such as export growth,
problems faced by exporters, the requirement of different manufactures and then present
them to the government for solution. It provides commercially useful information to the
exporters and assists them in identifying new markets and products for export. Given
below are the few Export Promotion Councils:
• Cashew Export Promotion Council
• Council for Leather Exports
• Engineering Export Promotion Council
• Gems & Jewellery Export Promotion Council
• Project Exports Promotion Council of India (PEPC)
• Plastics Export Promotion Council
• Shellac Export Promotion Council
• Sport Goods Export Promotion Council
• Export Promotion Council for EOUs & SEZ Units
• Services Export Promotion Council.
Commodity Board
The Government of India have set up various commodity boards like; the Coffee
Board, the Tea Board, the Coir Board, the All India Handicrafts Board etc. with the main
objective of guiding the production and exports of the respective commodities.
Autonomous Bodies
Given below are the various autonomous bodies helpful to export development:
I. Export Inspection Council: The Export Inspection Council is a statutory body set up
under the export (quality control and inspection) act 1963, to adopt measure for the
introduction and enforcement of quality control and compulsory pre-shipment
inspection.
II. Indian Institute of Packaging: It was setup in 1966 and registered under the societies
registration act. The main functions is to undertake research on raw material for the
packaging industry, to organise training programmes on packaging technology, to
stimulate the consciousness of the need for good packaging etc.
III. The Indian Council of Arbitration: It was setup on 1965 to promote arbitration for
the settlement of commercial disputes and for popularising arbitration among traders,
particularly those engaged in international trade.
IV. Marine Product Export Development Authority: A statutory body, called MPEDA,
was setup in 1972 at Cochin for the development of the marine products industry, with
special emphasis on the exports.
V. Indian Institute of Foreign Trade: IIFT, registered under the societies registration
act, is engaged in activities like training of personnel in modern techniques of
international trade, organisation of marketing research, area surveys, commodity
surveys and dissemination of information arising from its activities relating to research
and market research.
VI. Federation of Indian Export Organisation: It coordinates and supplements the
export promotion activities of various Commodity Boards, Chamber of Commerce,
Trade Associations and other specialised bodies. It also provides financial assistance
to the consultancy firms registered with the FIEO to explore avenues available abroad
for promotional activities in export business.
VII. Trade Fair Authority of India: It was setup in March 1977, to organise and
coordinate trade fairs and exhibition in India and abroad. It has developed a sprawling
exhibition complex at Lal Bahadur Shastri Marg, New Delhi, known as Pragati
Maidan. Later on it was merged with ITPO.
VIII. Agricultural and Processed Food Products Export Development Authority: It has
been established in 1986 with the aim to increase the export of agricultural sector. It
develops database on product, market and services and also invites official and
business delegates from abroad.
IX. India trade promotion organisation: ITPO was set up in January 1, 1992 to promote
exports and imports and up gradation of technology through the medium of fairs held
in India and abroad, to undertake publicity through the print and electronic media, to
compile and disseminate trade related information, to organise buyers-sellers meets for
specific products in specific markets etc.
There are many service/trading corporations functioning under the administrative
control of the Ministry of Commerce:
1. The State Trading Corporation: Initially it was established to deal with bilateral
trading partners of East European countries. However now it scope of operation has
widened and its functions are to reduce difficulties experienced in expanding trade
with centrally planned countries and to maintain quantitative regulations of imports
and some equilibrium in the price of imported commodities and indigenous products.
2. Minerals and Metal Trading Corporation: it was set up in 1963. It has on
subsidiary company, Mica Trading Corporation (MITCO). It deals with all the
activities relating with the export of metals and minerals and some agricultural and
engineering products.
3. Export Credit Guarantee Corporation: it was set up in 1964 with the objective to
minimise the element of risk in the export business and to facilitate the flow of finance
from the bank to exporters. Besides the standard policies, specific policies and special
schemes like transfer guarantee, insurance cover for buyer’s credit, joint ventures etc.,
it also provides financial guarantees like packaging credit guarantee, post-shipment
export credit guarantee, export-finance guarantee, export performance guarantee,
export production finance guarantee and export finance( overseas lending) guarantee.
4. Export and Import Bank: EXIM bank was established on January 1982 with the
objective of financing, facilitating and promoting foreign trade of India. It act as a
principal financing institution in the country for co-ordinating working of institutions
engaged in financing exports and import of India.
There is a Department of Commercial Intelligence and Statistics, situated in
Kolkata. The main function is the collection, compilation and publication of statistics of
trade, tariff and shipping. It maintains commercial library useful to exporters, importers,
research scholars, government institutions and others which contains various type of
commercial information related to trade.
2. EXPORT PROMOTION STRATEGIES AND SCHEMES, INCLUDING EXPORT INCENTIVES AND EXPORT INFRASTRUCTURE
100 Per cent Export oriented units: The 100 per cent export-oriented units are to
expand India’s exports. These refer to an industrial unit, whose entire production is meant
for export, excluding the permitted level of rejects. These units create additional export
capacity and are provided with different incentive and facilities.
Export Processing zones/ Special Economic Zones: The Government of India has
formed various Export Processing Zones and Special Economic Zones with the object to
promote export and economic development, to encourage foreign investment in export
sector, transfer of technology and to generate employment. EPZs are industrial estates
which form enclaves from the national customs territory of a country and usually situated
near seaports or airports. Generally the entire production of EPZs is meant for export. The
units in Export Processing Zones get some incentives and facilities like, exemption from
import duty on capital goods, raw materials, consumables etc., exemption from import
licensing, capital goods and other raw material etc. supplied to these zones are treated as
export and so get all export benefits, exemption from sales tax, and finance on
concessional rates etc. There are many EPZs like the Kandla Free Trade Zone set up in
1965, in Kutch, Gujrat, the Santa Cruz Electronics Export Processing Zone set up in 1974,
situated near Santa Cruz Airport, Mumbai, others in Chennai, Cochin, Noida, Falta (West
Bengal), Vizag and in many other cities. Now the private sectors are also allowed to
develop Export Processing Zones.
Special Economic Zone scheme was introduced in March 31st, 2000 to promote
export production in a hassle-free atmosphere. SEZs are delineated duty free enclaves,
deemed as foreign territory for the purpose of trade operations and application of duties
and tariffs. It can be set up for the manufacture of goods and the rendering of services,
production, processing, assembling, trading, repair, remaking, reconditioning,
reengineering etc. The incentives offered under SEZ Scheme include:
Duty free import and domestic procurement of goods for the development of SEZs.
100 per cent FDI in manufacturing sector under the automatic route,
100 per cent income tax exemption for the first five years and 50 per cent of tax for two years thereafter.
Sub-contracting of part of production abroad Reimbursement/exemption of central sales tax on domestic purchases by the SEZ
units and Retention of 100 per cent foreign exchange earnings in the Exchange Earners
Foreign Currency (EEFC) Account.
Beside above many other incentives and facilities are announced by the GOI in
periodic foreign trade policy. The first SEZs were set up in Positra, Gujarat and the
second in Nanguery, Tamil Nadu. There are many others in different parts of the country.
Export Houses and Trading Houses: An Export/Trading Houses is defined as
registered exporters holding a valid export houses certificate issued by the Director
General of Foreign Trade. The Government of India accord recognition and issues
certificate to those exporters who fulfils the minimum prescribed requirements in terms of
their export performance. These houses operate as highly dynamic and professional
institutions and act as important instruments of export growth. These houses are entitled
for several benefits from the government under different schemes and as under the
registered exporter’s policy.
Export incentive
Duty Exemption/Drawback: It was first introduced in the second plan and since then
various modifications have been done in this scheme. This scheme aims at evading the
incidence of commodity taxes like excise duty and customs duty on the export so as to make
export more price competitive. Under this system the exporters are either exempted from
the payment of duty or are reimbursed for duty paid on the imported raw materials and
intermediates and central excise duty on domestically procured inputs which enter into
export production.
Tax Concession: Apart from concessions and exemption from indirect taxes, exporters are
also granted certain tax concessions in income from exports.
Other Schemes to Neutralise Effect of Duties: Many schemes like Export Promotion
Capital Goods (EPCG), Duty Free Replenishment Certificate (DFRC), Duty Remission
Scheme and the Duty Entitlement Passbook Scheme were introduced to neutralise the effect
of duties paid on imports by the exporters.
Awards: In order to encourage exports and to recognise excellence in export, number of
awards has been introduced for different categories of exporters. Awards are given on the
basis of certain specified criteria such as development of a market for products which have
not been exported previously, increase in exports, introduction of new products, product
development, reaching export targets etc.
Market Access Initiative (MAI): This scheme was introduced in 2001 for undertaking
marketing promotion efforts abroad on country-product focus approach. The scheme
provides financial assistance to Export Promotion Council, Government Agencies, Indian
Commercial Missions Abroad and other eligible entities. The MAI scheme provides fund to
undertake market studies, setting up showrooms, sales promotion campaigns, brand
promotion, participation in international trade fairs and setting up international departmental
store etc.
Marketing Development Assistance: This scheme too provides financial assistance for
wide range of export promotion activities implemented by export promotion councils,
industry and trade associations every year. The assistance provided for participation in trade
fairs in India and abroad and export promotion seminars; travel grant is available to
exporters if they travel to countries in one of the four Focus Areas, such as, Latin America,
Africa, CIS Region, ASEAN countries, Australia and New Zealand.
Assistance to State for Infrastructure Development of Export (ASIDE): In order to
encourage state participation in export promotion effort ASIDE Scheme was announced in
2000. This scheme aim is to provide funds to the states based on the twin criteria of gross
exports and the rate of growth of exports from different states, 80 per cent of the total funds
would be allotted to the states based on the above criteria and the remaining 20 per cent will
be utilized by the centre for various infrastructure development like roads connecting
production units with the ports, setting up inland container depots and container freight
stations, creation of state level export promotion industrial parks/zones, developing facilities
in existing zones, stabilizing power supply, equity participation in infrastructure projects
and any other activity as directed to them by the Department of Commerce from time to
time.
3. EXPORT PROMOTION POLICIES AND WTO
Exports are considered as an engine for economic growth of the country and to
promote export, export promotion schemes and measures plays an important role. To
promote the global trade an international body called the WTO was set up with objective to
liberalise world trade in the interest of all nations of the world. Freer world trade will
become an engine of growth and India can compete to gain strategic advantage by focussing
on the area of its potential competitive advantage3. Many countries consisting of both the
developed and the developing, are the members of WTO, this membership enforce them to
participate in the multilateral trading system and entails them to open domestic markets to
international trade. This obligation requires the member countries to design their export
promotion schemes and strategies according to the WTO rules and agreement. India being
the member of WTO is too bound to frame its export promotion schemes keeping in mind
the WTO rules. In this context it is important to observe the WTO status of export
promotion measures in relation to India.
Before the establishment of the WTO the Government of India provided many export
incentives to exporters which made them dependent on it. However all the incentives did
not form subsidies under the WTO agreement but some of them were incompatible with
WTO rules, which was later on re-announced to make it WTO compatible. Over the years
many developing countries including India have advanced argument in different WTO
negotiating forums that the intensity of export assistance in developing countries as
compared to the developed countries is more important due to their structural and economic
backwardness in the form of poor infrastructure, low level of technology and capital, low
quality inputs and high transaction costs etc.
Many trading partners have considers export incentive of India inconsistent with the
WTO rules and hence number of anti-subsidy proceedings against the country’s export has
been initiated by the European Commission and the US trade administration. This requires
having clear understanding of the Agreement on Subsidies and Countervailing Measures
(SCM) framed in Uruguay Round so as to have clarity about the export incentive that
constitutes subsidy and hence subject to the disciplines of the SCM agreement and devise
the export promotion schemes that are least actionable within the agreement and at the same
time promote exports from the country.
Agreement on Subsidy and Countervailing Measure4
The Agreement on Subsidy and Countervailing Measures under the WTO clearly
defines the subsidy. Article 1 of the ASCM defines a measure is considered to be a subsidy
if it contains the following three elements (a) it is a financial contribution (b) the
contribution is by a government or any public body within the territory of a Member and (c)
the contribution confers a benefit. A financial contribution may be a direct transfer of funds
(that is in the form of grants, loans, and equity infusion or could also be in the potential
sense when government provides for loan guarantees), or whether Government revenue,
otherwise due, is foregone, or the Government provides goods or services, or makes a
payment through a funding mechanism. However the remission or drawback of duties on
the inputs used in the production of exports is not considered as financial contribution and
as subsidy but the excess of remission or drawback is considered to be a financial
contribution, and is also considered a subsidy. Any government’s financial contribution for
general infrastructure such as rail, roads, ports etc. is also not considered as subsidy. Para’s
(a) (2) of Article 1 also includes as a subsidy any form of income or price support as defined
in Article XVI of GATT 1994. A benefit must be conferred as a result of the above
mentioned financial contributions on the beneficiaries.
A subsidy cannot be subject to action under ASCM unless it is specific. Article II
lists the Subsidy which is specific and thus prohibited even if not listed under Article III,
which describes the prohibited, subsides. A subsidy is specific if it is granted to: a) an
enterprise, b) a group of enterprises, c) an industry, d) a group of industries, e) a group of
enterprises in a designated geographical region. It is important to note that specificity may
be de jure or de facto. A subsidy is not specific if granted on the basis of objective criteria
or conditions (eg, number of employees). All subsidies under Article III are regarded as
specific.
Types of Subsidies.
The Agreement classifies subsidies into three categories viz. Prohibited, Actionable
and Non-actionable subsidies. The classification is based on the principle that the more
distortive the effect of the subsidy the more stringent the discipline to which it is subject.
Thus, Article 3 prohibits the use of export subsidies which are considered most distortive,
and the less distortive subsidies are made Actionable under Articles 5, 6 & 7, and the least
distortive subsidies are categorised as non-actionable subsidies as Green subsidies.
1. Prohibited Subsidies (listed in Article III) are of two types:
a) All the subsidies that, de jure or de facto, are contingent upon export performance (or export subsidies) and
b) All the subsidies that is contingent upon the use of domestic rather than imported inputs/ goods (local content subsidy).
These subsidies tends to distort trade and thereby the interest of many member
countries of the WTO.
The Developing country members have been given special and differential treatment
under ASCM. Exemption from the prohibition on export subsidies is an example of
differential treatment to Annex VII countries. The Developing country members with per-
capita income greater than US$ 1000 have been given 8 years period to phase out their
export subsidy. Indian being in the list of Annex VII is exempted from the prohibition of
export subsidies till 2003 and even after that if its per capita income is less than US$ 1000.
Though the exemption does not give Indian exporters relief from countervailing duties,
which can be and are being imposed by some countries, in cases where imports from India
are causing material injury to domestic industry.
However as per Annex VII member country must phase out all export subsidy to a
particular product if the member’s export of that product reaches 3.25 per cent share of the
world trade in that product for 2 consecutive years as in such cases, a member is assumed to
have export competitiveness in that product. Thus, regardless of whether the per capita
income is more or less than US$1000 per year if a country like India attains export
competitiveness in any product, the export subsidies will have to be phased out for that
particular product, and the phased out period for India is 8 years, though not for others. In
case of India, the share of most of its exports falls below this threshold level. However
India’s export share in textiles and clothing was calculated by the WTO Secretariat in
response to a request made by the United States in February 2010 and was found that it
crossed 3.25 per cent in 1996 itself and, more recently, it has been in the range of 4 to 4.5
per cent. India’s share in the world trade of several textile headings is much higher at 8.1
per cent for men’s shirts and 15.7 for women’s blouses, for instance, in 2008. The United
States, the single largest importer of India’s textiles products, accounting for around $10
billion trade, has moved the committee against India’s policy of subsidising its textiles
exports. So as per the ASCM agreement, India will have to phase out export subsidies. The
phase out will have to be for all textiles products if the decision is to go by a section of the
HS, but the decision could also be to take individual headings as the basis. It was felt by
officials that textile products have surpassed the export competitiveness threshold on
section-based calculations and if they calculate on the basis of the 14 chapters, then only
seven of products fall in the competitive category.
The US has asked India to withdraw schemes like Technology Up gradation Fund
Scheme (TUFS) and Technology Mission on Cotton (TMC). India isn’t willing to oblige.
“Schemes like TUFS and TMC are not provided to only exporters. These schemes are
extended to the domestic sector as well,” said the official. “Even if the Indian government
has to withdraw its subsidies for the textiles sector, the Indian government should follow the
example of quota phase-out by the USA and EU under the provisions on agreement on
textiles and clothing. Subsidies of low impact can be withdrawn first and those with serious
implications can be withdrawn at the end of the phase out period that India would be
entitled to,” said DK Nair, secretary general, Confederation of Indian Textiles Industry.
The members listed in Annex VII would remain eligible for the exemption until
their GNP per capita reached US $ 1,000 in constant 1990 dollars for three consecutive
years. The World Bank data series, formerly identified as Gross National Product (“GNP”),
is now published as Gross National Income (“GNI”). According to the latest figures made
available by the Secretariat in June 2010, India’s GNI per capita at current dollars in 2008
stood at $1012 and at constant 1990 dollars, at $821. If the Indian economy continues to
grow between 8.5 and 9 per cent in the next few years, it would cross $1000 in constant
1990 dollars by 2012. Thus, by 2014 or so India may lose the benefit of an Annex VII
country.
The second category of prohibited subsidy (import substitution or local content
subsidy) did not apply to developing country Members for a period of 5-years ending on
December 31, 1999. For the least developing country Members the exemption period is 8-
years. India being a developing country Member has crossed 5-year exemption from
prohibition on import substitution. India is now prohibited from giving such subsidies.
2. Actionable Subsidies (those not falling under Article III and that meet the requirements
of Article V). Actionable subsidies are instead subsidies that are not prohibited under
Article III but may cause adverse effects and hence can be challenged, either through
multilateral dispute settlement mechanism or through countervailing action. By adverse
effect it is meant harm caused to
1) the domestic industry in the importing country,
2) foreign exporters competing with domestic exporters in a third market, or
3) Foreign exporters competing with domestic exporters in the domestic market.
Most domestic subsidies come under the category of actionable subsidy if they are
specific to an enterprise or group of enterprises. The Adverse effect can be caused in three
possible ways: (i) Injury (ii) nullification or impairment, and (iii) serious prejudice.
If subsidised imports cause injury to domestic industry of the complaining member,
the member can seek remedy against the subsidy. Injury could be current material injury in
which case it must be based on evidence involving an objective examination of both volume
of subsidised imports and its effect on the price. Injury could also be in terms of the threat
of material injury in which case it must be based on facts and not merely on possibility.
Finally, injury could also be in terms of material retardation of the establishment of a
domestic industry.
Subsidies that cause injury can be challenged both at a unilateral and at a
multilateral level. Countervailing action is a unilateral remedy whereas the Dispute
Settlement Mechanism provides for a multilateral remedy. In case of injury, both these
remedies could be invoked in parallel but only one form of relief is eventually available.
The second possible cause of adverse effect is nullification or impairment of
benefits, that arises where improved access to market from a bound tariff reduction is
undercut by subsidisation in that market.
Serious Prejudice is the final cause of adverse effect that arises where a subsidy
leads to (a) displacement or impedance of the complaining member’s exports, either in the
market of the subsidising member or in a third country market (b) significant price
undercutting or price suppression or (c) an increase in the subsidising member’s world
market share in a subsidised primary product or commodity.
Both nullification/impairment and serious prejudice can form the basis for a
complaint related to harm to a member’s exporting interests and can be challenged at the
multilateral level, that is, at the Dispute Settlement Mechanism only.
However, Articles 27.7-27.9 of the ASCM contains special and differential
treatment for developing countries and hence disciplines pertaining to serious prejudice do
not apply to developing country members now. Regarding actionable subsidies granted or
maintained by a developing country member, action can now be taken only if there is
nullification or impairment of tariff concessions or injury to a domestic industry in the
market of an importing member.
3) Non-actionable subsidies
Article 8 of the ASCM initially identifies some subsidies, which are non-actionable
and therefore cannot be challenged multilaterally or be subject to countervailing action.
These subsidies relate to research subsidies, assistance to disadvantaged regions, and
environmental subsidies. These subsidies does not cause adverse effects or are considered to
be of some merit and thus not to be discouraged. However, five-year period, under which
the subsidies were to be reviewed and further decision taken, lapsed on Jan. 1, 2000. So
these subsidies are no longer permitted until further decision is taken on it. So, now only
non-specific subsidies are non-actionable.
It needs to be appreciated that Government of India is free in the legal sense to
devise financial assistance programmes for funding the industry as per the permissible
criteria mentioned in Article 8.2(a), (b) & (c).
Under DEPB and EPCG schemes beneficiaries are targeted on an individual and
case by case basis, which must be replaced by programmes that are based on general
criteria, which are indicated in the Agreement as Green Subsidies. The benefit through
government export promotion scheme should be in general and not to specific exporter.
The export subsidies in agriculture are relevant especially for developing countries.
Agriculture is the most sensitive issue in trade negotiations between developed and
developing countries. The rules concerning export subsidies in agriculture are treated in the
AOA that covers the “agricultural products” that are listed in the Annex I of the agreement.
The Agreement on Agriculture states that WTO members can only grant export subsidies to
the products and in the amounts listed in the members’ Schedule of Concessions (part IV of
the schedule). Article 9 lists the export subsidies that are subject to reduction commitments
expressed in terms of both the volume of subsidized exports and the budgetary outlays for
these subsidies. The Special and Differential Treatment also applies to export subsidies in
agriculture. This implies that flexibility regarding reduction commitments for a period of up
to ten years is granted to developing countries.
India’s Export promotion schemes and compatibility with WTO rules
Over period of time Government of India had provided various export promotion
schemes and incentives to the exporters through various institutions and agencies. This
assistance is in the form of both direct and indirect subsidies and included Cash
Compensatory Support, Replenishment Import Licence, Duty Exemption Scheme, Duty
Entitlement and Pass Book Scheme, EPGC, tax exemption of export income, subsidised
export credit and export credit insurance, bonded warehouses, support for export marketing
etc. However some of the schemes like cash compensatory support to exporters have been
removed so as to make them compatible with WTO rules. These schemes are provided by
the Ministry of Commerce through Directorate General of Foreign Trade and are included
in the EXIM Policy which is revised every five years and so is the scheme. Here we will
have the brief study of some of the export promotion schemes introduced by the
government under various foreign trade policies and its consistency with WTO ASCM rules
Duty exemption /Duty remission scheme
To allow free import of inputs used in the production of exports various exemption
schemes has been introduced by the government, whereas, the duty remission scheme
enables post export replenishment/ remission of duty on inputs used in the export product.
Some important forms of this scheme are given below;
Advance Licence is a scheme which allows import of inputs to be used in the production of
exports. The ‘actual user condition’ is applied and it is a quantitative and not a value-based
scheme. Import of inputs is determined on the basis of Standard Input/output Norms. Even
though SION sets notional costing based on what are considered to be the values of inputs
used to manufacture a particular product, the norms are set cautiously. Only positive value
addition is required. The licence is non-transferable. The licence is valid for a period of 18
months whereas the Agreement allows two-year period for the import of inputs under such
licences. The scheme is permitted within the general provisions of the Agreement, and as
such, is not countervailable.
Duty free Replenishment Certificate: DFRC allows drawback of duty paid on Import of
inputs used in the production of exports and to that extent represents a Substitution
drawback, it is permitted (under Annex I (i), Annex II and III of the SCM Agreement) and
hence is non-countervailable. DFRC or the imports made there under can be freely sold in
the domestic market (possibly at some premium) or used in a way conferring benefits in
excess of drawback of import charges. One could argue that the question of premium
doesn’t arise because the imports permitted under the certificate are not restricted. Although
the Agreement does allow for substitution drawback, it is not clear whether or not the
certificate or goods allowed there under can be transferred. To the extent the scheme leads
to excess drawback it is countervailable.
Excess drawback in the scheme is a subsidy because it is a financial contribution
by the Government of India in the form of duties foregone (to the extent of excess
remission) on imports that confer benefit to the holder of certificate. Moreover, since the
scheme is contingent on export performance it is specific under Article 3.1(a). Furthermore,
the Minimum Value Addition condition can be interpreted, as favouring the use of domestic
over foreign inputs under Article 3.1(b) that is no longer permitted. The MOC notes that the
minimum value addition is with respect to the use of factors of production and not on the
use of domestic goods as mentioned in the Agreement.
Duty Entitlement Passbook Scheme (DEPB)
In this scheme no actual user condition applies. The credit obtained under the
scheme, even if the credit is in accordance with SION, can be used to offset customs duties
due on imports of any goods (excluding those on negative list). There is no restriction on
the use of imported goods in the production of exported goods. The imported goods can be
either sold in the domestic market or can be used in any other way. Furthermore, licences
and thus credit are freely transferable. Using SIONs, the average value of imported inputs is
calculated based on bills of entry of exporters, which are cross-checked with the custom
houses. Once the average value of inputs is determined, incidence of customs duties on
inputs is calculated. The spirit of the SCM Agreement is not in the linking of inputs to the
production of exports but the fact of refunding of taxes/duties levied on inputs actually used
in production of exports. Going by this spirit, the scheme is to be deemed countervailable
only if there is any excess remission/refund of duties and taxes. Given this, the basis of
countervailability of the DEPB scheme is to be found in the manner in which DEPB rates
are calculated.
However depending on Article 3 of ASCM, which talks about “subsidies contingent,
in law or in fact, whether solely or as one of the several conditions, upon export
performance”. “Duty Entitlement Pass Book, which was essentially a subsidy scheme, has
already been withdrawn by the government in October 2011.
Schemes for EOUs/EPZs /SEZs/EHTPs/STPs:
Annex II allows for (b), (c), and (d) but not for (a). The suspension of duties on
import of capital goods within EOUs/EPZs/SEZs/EHTPs/STPs without the payment of
custom is countervailable within the Agreement even if the duty is only deferred during the
period of bonding as has been argued by government. Even if the duty is payable at a rate
proportionate to the depreciated value of capital goods when the capital goods are de-
bonded or sold, some duty is still foregone to the extent proportional to the accrued
depreciated value. The duty foregone represents financial contribution by the GOI,
conferring benefit to the units within the defined regions. Moreover, if and when to de-bond
the capital goods is a commercial decision taken by a company. Therefore, import of capital
goods duty free within these regions constitutes a subsidy and since it is contingent on
export performance within the meaning of Article 3.1(a) of the SCM Agreement, and is
therefore specific and hence is countervailable. Furthermore, typically, sale by these units in
domestic tariff area is subject to payment of lower excise/customs. Although, this particular
feature has not been countervailed in the CVD cases brought against Indian exports, this can
potentially be considered a subsidy and hence countervailable. The same is true of
concessional rent charged for industrial plots in these zones.
India run schemes, such as Special Economic Zones, Export Oriented Units and
Focus Market Schemes, which may be interpreted as prohibited export subsidies.
Special Import licences
SIL is countervailable as permission on import of products otherwise not freely
importable confers benefits in the form of providing opportunity for generating economic
rent to the holder of licence. These licences could be freely sold at a premium. So in this
sense it is financial benefit conferred by the government. Moreover, granting of SIL was
contingent on export performance within the meaning of Article 3.1(a) of the SCM
Agreement, and is therefore specific and hence is countervailable.
Duty Drawbacks (All Industry Rates or Brand Rates)
Brand Rate Drawback is non countervailable since it is based on the actual utilisation
data provided by an exporter and this data is subject to verification. However, All Industry
Rates which are essentially average rates can often be too much off the actual duties paid by
a particular manufacturer exporter, especially the efficient manufacturers. Hence All
Industry Rates can be countervailable if it is shown that the manufacturer exporters have
received excess drawback based on All Industry Rates. Hence All Industry rates can be
problematic under the WTO.
Loan Guarantees by the Government
Typically, a public sector unit receiving government loan guarantee secures loan on
favourable terms than what it would in the absence of such guarantee. Therefore, the unit
stands to benefit from the government provided loan guarantee to the extent of the
difference between the actual amount and the amount it would have paid in the absence of
government loan guarantee. Moreover, such benefit is limited to public sector companies
selected by the government on ad hoc basis and not widely available based on any
economic criteria, the benefit is specific. It is also a financial contribution by the
government as per Article 1 (a) (i) of the Agreement. Hence the program is countervailable
under Annex I (j) of the Agreement.
Financial Support to the Exporters by Commercial Bank
In the past, CVD actions against exports from India have found the schemes of pre-
shipment and post-shipment credit as countervailable. A government subsidises export
credit under Annex I (k) of the Agreement if the rate at which export credit is granted by a
lending agency is below the rate at which it secures funds or credit. In India, since bulk of
export credit is extended by commercial banks that source their funds through public
deposits the comparison of the two rates (rate charged on export credit and rate paid on
deposits) can give some idea if the rate is indeed subsidised. Although the gap between the
two rates is positive (i.e., export credit rate is higher than the deposit rate), this gap does not
consider the fact that of high cost of raising funds by the banks on account of non-
performing assets holding, reserve requirements, directed lending and transaction costs as
also pointed out by Hajra (1999). It is likely to be the case that when these factors are
considered the rate charged by the banks, is subsidised. In some CVD investigations, for
example one on the SAIL exports of Cut-to-Length Carbon-Quality Steel Plate to the US,
the interest rate charged to the exporters is compared with the rate on normal commercial
credit. For this the prime lending rate is the best benchmark. The rates on export credit in
foreign currency came into force with effect from April 19, 2001.That is, credit of similar
nature given for commercial purposes to the non-export borrowers. For calculating this, the
rate charged by public sector banks to public enterprises is not considered. The credit policy
for 2001-2002, explicitly links rate that can be charged on export credit to PLR. (PLR is the
best benchmark for measuring the extent of export subsidy on this count). Export credit at
least for the period up to 180 days in case of pre-shipment credit and up to 90 days in case
of post-shipment credit clearly entails subsidy to the extent of the difference between the
actual rate charged and the PLR, and hence countervailable.
4. EXPORT PROMOTIONAL MEASURES UNDER FOREIGN
TRADE POLICY
The foreign trade policy of the country refers to the policies and practices that affect
and regulate import and export of the country. Foreign trade policy includes many laws,
decrees, regulations and procedures that will affect foreign exchange, imports, exports,
foreign investment, and international relations. A foreign trade policy also includes trade
promotion policy. The “trade promotion policy” of a country comprised of programmes and
measures that promote and develop trade with other countries. It includes all regulations and
practices that will increase exports and imports. Trade promotion policies are part of the
overall foreign trade policy, and cannot be considered alone. The country's foreign trade
policy must make it possible to achieve trade promotion policy objectives.
While formulating foreign trade policy, trade promotion programmes must come
from a rational mix of consistent policies and institutions as single policy cannot lead to
implementation of promotional activities and the implementation of the policies should be
the responsibility of all desired bodies and institutions. While drafting export promotion
programme, the general foreign policy of the government must also be taken into
consideration. A successful trade promotion programme will respond to market conditions
abroad, the needs of exporters and the production possibilities within the country.
In order to boost the export of the country, the Government of India has announced and
implemented trade policies from time to time. These trade policies are designed in manner
to provide all possible form of incentives and facilities to the exporter and to remove
bottlenecks in the export production. The government formulate trade policies in response
to domestic political forces and variety of interest group, specially trading partners and
those with whom the country has entered into some regional or bilateral trade agreement.
Since the establishment of WTO India is committed to different agreements under WTO as
per member obligation and hence has devised its EXIM policy since 1997 accordingly. Here
we will have a brief study of developments in India’s foreign trade policy since
independence.
The period from 1950s to 1970s, witnessed import restriction and from 1960s
onwards export promotion and import liberalization for export became the objective of the
trade policies. It was in the 1960s, the institutional framework for promoting export was
broadened and certain fiscal incentives like drawback of import duty refund of exercise
duty, income tax concession and import entitlement against exports in respect of a number
of manufactured and processed products was introduced. Thus the policy system of the
period 1962-66 began with outward orientation but with relatively greater emphasis on the
export promotion aspects5. In June 6, 1966 there was devaluation of the India rupee with the
expectation that it would encourage exports and discourage import but it did not prove
beneficial. On the other hand export promotion schemes like import entitlement and cash
subsidy was withdrawn.
In 1970, government announced Export Policy Resolution. It points out that a steady
increase in export earnings is dependent on the continuous development, and expansion of
export oriented production. The aim of such development should be promotion of economic
efficiency, diversification of production and better utilisation of skilled and unskilled
manpower. There is need for exploiting the export potentials of industrial, agricultural, and
horticultural sectors by an appropriate development of the export-oriented segments of these
sectors. Until 1975-76, the trade policy was successful in restricting imports and promoting
exports. From 1975-76 onwards government adopted import liberalization policy with the
objective to promote exports. The policy include schemes like Open General Licence
(OGL), import replenishment, simplified procedure, EOUs, FTZ, duty free import,
canalisation, joint ventures etc.
In the year 1980, industrial policy was announced with faster promotion of export
oriented and import-substitution industries as one of the objective. The promotional
measures were adopted so as to earn more foreign exchange to meet the increase value of
imports in the country. The government, for the first time, announced the export-import
policy on a three year basis in April, 1985 which aimed at strengthening export production
base and facilitating technological up gradation, apart from initiating some new scheme and
strengthen the old one. The export-import policy announced again in March, 1988 for three
years basis was based on the realization of the planners on time-tested import substitution
strategy for self-reliance under the policy, export promotion got greater emphasis. The
range of export products, qualifying for import replenishment, was widened. The duty
exemption scheme was made available to the registered exporters for boosting up exports.
India’s Outward Oriented Trade Policy
Trade policy reform was initiated in 1991 and India gave new look to trade policy
system from the inward-oriented policy to an outward-oriented policy. The new trade policy
1991 initiated the policy of liberalisation, that is, reduction in the government control and
removing all the barriers that acts as an obstacle in the way of free flow of exports and
imports. As the former Commerce Minister, Mr P. Chidambaram remarked:” Human
intervention-described as discretion-at every stage, has stifled enterprise and spawned
arbitrariness.” The new liberalized trade policy, which was announced on July 5, 1991, was
formulated in a ‘transparent and free’ system and introduced drastic trade reforms. However
some of the items of import and export were placed under the control, depending upon the
country’s need and requirement. The main features of the new trade policy are as follow6:
Cash compensatory Scheme (CCS) was suspended with effect from July 3, 1991.
Replenishment licensing scheme (REP) was introduced as a principle instrument
for export-related imports. It is now be called EXIM scrip and can be freely
traded.
All additional licenses granted to the export houses stand abolished.
All exports are entitled to have a uniform Rep rate of 30 % of freight on (FOB)
value.
All import licensing for capital goods and raw materials except for a small
‘negative list’ have been removed in gradually.
All items have been decanalised except those are essential.
The EXIM Policy was made valid for the period of five years from March 1992 with
the announcement of the Export-Import policy 1992-97 with the objective to accelerate
country’s export, new incentives for export promotion, improving the quality of image
abroad, improving R&D and technological capabilities, streamlining EXIM procedures etc.
The regulatory role of the EXIM policies is increasingly becoming unimportant in the
recent years in the light of India’s obligations to WTO to remove QR on imports7. The
EXIM Policy 1992-97 involved the following measures:
Free trade of many items was allowed except a negative list of imports and
exports.
The scope of duty exemption scheme has been enlarged by introducing value-
based advance licenses beside the quantity-based advance license.
Export houses, trading and star trading houses will be eligible for the self-
certification under advance license scheme, which permits duty free imports for
exports.
The EPCG scheme has been liberalised with two windows for the imports of
capital goods at concessional rates of duty of 25 per cent and 15 per cent. EPGC
was also extended to service sector
The 100 per cent export oriented units and those in free trade zones and export
processing zones are given additional facilities.
The EXIM scrip has been abolished due to convertibility of rupee.
Increase in number of benefits in case of deemed exports like, Duty Exemption
Scheme, Drawback Scheme, Exemption from Terminal Exercise Duties and
Special Import License.
The adoption of policy of transparency and simplification in procedures.
The EXIM Policy announced in the ninth five year plan 1997-2002 aimed at
capturing at least 1 per cent share in the world trade and set the export target of US$ 100
billion to be achieved by 2002. It has the following features:
Import restriction on large number of consumer goods was removed.
The value based advance license scheme has been scrapped and quality based
advance license scheme was retained.
The Duty Entitlement Pass Book Scheme was updated and the exporters were
granted duty credit on the basis of notified entitlement rates.
Export Promotion Capital Goods Scheme and Duty Exemption Scheme have been
extended to agricultural and allied exports.
Deemed exports status has been extended to oil and gas sectors, earlier it was
meant for only power sector.
No additional custom duty on import of capital goods for marine and electronic
sectors.
Special Import License (SIL) entitlement has been enhanced for small-scale units,
products manufactured in the North East, companies holding ISO-9000
certification, perishable agricultural products and companies venturing to explore
new markets.
Special Economic Zones were to setup in Tamil Nadu and Gujarat. Agri
Economic Zones were launched.
Software units allowed to export using data communication links or in physical
form through courier service.
The new policy emphasized upon improvement in transparency and checking of
misuse by pruning procedures.
The EXIM Policy 2002-07 came into force with effect from April 1, 2002 and had
following features:
The Special Economic Zone (SEZ) scheme has been strengthened by permitting the
setting up off banking units, hedging of commodity price risks and sourcing of
short-term External commercial borrowings.
DEPB to continue. Duty Exemption Entitlement Certificate Book abolished.
Advance license limit for exporters delimited.
Under EPCG scheme, licenses of Rs.100 crore or more to have 12 years export
obligation period, with a five year moratorium.
Deemed exports would be eligible for export obligations fulfilment under EPCG
scheme and other deemed export benefits to continue.
Removal of quantitative restrictions (QRs) on exports except for a few sensitive
items like onion.
EHTP scheme modified to enable the sector to face the zero duty regimes under the
information technology agreement of the WTO.
Threshold for the status certificate as export houses at Rs5 crore (down from Rs15
crore) for tiny, cottage, small industries.
Under software exports technology park units exempted from NFEE as a percentage
of exports criterion.
Licensing regime for rough diamond abolished.
The EXIM Policy 2004-2009
The EXIM policy 2002-07 announced by the NDA government was replaced by
EXIM policy 2004 -09 announced by the UPA government when it came into power after
elections. The current EXIM policy aimed at doubling India’s percentage share of global
trade within 5years. The key strategies to achieve these objectives include: unshackling of
controls and creating an atmosphere of trust and transparency, simplifying procedures and
bringing down transaction costs, neutralizing incidence of all levies on inputs used in export
products, facilitating development of India as a global hub for manufacturing, trading and
services, identifying and nurturing special focus areas, facilitating technological and
infrastructural up gradation of all sectors of the Indian economy and activating our
embassies as key players in our export strategy.
The key features of the foreign trade policy 2004-09 are as follow;
1. Doubling share of global merchandise trade
The FTP targets to double it to 1.5 per cent by 2009 that is exports would have to
rise to about $ 140 billion.
2. Five thrust sectors:
Sectors with significant export prospects coupled with potential for employment
generation in semi urban and rural areas have been identified as thrust sectors. FTP
announced specific strategies (termed ‘special Focus Initiative’) for five such
sectors: Agriculture, Handicrafts, Handlooms, Gems and Jewellery, and Leather and
Footwear sector.
Main strategies announced for the five sectors outlined in the FTP are as follows:
I. In agriculture, a new scheme called Vishesh Krishi Upaj Yojana has been
introduced to boost exports of fruits, vegetables, flowers, more forest
produce and their value added products. Export of these products shall
qualify for duty free credit entitlement equivalent to 5% of the value of
exports. In addition, the policy has made capital goods imported for
agriculture under the Export Promotion Capital Goods (EPCG) scheme duty
free.
II. The package for gems and jewellery sector includes (a) duty free import of
consumables for metals other than gold and platinum up to 2% of the value
of exports; (b) duty free re-import entitlement for rejected jewellery up to 2%
of the value of exports; (c) duty free import of commercial samples of
jewellery increased to Rs 1 lakh; and (d) allowing import of gold of 18 carat
and above under the replenishment scheme.
III. As far as the handlooms and handicrafts sector is concerned, the FTP has
announced that a new Handicraft Special Economic Zone will be established.
In addition, duty sops for trimmings and embellishments imported by
handlooms and handicraft producers have been increased to 5% of the value
of exports.
IV. In the leather and footwear sector, the duty-free entitlements of import
trimmings, embellishments and footwear components have been increased to
3%. This is expected to help the leather and footwear sector save up to 5% its
import costs. In addition, duty free import of specified items for leather
sector has been increased to 5% of the value of exports.
3. New categories of star Houses
The FTP has announced a new categorization of status holders. Under the new
scheme, export houses will be divided into five categories depending on their export
performance
Table 4.1: New Categories of Star HousesCategory Export performance in three years
1. Star Rs. 15 crore2. Star Rs. 100 crore3. Star Rs. 500 crore4. Star Rs. 1,500 crore5. Star Rs. 5.000 crore
Source: www.dgft.nic.in
A star export house will be entitled to get license, certificate, permissions and
customs clearance for both imports and exports on self-declaration basis. The star
export house will get benefit of 100% retention on foreign exchange in Export
Earner’s Foreign Currency (EEFC) account. It will also be eligible for consideration
under the target plus scheme and enjoy a number of other privileges.
4. Setting up of Free Trade and Warehousing Zones (FTWZs)
The FTP has introduced a new scheme to establish Free Trade and Warehousing
Zones (FTWZS) to create trade-related infrastructure to facilitate the import and
export of goods and services with freedom to carry out transactions in free currency.
This is aimed at making India into global trading hub.
5. Higher Support for Market and Product Diversification
27 new markets have been added under Focus Market Scheme. These include
16 new market in Latin America and 11 in Asia-Oceania.
A large number of products from various sectors including Engineering
products, value added Plastic products, Jute and Sisal products, Technical
Textiles, Green Technology products, Project goods, vegetable textiles,
Electronic items etc. have been included for benefits under Focus Product
Scheme (FPS).
The incentive available under Focus Market Scheme (FMS) has been raised
from 2.5% to 3%.
The incentive available under Focus Product Scheme (FPS) has been raised
from 1.25% to 2%.
6. Target plus scheme
Exporters who exceed the annual export target will be rewarded under the Target
Plus Scheme. This reward is in terms of entitlement to duty free credit based on
incremental export earnings. With the target for 2004-05 being fixed at 16%, the
lower limit for qualifying for these rewards is pegged at 20% for the current years.
Table 4.2: Target Plus SchemeIncremental growth Duty-free credit*
20%+ 5%25%+ 10%100% and above 15%
Of free-on-board (FOB) value of incremental exportsSource: www.dgft.nic.in
7. Focus on Infrastructure DevelopmentSome special measures announced for infrastructure development in the FTP are: (i)
The threshold limit of designated ‘Towns of Export Excellence’ has been reduced
from Rs. 1000 crore to Rs. 250 crore in the five thrust sectors announced; (ii) Funds
from ASIDE (Assistance to States for Infrastructure Development of Exports) would
now be used for the development of Agri Export Zones also; (iii) Pragati Maidan at
Delhi will be transformed into World-class complex.
8. Sops for EOUs
The benefits for Export-oriented units (EOUs) includes: (i) EOUs hall be exempted
from service tax in proportion to their exported goods and services; (ii) EOUs shall
be permitted to retain 100% of export earnings in EEFEC accounts; (iii) income tax
benefits on plant and machinery shall be extended to DTA (Domestic Tariff Areas)
that convert into EOUs; and (iv) Import of capital goods shall be on self-certification
basis for EOUs.
9. Simplification of procedures and Reduction of Transaction costs
The FTP has announced number of ‘rationalization, measures to reduce transactional
cost and simplify procedures. These includes (i) all exporters with minimum
turnover of Rs. 5 crore exempted from furnishing bank guarantee (ii) Import of
second hand capital goods permitted without any age restrictions; (iii) all goods and
services exported, including those from DTA units, exempted from service tax ;(iv)
Validity of all license and entitlements issued under various scheme increased to a
uniform 24 months; (v) time bound introduction of Electronic Data Interface (EDI)
for export transactions etc.
10. Other Measures
Biotechnology parks will be setup in the country having all facilities of 100%
EOUs.
The Board of Trade shall be revamped and give clear dynamic role.
Financial assistance will be provided to exporters for meeting their costs and
legal expenses related to trade matters like anti-dumping action and
countervailing duties in other countries.
Although the DEPB is WTO-incompatible, it shall be continued as it covers
52% of India’s exports and is easy to administer.
The EXIM Policy 2009-14
The Foreign Trade Policy 2009-14 came into force with effect from 27th August,
2009 and shall remain in force up to 31st March 2014. The main objective of this policy
was as follow:
An annual export growth of 15% with an annual export target of US$ 200 billion by March 2011;
To come back on the high export growth path of around 25% per annum in the remaining three years of this Foreign Trade Policy i.e. up to 2014;
To double India’s exports of goods and services by 2014; The long term policy objective for the Government is to double India’s share in
global trade by 2020.
The main features of FTP Policy 2009-14 are as follow:
1. PROMOTIONAL MEASURES IN DEPARTMENT OF COMMERCE
I. Assistance to States for Developing State Infrastructure and Allied Activities:
Scheme for Assistance to States for Developing Export Infrastructure and Allied
Activities (ASIDE) is formulated to involve the States in the export effort by
providing assistance to the States Governments for creating appropriate
infrastructure for the development and growth of exports. The specific purposes for
which funds allocated under the Scheme are as follow: Creation of new Export
Promotion Industrial Parks/ Zones (SEZs/Agri Business Zones) and augmenting
facilities in the existing ones; Setting up of electronics and other related
infrastructure in export conclave ; Meeting requirements of capital outlay of EPIPs/
EPZs/SEZs; Development of complementary infrastructure such as, roads
connecting the production centres with the ports, setting up of Inland Container
Depots and Container Freight Station, stabilizing power supply etc.
II. Market access initiative: Under MAI scheme, financial assistance is provided for
export promotion activities on focus country, focus product basis. Financial
assistance is available for Export Promotion Councils (EPCs), Industry and Trade
Associations (ITAs), Agencies of State Government, Indian Commercial Missions
(ICMs) abroad and other national level institutions/eligible entities as may be
notified. A whole range of activities can be funded under MAI scheme. These
include, amongst others, market studies/surveys, setting up of showroom /
warehouse, participation in international trade fairs, displays in International
departmental stores, publicity campaigns, brand promotion, assistance for contesting
Anti- Dumping litigations etc. Each of these export promotion activities can receive
financial assistance from Government ranging from 25% to 1 00% of total cost
depending upon activity and implementing agency.
III. Market Development Assistance: Under MDA Scheme, financial assistance is
provided for a range of export promotion activities implemented by EPCs and Trade
Promotion Organizations on the basis of approved annual action plans. Assistance
includes, for participation in i. Trade Fairs and Buyer Seller meets abroad or in
India, export promotions seminars, financial assistance with travel grant is available
to exporters travelling to focus areas, viz., Latin America, Africa, CIS region,
ASEAN countries, Australia and New Zealand. In other areas, financial assistance
without travel grant is available.
IV. Towns of export Excellence: A number of towns have emerged as dynamic
industrial hub and it is necessary to grant recognition to these industrial clusters with
a view to encourage them .Selected towns producing goods of Rs. 750 Crore or
more will be notified as TEE based on potential for growth in exports. However for
TEE in Handloom, Handicraft, Agriculture and Fisheries sector, threshold limit
would be Rs 150 Crores. (i) Recognized associations of units will be provided
financial assistance under MAI scheme, on priority basis, for export promotion
projects for marketing, capacity building and technological services. (ii) Common
Service Providers in these areas shall be entitled for EPCG scheme. (iii) The projects
received from TEEs shall be accorded priority by SLEPC for financial assistance
under ASIDE.etc.
V. Brand Promotion and Quality: The primary objective to promote and
create international awareness of the “Made in India” label in markets overseas.
DOC provides funds for capacity building for up-gradation of quality to national
level Institutions and EPCs to organize training programmes for the skill
improvement of the exporters for quality up-gradation, reduction in rejection,
product improvement etc. as provided under the Market Access Initiative (MAI)
Scheme .
VI. Test houses: Central Government will assist in modernization and upgradation of
test houses and laboratories to bring them at par with international standards.
Measure for simplification of procedures, reduction of transaction costs and providing
flexibility to exporters
Flexibility provided to exporters
Payment of customs duty for EO shortfall under Advance Authorization/DFIA/
EPCG authorization allowed by way of debit of Duty Credit scrip’s.
Import of restricted items, as replenishment, now allowed against transferred
DFIAs, in line with the erstwhile DFRC scheme.
Time limit of 60 days for re-import of exported gems and jewellery items, for
participation in exhibitions extended to 90 days in case of USA.
Transit loss claims received from private approved insurance companies in India
now be allowed for the purpose of EO fulfilment under Export Promotion schemes.
Simplification of Procedures
Number of samples/pieces allowed duty free import increased from the existing 15
to 50. Customs clearance of such samples now based on only declarations given by
the importers.
Exemption allowed for up to two stages from payment of excise duty in lieu of
refund, in case of supply to an advance authorization holder (against invalidation
letter) by the domestic intermediate manufacturer. At present, exemption is allowed
up to one stage only.
Three months’ time period allowed for conversion of Shipping Bills from one
Export Promotion scheme to other scheme by Customs.
Dispatch of imported goods directly from the Port to the site allowed under
Advance Authorization scheme for deemed supplies.
Disposal of manufacturing wastes / scrap now allowed after payment of applicable
excise duty, even before fulfilment of export obligation under Advance
Authorization and EPCG Scheme.
Regional Authorities now authorized to issue licenses directly for import of sports
weapons by ‘renowned shooters’, on the basis of NOC from the Ministry of Sports
& Youth Affairs.
The procedure for issue of Free Sale Certificate simplified and the validity of the
Certificate increased from 1 year to 2 years.
The application and redemption forms under EPCG scheme have been simplified.
Reduction of Transaction Costs
No fee to be charged for grant of incentives under the Schemes in Chapter 3 of FTP.
Further, for all other 18 Authorizations/ license applications, maximum applicable
fee is being reduced to Rs. 100,000 from the existing Rs 1,50,000 (for manual
applications) and Rs. 50,000 from the existing Rs.75,000 (for EDI applications).
Export Promotion Councils/ Commodity Boards advised to issue RCMC through a
web based online system. It is expected that issuance of RCMC would become EDI
enabled before June, 2010.
An Inter-Ministerial Committee formed to redress/ resolve problems/issues of
exporters.
An updated compilation of Standard Input Output Norms (SION) and ITC (HS)
Classification of Export and Import Items has been published.
Besides the policy measure government of India has entered into various regional grouping
to facilitate export expansion.
Regional Trade Arrangements
The regional trade agreements are measure by governments to liberalise or facilitate
trade on regional basis. Holzman (1976) writes regional or economic integration is a
situation in which the prices of all similar goods and similar factors in two regions are
equalized. This makes two regions in essence one region or market. This definition
implicitly assumes that there are zero barriers to movement of goods, services and factors
between the two regions and that there are institutions that facilitate that movements8. The
WTO agreements recognize regional trade arrangements and closer economic integration
benefits trading countries. However, it is also expected that under some circumstance,
RTAs could hurt the trade interests of other countries. This would violate the WTO’s
principle of equal treatment for all the trading partners, i.e. under most favoured nation
clause. However, GATT’s Article 24 allows RTAs to be set-up as a special exception,
provided certain strict criteria are fulfilled by the RTA. In particular, the arrangements
should help trade flow more freely among the countries in the group without barriers being
raised on trade with the outside world. Article 5 of the GATT provides for economic
integration agreements in services. The WTO General Council on February 6, 1996 had
already created the Regional Trade Agreements Committee, which examines the RTAs and
access, whether they are consistent with WTO rules9.
In forming bilateral and regional grouping India has given due consideration to
WTO rules regarding regional trade agreements. The regional trade arrangements should
further the objective of trade liberalization and should complement the multilateral trading
system. India gives priority to multilateral negotiations at the world trade organisation but
entering into regional trading agreements is also an important step to increase its export
market. So far India has entered into many bilateral and regional groupings both with
developed and developing economies, which are as follow:
The India Sri Lanka Free Trade Agreement was formed in 2000.
Preferential Trade Agreement (PTA) with MERCOSUR: A Framework Agreement
was signed between India and MERCOSUR on June 17, 2003 at Asuncion,
Paraguay. The aim of this Framework Agreement is to create conditions and
mechanisms for negotiations in the first stage, by granting reciprocal tariff
preferences and in the second stage, to negotiate a free trade area between the two
parties in conformity with the rules of the World Trade Organisation. As a follow up
to the Framework Agreement, a Preferential Trade Agreement (PTA) was signed in
New Delhi on January 25, 2004. The aim of this Preferential Trade Agreement is to
expand and strengthen the existing relations between MERCOSUR and India and
promote the expansion of trade by granting reciprocal fixed tariff preferences with
the ultimate objective of creating a free trade area between the parties.
India-ASEAN CECA: A framework of Indo-Gulf Cooperation Council (GCC)
framework agreement was signed on August 25, 2004, covering negotiations on
goods, services and India entered into a framework agreement for establishing an
FTA with Thailand in 2003 and signed a Comprehensive Economic Cooperation
Agreement with Singapore in 2005. This agreement covers trade in goods, services
and investment.
Framework Agreement on the BIMSTEC FTA (Bay of Bengal initiative for Multi-
sect oral Technical & Economic Cooperation, free Trade Area): It was signed in
February 2004 by Bangladesh, Bhutan, India, Myanmar, Nepal, Sri Lanka and
Thailand. The FTA in goods, services and investment is under negotiations.
Agreement on Comprehensive Economic Cooperation between the Association of
South East Asian Nations (ASEAN) and India was signed by the prime minister of
India and the Heads of National Governments of ASEAN members during the
second ASEAN-India Summit on October 8, 2003 in Bali, Indonesia. In august
2008, an understanding has been reached on an agreement on trade in goods
including Dispute Settlement Mechanism. A negotiation in trade in services and
investment has been concluded into 2009.
India was the main promoter of the Agreement on South Asian Free Trade Area
(SAFTA), which came into force in 2006. It was signed by all the member states
of South Asian Association for Regional Cooperation (SAARC); established in
1985 with objective to promote welfare of people of South Asia; members include
Pakistan, Sri Lanka (non-LDCs), Bangladesh, Bhutan, Maldives and Nepal
(LDCs). The agreement covers only trade in goods and negotiations on trade in
services are currently underway.
India-EU and Investment Agreement Negotiations: A High Level Trade Group
(HLTG) was set up as mandated by the India-EU Summit in New Delhi on
September 7, 2005. Commencement of negotiations on a broad-based bilateral
Trade and Investment Agreement was accepted by India and EU and negotiations
commenced in June 2007.
India-Japan EPA/CEPA Negotiations: the negotiations for concluding an
Economic Partnership Agreement (EPA/CEPA) between the two countries was
agreed in Jan-Feb 2007, in New Delhi. The negotiations are being held on FTA in
goods, services, investment and other areas of cooperation. Later the India-Japan
Comprehensive Economic Partnership Agreement (CEPA) was signed on 16th
February 2011. The agreement covers more than 90 per cent of the trade; it
includes services, investment, IPR, customs, other trade related issues.
India-Korea Comprehensive Economic and Cooperation Partnership Agreement
(CECPA): India and Korea are negotiating a CECPA covering goods, services and
investment.
India-Australia Economic Policy Dialogue: An India-Australia Economic Policy
Dialogue was held in April 2008, New Delhi. The dialogue includes the following
topics like Global and Regional Economic Outlook, Financial Sector reform,
goods and Services Tax and FDI.
INDO-UK Economic and Financial dialogue held on August 11, 2008 to discuss
on global economy and trade, Financial Services, Public Private Partnership,
climate change, low carbon low cost car technology, development and poverty
reduction.
Trade in Goods Agreement with ASEAN which will come in force from January
01, 2010, and to give enhanced market access to several items of Indian exports.
India-Malaysia Comprehensive Economic Cooperation Agreement (CECA): It was
signed on 18 February 2011 and came into force on 1st July 2011. The agreement
includes goods, services, investment and other areas of cooperation.
India-European Free Trade Association (EFTA) BTIA (Iceland, Norway,
Liechtenstein, and Switzerland): The Thirteen round of negotiation was held from
31 March to 6 April 2011 in New Delhi. Areas covered in negotiations include
trade in goods, services, SPS and TBT, IPRs and GIs, investment, rules of origin,
competition policy, customs and trade facilitation, trade defence, dispute
settlement, mediation mechanism, government procurement and sustainable
development.
Apart from above India is part of many other regional arrangements and some in
progress.
Hence it could be concluded that soon after the independence the significance of
export growth was felt by the country and the announcement of export policy resolution in
year 1970 was a major step towards boosting countries’ exports. Later in 1991 India
inherited outward oriented export promotional strategy and Government of India adopted
various export promotion measures to boost the exports.
REFERENCES
1. Aggarwal, M.R. (1982). Export Earning Instability and Economic Development
in Less Developed Countries: A Statistical Verification, Indian Economic
Journal, Vol. 29, No. 3, pp. 60-70.
2. Kaur, N. (1993). India’s Exports: An Analysis of Instability and Performance,
Ph.D. Thesis, Unpublished, Punjabi University, Patiala.
3. Singh K L Menjor (2001) , Arguments for and against Liberalization and
Globalization, in K L Menjor Singh, Economic Reforms in India : Problems and
Prospectus, Mittal Publications, New Delhi,p.34
4. Website: www.wto.org.
5. Panchamukhi, V R (1978), Trade Policies of India, A Quantitative Analysis,
Concept Publishing Company, Delhi, p.36
6. Chidambaram, P., Commerce Minister, Government of India: Policy Statement
in Parliament on July 5, /1991. The Economic Times, July 6, 1991
7. Paliwar K. Veena, (2010), Economic Environment of Business, PHI Learning
Private Ltd., New Delhi, p.348
8. Rich Z David, (1992), The Economics of International Trade, Quorum Books,
New York, P.175
9. WTO: “Regional Trade Agreements: Scope of RTAs”, by Jo-Ann Cramford,
Roberto V. Fiorentino, p.17
CHAPTER V
EMERGING PATTERN OF INDIA’S EXPORTS UNDER WTO
The WTO emerged out of the General Agreement on Tariffs and Trade
(GATT) negotiations with a mandate to extend and embed the global marketplace,
not least, through the integration of developing countries (Narlikar, 2005). The
creation of World Trade Organisation aimed at making global economy more
progressive and developed through a medium of international trade. It provides the
basis for the formation and enforcement of multilaterally agreed trading rules on
goods and services. It deals with many trade negotiations and agreement like on
agriculture, textile, TRIMS, TRIPS and services that will form a medium for better,
smoother and fairer international trade among member countries. The broad
coverage, scope, and depth of WTO agreements have increased the impact of the
trading system disciplines to various governmental policies as well as measures
taken for development purposes. Trade liberalisation and greater market access has
led to reduction and removal of many tariffs and non-tariffs trade barriers under
different level of negotiations held under it. Since WTO has established there are
153 countries as its member and all of them are bound to accept the rules lay down
by WTO and in case of non-consent to any matter by the member country issue are
settled down through negotiation and through dispute settlement body.
The WTO lay down the multilateral framework of rules that governs
international trade in more stable and transparent way. It recognized the structural
and economic challenges faced by developing countries, and provided them with
some special and differential treatment. This took the form principally of non-
reciprocity in trade concessions, such as preferential market access, the most
important of which were the Generalized System of Preferences (GSP) negotiated in
UNCTAD and the Lomé Convention granted by the EU to African, Caribbean, and
Pacific countries. It also comprised the dispensation from trade rules constraining
domestic policy action. India being its initial member so is expected to be benefited
by this membership and the above mentioned rules are of paramount imperative for
countries external trade. There are prospects of substantial expansion in India’s
exports through policy of liberalisation adopted by WTO. In the present chapter, an
attempt has been made to assess the impact of WTO on India’s export performance.
Export of a country depends upon various internal and external factors; however, it
is difficult to take up all in detail so effort has been made to find how far indicators
of India’s export strength have undergone perceptible change during the post WTO
period as compared with the pre WTO period. For this purpose of border analysis of
country’s export performance, pre WTO period is considered from the year 1990-91
to 1994-95 and post WTO period from 1995-96 to 2011-12. We will start with the
comparison of India’s export performance with that of developed countries and
developing countries to analyse India’s relative export performance in the pre and
post WTO establishment and then will study trends in value of trade, share in world
merchandise export, composition and direction of trade.
1. GLOBAL EXPORT TRENDS WITH REFERENCE TO
INDIA’S RELATIVE EXPORT BEHAVIOUR
International trade is an important factor in influencing economies of
nations. The Shift in policies of world trade more towards liberalisation by
dismantling of trade obstacles have helped small and newly emerging economies to
gain access to world markets. The creation of WTO had restructured world trading
system and had tried to reduce gap between developed and developing countries
through enlargement of waiver clause which recognises the weaker position of
developing countries.
Globalisation is the way towards world development as it policies enables
the developing countries to improve their competitive strength and stand along with
developed nations. The world economic integration during 1990’s was the result of
policy of WTO, which demands trade liberalisation, and dismantling of tariff and
non-tariff barriers among world nations. The growing technological advancement
and emergence of new economies gave further push to global integration process.
The freerer trade as advocated by WTO has brought robust performance in world
trade during past decade. At present WTO governs the greater part of international
trade. It has recognised the need to provide some special and differential treatment
in international trade to those developing economies, which faces various structural
and economic constraints in growth so that they could have progressive and
sustained integration into the world economy.
The inward-looking policy of international trade adopted in 1970s by most of
the developing countries could not help their growing trade deficits and weak
economic position. This ultimately led to the adoption of outward looking policy of
export promotion, which proved successful in promoting their external trade thereby
leading to expansion of world trade during 1990’s. The proactive development
strategies of developed and developing countries along with committed efforts of
WTO had led to the expansion and diversification in world trade. Before the
establishment of WTO it was the advanced economies of U.S.A., U.K., France,
Germany, Japan etc. that dominated the share in world trade because their products
enjoyed better competitive strength and had better accessing power in world market.
However even after the creation of WTO the share of above developed countries in
word trade is significant but does not enjoys the same figure and position as before
due to the emergence of developing countries of Asia and others which have
captured some of their share in world trade. This trend is the outcome of
commitment made by member countries of WTO not to use trade restriction
measures and trade-distorting subsidies as laid down under multilateral trading
system.
In this chapter India’s export trends is compared with that of few developed
and developing countries of the world in terms of value of exports in billion dollars,
percentage share in world exports and percentage growth rate in export. The
compound annual growth rate of export for few countries has been calculated for
four period one for pre WTO period, 1990-94, other for post WTO period ,1995-
2011, which has been further divided into two sub-periods one into first five year of
establishment of WTO,1995-2000, other from 2001-2011.
MERCANDISE EXPORTS- A CROSS COUNTRY ANALYSIS
Ever since the establishment of WTO there has been significant expansion in
world merchandise exports generally, at a rate faster than global output, with more
than double the value of export in past 16 years period. The world export has grew
at CAGR of 5.8 per cent ( in 1990-94) and 8.2 per cent (in 1995-2011) and the value
of world exports was US$ 3449 billion in 1990 which rose to US$ 4326 billion in
1994, US$ 6456 billion in 2000, US$ 10495 billion in 2005 and US$ 18217 billion
in 2011. The world annual export growth rate registered was 14.4 per cent (in 1994),
13 per cent (in 2000), 13.9 per cent (in 2005) and 19.4 per cent (in 2011). However,
in few years it has registered a negative growth rate of -1.6 per cent, -4.1 per cent
and -22 per cent in the year 1998, 2001 and 2011 due to crisis in East Asian nations
in 1997 and global recession and financial crisis during 2001 and 2011. Except for
few years, overall world export performance in post WTO period was satisfactory.
Now it is required to study relative export performance of selected developed and
developing nations in relation to India.
A Comparison with Export Trends of Developed Nations
Pre-WTO Period; 1990-94
In pre-WTO period (1990-94), India’s export performance compared to few
developed countries was way behind both in terms of value of exports and share in
world merchandise exports, though this trend was obvious as India being
economically weak country compared to developed ones but here comparative study
is undertaken just to see how far India lags behind in export performance compared
to developed countries. Through study of export developments, it was observed that
India’s export growth in terms of CAGR was high that is 8.6 per cent as compared
to U.S.A. (6.8 per cent), Germany (0.96 per cent), Japan (8.4 per cent), U.K. (2.6 per
cent), France (4.3 per cent), Italy (2.9 per cent) and Canada (6.8 per cent) during
1990-94.
India’s relative share in world exports was insignificant and increased by
marginal share to reach 0.6 per cent in 1994 from 0.5 per cent in 1990 (table 5.1),
which is way behind 11.9 per cent of U.S.A., 9.8 per cent of Germany, 9.2 per cent
of Japan, 5.8 per cent of France, 4.7 per cent of U.K., 4.4 per cent of Italy and 3.8
per cent of Canada in 1994. However the Annual percentage growth rate of export
of India was better in few years as compared to selected developed countries, as in
1993 India registered YOY growth rate of 10 per cent while many developed
countries recorded negative export growth rate, Germany(-11.6 per cent), France (-
6.4 per cent), Italy (-5.1 per cent) and U.K. (-4.7 per cent). Nevertheless overall
performance of India was not pleasing.
Table 5.1: Value, Growth Rate and Share of Exports of Developed Countries and India in World
(Value in billion dollars, Growth Rate and Share in per cent)YEAR U.S. GERMANY JAPAN U.K. FRANCE ITALY CANADA INDIA WORLD
VALUE YOY VALUE YOY VALUE YOY VALUE YOY VALUE YOY VALUE YOY VALUE YOY VALUE YOY VALUE YOY199 394 8.5 410 287 5.1 185 20.9 216 20.6 170 21.4 127 4.9 18 20 3449
0 (11.4) (11.8) (8.2) (5.3) (6.2) (4.9) (3.7) (0.5)
1991 422(12.0) 7.1 402
(11.4) -1.9 314(8.9) 9.4 185
(5.2) 0 217(6.2) 0.5 169
(4.8) -0.5 127(3.6) 0 18
(0.5) 0 3515 2
1992 448(11.8) 6.2 430
(11.2) 7.0 340(9.0) 8.3 190
(5.0) 2.7 236(6.2) 8.8 178
(4.7) 5.3 134(3.6) 5.5 20
(0.5) 11 3766 7
1993 465(12.2) 3.8 380
(10.2) -11.6 362(9.5) 6.5 181
(4.8) -4.7 221(5.8) -6.4 169
(4.4) -5.1 145(4) 8.2 22
(0.6) 10 3782 0.4
1994 513(11.9) 10.3 426
(9.8) 12.1 397(9.2) 9.7 205
(4.7) 13.3 256(5.8) 15.8 191
(4.4) 13.0 165(3.8) 13.8 25
(0.6) 13.6 4326 14.4
CAGR 6.8 0.96 8.4 2.6 4.3 2.9 6.8 8.6 5.8Data in bracket represents the share in world exportSource: Calculated on the basis of data collected from WTO, International Trade Statistics
Post-WTO Period; 1995-2011
In the post WTO period (1995-2011), India’s export grew at compound
annual growth rate of 15.1 per cent, which was more, compared to U.S.A. (6.0 per
cent), Germany (6.7 per cent), Japan (3.9 per cent), U.K. (4.4 per cent), France (4.3
per cent), Italy (5.1) and Canada (5.5 per cent), see fig.5.1. The export growth in
CAGR for other two sub periods 1995-2000 and 2001-2011 was again highest for
India compared to selected developed nations. This performance can be considered
as some progress in India’s relative export growth rate in post WTO.
Figure 5.1
U.S. Germany Japan U.K. France Italy Canada India WORLD0
2
4
6
8
10
12
14
16
6.8
0.9
8.4
2.6
4.3
2.9
6.8
8.6
5.866.7
3.94.4 4.3
5.1 5.5
15.1
8.2
Compound Annual Growth Rate of Exports of Selected Developed Countries and India
CAGR (1990-94)CAGR (1995-2011)
India’s value of exports in billion dollars and relative share in world exports
is substantially low as compared to selected developed countries, which is though
obvious due to various constraints faced by India in terms of structure, supply,
capital, resources and capacity. India’s share in world exports is not remarkable but
had crossed 1 per cent share in 2006 to reach to 1.6 per cent in 2011 from marginal
share of 0.6 per cent in 1995. While that of U.S.A. and Germany was 8.1 per cent,
Japan (4.5 per cent), France (3.3 per cent) and U.K. (2.6 per cent) in 2011 (see fig
5.2). However, India’s share in world merchandise exports is not substantial but has
increased throughout in post-WTO period and of few developed countries, it has
decelerated due to rise in the share of other countries.
Figure 5.2
U.S. Germany Japan U.K. France Italy Canada India0
2
4
6
8
10
12
14
11.3
10.1
8.6
4.6
5.8
4.5
3.7
0.60
0000
0000
0000
1
12.1
8.7
7.4
4.5 4.7
3.7 4.
3
0.70
0000
0000
0000
1
8.7 9.
3
5.7
3.7 4.
4
3.5
3.5
0.8
8.1
8.1
4.5
2.6 3.
3
2.9
2.5
1.6
Share of Merchandise Exports of Selected Developed Countries and India in World Merchandise Exports
1995200020052011
Throughout the post-WTO period, the value of exports in billion dollars was
registered highest for US followed by Germany and Japan. From the table 5.2 it
could be observed that though the India’s value of exports is quite low compared to
that of developed nations but reaching to US $296 billion in 2011 from the value of
US$ 31 billion in year 1995 is itself noteworthy. On the other hand, UK’s value of
exports could reach only US$ 473 billion in 2011 from US$ 237 billion in 1995.
Likewise was the case with France, Italy and Canada.
In terms of year of year export growth rate, the ASEAN crisis of 1997 led to
negative annual export growth rate in selected developed countries in the year 1998
like; -0.6 per cent for U.S.A., -7.6 per cent for Japan, and -2.1 per cent for U.K. but
India’s export growth rate remained stable with negligible growth rate at value of
US$ 34 billion. For most of the years, export growth rate of given developed
countries remained positive like in 2003, 4.6 per cent for U.S.A., 22 per cent for
Germany, 19.9 per cent for Japan, 18 per cent for France and for India, it was 14.3
per cent. The 2008-09 was not conducive for world trade and due to global
recession, there was fall in value of exports of almost all developed nations and
India. In 2009 with negative export growth rate of -18 per cent for U.S.A., -22 per
cent for Germany, -26 per cent for Japan, -25 per cent for Italy, -23 per cent for
U.K., -31 per cent for Canada and -6.6 per cent for India, world export growth rate
sink to -22 per cent. Though this negative growth rate in export was common for all
the countries but was less intense for India (-6.6 per cent) as the table 5.2 reveals this
was due relative better economic policies and other trade strategy adopted by the
Government of India.
Table 5.2: Value, Growth Rate and Share of Exports of Developed Countries and India in World in Post WTO Period(Value in billion dollars, Growth Rate and Share in per cent)
YEARU.S.A. GERMANY JAPAN U.K. FRANCE ITALY CANADA INDIA WORLD
VALUE YOY % SHARE VALUE YOY %
SHARE VALUE YOY % SHARE VALUE YOY %
SHARE VALUE YOY % SHARE VALUE YOY
% SHARE
VALUE YOY%
SHARE
VALUE YOY%
SHARE
VALUE YOY
1995 585 14.0 11.3 523 22.8 10.1 446 12.3 8.6 237 15.6 4.6 301 17.6 5.8 234 22.5 4.5 192 16.4 3.7 31 24 0.6 5164 19.4
1996 622 6.3 11.5 459 12.2 8.5 419 -6.1 7.7 286 20.7 5.3 305 1.3 5.6 252 7.7 4.7 201 4.7 3.7 33 6.5 0.6 5403 4.6
1997 687 10.5 12.3 542 18 9.7 420 0.2 7.5 280 -2.0 5.0 302 -0.9 5.4 246 -2.4 4.4 214 6.5 3.8 34 3 0.6 5591 3.5
1998 683 -0.6 12.4 542 0 9.8 388 -7.6 7.1 274 -2.1 5.0 321 6.3 5.7 246 0 4.5 214 0 3.9 34 0 0.6 5501 -1.6
1999 693 1.5 12.7 542 0 9.5 418 7.7 7.7 272 -0.7 4.8 325 1.2 5.7 231 -6.1 3 238 11.2 4.2 37 8.8 0.6 5712 3.8
2000 781 12.7 12.1 551 1.7 8.7 479 14.6 7.4 284 4.4 4.5 327 -0.6 4.7 238 3 3.7 277 16.4 4.3 42 13.5 0.7 6456 13.9
2001 729 -6.7 11.9 571 3.6 9.3 403 -15.9 6.6 273 -3.9 4.4 322 -1.5 5.2 241 1.3 3.9 260 -6 4.2 43 2.4 0.7 6191 -4.1
2002 693 -4.9 10.7 613 7.4 9.5 472 17.1 6.5 280 2.6 4.3 332 3.1 5.1 251 4.1 3.9 252 -3 3.9 49 14 0.7 6492 5
2003 725 4.6 9.6 748 22 10 566 19.9 6.3 305 8.0 4.1 392 18 5.2 292 16 3.9 273 8 3.6 56 14.3 0.8 7586 16.9
2004 819 13 8.9 915 22.3 10 595 5.1 6.2 346 13.4 3.8 452 15 4.9 346 17 3.8 322 16 3.5 73 30 0.8 9218 21.5
2005 906 10.6 8.7 970 6.0 9.3 595 0 5.7 383 10.7 3.7 463 2 4.4 367 6 3.5 359 14 3.5 95 30 0.8 10495 13.9
2006 1038 15 8.6 1112 15 9.2 650 9 5.4 448 17 3.7 495 7 4.2 411 12 3.4 390 8 3.2 120 26 1.0 12120 15.5
2007 1148 12 8.3 1326 20 9.5 713 10 5.1 438 -2 3.1 559 12.9 4 492 19.7 3.5 419 8 3.0 145 20.8 1.0 14012 15.6
2008 1287 12 8 1446 11 9.1 782 9 4.9 459 4 2.9 615 10 3.8 538 9.3 3.3 457 9 2.8 176 21.3 1.1 16132 15.1
2009 1056 -18 11.2 1126 -22 9 581 -26 6.2 352 -23 2.8 485 -21 3.9 406 -25 3.2 317 -31 3.3 165 -6.6 1.3 12531 -22
2010 1278 21 8.4 1259 11.8 8.3 770 32.5 5.0 405 15 2.7 523 7.8 3.4 447 10.1 2.9 388 22.4 2.5 223 35.1 1.5 15254 21.7
2011 1480 15.8 8.1 1474 17.1 8.1 822 6.8 4.5 473 16.8 2.6 597 14.1 3.3 523 17 2.9 452 16.5 2.5 296 32.7 1.6 18217 19.4CAGR(1995-2011)
6.0 6.7 3.9 4.4 4.3 5.1 5.5 15.1 8.2
CAGR (1995-2000)
5.9 1.0 1.4 3.7 1.8 0.3 7.6 21.3 4.6
CAGR(2001-2011)
7.3 1.0 7.4 5.7 6.4 8.1 5.7 6.3 194
Source: Calculation is based on data collected from WTO, International Trade Statistics
144
Thus through the analysis of data it is concluded that India’s value of exports
in billion dollars and relative share in world exports is peripheral compared to given
developed countries which is though obvious as India is still on the path of
development and not yet fully developed so faces many bottlenecks in production
and global capacity. What is noteworthy here is that it has shown an improved year
of year export growth rate and compound annual growth rate compared with given
few developed countries of the world and so this ascertains that the creation of WTO
and better export promotion strategy had affected India’s export affirmatively.
A Comparison with Export Trends of Developing Nations
Pre-WTO Period; 1990-94
In the pre WTO period (1990-94), growth rate in India’s exports was not
effective and registered CAGR of 8.6 per cent which was low compared to 18.2 per
cent for China, 19.4 per cent for Malaysia, 16.5 per cent for Hong Kong, China 18.3
per cent for Thailand, 16.3 per cent for Singapore, 12.5 per cent for Mexico, 10.2
per cent for Korea Republic of and 8.5 per cent for Brazil. India’s share in world
exports rise only by 0.1 percentage point and reached to 0.6 per cent in 1994 from
0.5 per cent in 1990. While China, Hong Kong, China, Singapore and Korea
Republic of was at better position compared to India with share of 2.8 per cent, 3.5
per cent, 2.2 per cent and 2.2 per cent in 1994 from 1.7 per cent, 2.4 per cent, 1.5 per
cent and 1.8 per cent in 1990 in world exports (see table 5.3). Even in terms of year
of year export growth rate the performance of given developing countries was better
than India. In absolute figure India’s exports rise to US$ 25 billion in 1994 from
US$ 18 billion in 1990 which was quite low compared to that of China (US$ 121
billion), Hong Kong, China (US$ 151 billion), Korea Republic of (US$ 96 billion)
and Singapore(US$ 97 billion) in 1994. Therefore, it is concluded that in the pre
WTO period India’s relative export performance compared to given developing
countries was not satisfactory and remained sluggish.
Table 5.3: Value, Growth Rate and Share of Exports of Selected Developing Countries and India in World Exports (Value in billion dollars, Growth Rate and Share in per cent)
YEAR CHINA HONKONG, CHINA MALAYSIA INDONESIA THAIAND SINGAPORE INDIA BRAZIL MEXICO KOREA
REPUBLIC OFVALUE YOY VALUE YOY VALUE YOY VALUE YOY VALUE YOY VALUE YOY VALUE YOY VALUE YOY VALUE YOY VALUE YOY
1990 62(1.7) 19.2 82
(2.4) 12.3 29(0.8) 16 25
(0.7) 13.6 23(0.6) 15 53
(1.5) 20.4 18(0.5) 20 31
(0.9) -8.8 41(1.1) 17.1 65
(1.8) 4.8
1991 71(2.0) 14.5 99
(2.8) 20.7 34(0.9) 17.2 29
(0.8) 16 28(0.8) 21.7 59
(1.6) 11.3 18(0.5) 0 31
(0.9) 0 43(1.2) 4.8 71
(2.0) 9.2
1992 85(2.2) 19.7 119
(3.2) 20.2 41(1.0) 20.5 34
(0.8) 17.2 33(0.8) 17.9 64
(1.6) 8.5 20(0.5) 11 36
(0.9) 16.1 46(1.2) 7 76
(2.1) 7.0
1993 91(2.4) 7 135
(3.6) 13.4 47(1.2) 14.6 37
(0.9) 8.8 37(0.9) 12 74
(1.9) 15.6 22(0.6) 10 38
(1.0) 5.6 52(1.3) 13 82
(2.1) 7.9
1994 121(2.8) 33 151
(3.5) 11.9 59(1.3) 25.5 40
(0.9) 8.1 45(0.9) 21.6 97
(2.2) 31 25(0.6) 13.6 43
(1.0) 13.2 61(1.4) 17.3 96
(2.2) 17.0
CAGR 18.2 16.5 19.4 12.5 18.3 16.3 8.6 8.5 10.4 10.2Data in bracket represents the share in world export Source: Calculation is based on data collected from WTO, International Trade Statistics
Post-WTO Period; 1995-2011
In post WTO period (1995-2011) it was observed that India’s export grew at
CAGR of 15.1 per cent, which was second highest after China i.e. 17.2 per cent,
among the given countries. The CAGR calculated for the same period for other
countries was as follow; Brazil (11.3 per cent), Russia Federation ( 12.3 per cent),
Korea Republic of ( 9.8 per cent), Indonesia ( 9.8 per cent), Thailand (9.0 per cent),
Mexico( 9.7 per cent), Singapore( 8.0 per cent), Malaysia (7.6 per cent), and Hong
Kong, China( 6.0 per cent). During the period 2001-11, India’s export grew at
CAGR of 21.3 per cent and at 6.3 per cent during 1995-2000, which was again
better growth rate compared to other developing countries except for china, 21.7 per
cent during 2001-2011.
Figure 5.3
China
Hong K
ong, C
hina
Mala
ysia
Indo
nesia
Thaila
nd
Sing
apore
Indi
a
Brazil
Mex
ico
Russia
Fedrat
ion
Korea
Rep
ublic
of
WORLD
0
5
10
15
20
25
18.216.5
19.4
12.5
18.316.3
8.6 8.510.4 10.1
5.8
17.2
67.6
9.8 9 8
15.1
11.39.7
12.39.8
8.2
Compound Annual Growth Rate of Exports of Selected Developing Countries and India
CAGR (1990-94)CAGR (1995-2011)
India’s share in world merchandise exports was not remarkable but had
reached to 1.6 per cent in 2011 from 0.6 per cent in 1995 and 0.7 per cent in 2001
and was better than that of; Malaysia (1.2 per cent), Indonesia (1.1 per cent),
Thailand (1.2 per cent) and Brazil (1.4 per cent) in 2011(fig.5.4). During early years
of establishment of WTO, share of above given countries in world export trade was
high than India but in recent years it has decline. This is definitely a good sign for
India’s export growth and it can be considered that membership of WTO has opened
market share for India. Share of China in world export rise from 2.8 per cent in 1995
to 4.3 per cent in 2001, to 7.9 per cent in 2006 an then to 10.4 per cent in 2011.
Share of Hong Kong, China (2.5), Russia Federation (2.8), Korea Republic of (3.0)
and Singapore was 2.2 per cent in 2011, which was better share than that of India in
world exports.
Figure 5.4
China
Hong
Kong,
Chi
na
Mal
aysia
Indo
nesia
Thaila
nd
Sing
apor
e
Indi
a
Brazi
l
Mex
ico
Russia
Fed
ratio
n
Korea
Rep
ublic
of0
2
4
6
8
10
12
2.8 3
.4
1.4
0.8 1
2.2
0.6
00
00
00
00
00
00
01
0.9 1
.5 1.6 2
.4
3.8
3.2
1.5
1 1
2.1
0.7
00
00
00
00
00
00
01
0.8
2.5
1.6
2.6
7.2
2.8
1.3
0.8 1
2.1
0.8 1.1 2 2
.3 2.7
10
.4
2.5
1.2
1.1 1.2
2.2
1.6
1.4 1
.9 2.8 3
Share of Merchandise Exports of Selected Developing Countries in World Merchandise Exports
1995200020052011
In absolute figure, India’s export was US$ 31 billion in 1995, which reached
to US$ 296 billion in 2011, which was far behind China’s value of export of US$
149 billion in 1995 and US$ 1898 billion in 2011. However, in last 2-3 years India’s
value of exports has grown more than that of Malaysia, Indonesia, Thailand and
Brazil as revealed from the table 5.4 given below.
In terms of year of year export growth rate, India has shown better
performance when compared to Hong Kong, Malaysia, Indonesia, Thailand,
Singapore and Mexico. Even during the crisis in Asian nations in 1997 when exports
of many countries fall to negative, India’s export remained stable and during the
global recession of 2008-09 almost all the developing countries export growth rate
decline to negative including India but then that decline was minimum for India
Table 5.4: Value, Growth Rate and Share of Exports of Selected Developing Countries and India in World Exports in Post-WTO Period (Value in billion dollars, Growth Rate and Share in per cent)
YEAR CHINA HONGKONG, CHINA MALAYSIA INDONESIA THAILAND SINGAPORE INDIA BRAZIL MEXICO RUSSIA FEDERATION KOREA REPUBLIC OF WORLDValue YOY Value YOY Value YOY Value YOY Value YOY Value YOY Value YOY Value YOY Value YOY Value YOY Value YOY Value
1995 149(2.8) 23 178
(3.4) 17.9 70(1.4) 18.6 45
(0.8) 1357
(1.0)
25.6 118(2.2) 21.6
31(0.6
)24 46
(0.9) 6.9 79(1.5) 29.5 81
(1.6) 20.9 125(2.4) 30.2 5164
1996 151(2.7) 1.3 181
(3.3) 1.7 78(1.4) 11.4 50
(0.9) 1056
(1.0)
-1.8 125(2.3) 6
33(0.6
)6.5 48
(0.9) 4.3 96(1.7) 21.5 88
(1.6) 8.6 129(2.3) 3.2 5403
1997 183(3.2) 21 188
(3.4) 3.9 79(1.4) 1.3 53
(1.0) 758
(1.0)
3.6 125(2.2) -0
34(0.6
)3 53
(0.9) 10.4 110(1.9) 11.5 88
(1.5) 0 136(2.4) 5.4 5591
1998 184(3.3) 0.4 175
(3.2) -6.9 73(1.3) -7 49
(0.9) -955
(0.9)
-5.5 110(1.9) -12
34(0.6
)0 51
(0.9) -3.8 118(2.1) 7.2 75
(1.3) -14.7 132(2.4) -3 5501
1999 195(3.4) 6 174
(3.1) -0.6 85(1.4) 15 49
(0.9) 058
(1.0)
5.5 115(2.0) 4.5
37(0.6
)8.8 48
(0.8) -6 137(2.3) 16 73
(1.3) 2.0 144(2.5) 9 5712
2000 249(3.8) 28 202
(3.2) 16.1 98(1.5) 16 62
(1.0) 26.569
(1.0)
18.9 138(2.1) 20
42(0.6
)13.5 55
(0.8) 15 166(2.5) 22 105
(1.6) 43.9 172(2.6) 19.4 6456
2001 266(4.3) 7 191
(3.1) -5.4 88(1.4) -10 56
(0.9) -9.665
(1.0)
-6 122(1.9) -11.6
43(0.7
)2.4 58
(0.9) 5.6 159(2.5) -4.2 103
(1.6) -2 150(2.4) -14.6 6191
2002 326(5.0) 22 201
(3.1) 5.2 93(1.4) 6 57
(0.9) 1.869
(1.0)
6.1 125(1.9) 3.5
49(0.7
)14 60
(0.9) 3.4 161(2.4) 1.3 107
(1.6) 2.9 163(2.5) 8.6 6492
2003 438(5.6) 35 229
(3.0) 13.9 99(1.3) 7 61
(0.8) 781
(1.0)
17.3 144(2.1) 15.2
56(0.8
)14.3 73
(0.9) 21.6 165(2.1) 2.5 134
(1.7) 25 194(2.5) 19 7586
2004 593(6.4) 35 266
(2.9) 16.1 127(1.3) 26 72
(0.7) 1897
(1.0)
20 180(2.1) 25
73(0.8
)30 97
(1.0) 32.8 189(2.0) 14.5 183
(1.9) 36.5 254(2.7) 31 9218
2005 762(7.2) 29 292
(2.8) 9.8 141(1.3) 11 86
(0.8) 19110(1.0
)13.4 230
(2.1) 27.895
(0.8)
30 118(1.1) 21.6 214
(2.0) 13.2 244(2.3) 33 284
(2.7) 11.8 10495
2006 969(7.9) 27 317
(2.6) 8.6 161(1.3) 14 104
(0.8) 20.9131(1.0
)19 325
(2.2) 41.3120(1.0
)26 138
(1.1) 16.9 250(2.0) 17 305
(2.5) 25 272(2.6) -42 12120
2007 1218(8.6) 26 349
(2.4) 10.1 176(1.2) 10 118
(0.8) 13.5153(1.0
)16.7 299
(2.1) -8145(1.0
)20.8 161
(1.1) 17 272(1.9) 8.8 355
(2.5) 17 372(2.6) 36.8 14012
2008 1429(8.8)
17 363(2.3)
4 210(1.3)
19 139(0.8)
18 173(1.1
15.6 338(2.0)
13 176(1.2
21.3 198(1.2)
23 292(1.8)
7.3 512(2.9)
44 422(2.6)
13.4 16132
) )
2009 1202(9.6) -16 319
(2.6) -12 157(1.2) -25 119
(0.9) -14.4152(1.2
)-14 270
(2.1) -20165(1.3
)-6.6 153
(1.2) -22.7 230(1.8) -21.2 303
(2.4) -36 362(2.8) -14 12531
2010 1578(10.3) 31 390
(2.6) 22.3 199(1.3) 26 158
(1.0) 32.7195(1.2
)28.2 352
(2.3) 30223(1.4
)35.1 202
(1.3) 32 298(1.9) 29.6 400
(2.6) 40 466(3.0) 29 15254
2011 1898(10.4)
20.3
455(2.5) 16.7 227
(1.2) 14 201(1.1) 27.2
229(1.2
)17.4 409
(2.2) 16.2296(1.6
)32.7 256
(1.4) 26.7 350(1.9) 17.4 522
(2.8) 30.5 555(3.0) 19 18217
CAGR(1995-2011) 17.2 6.0 7.6 9.8 9.0 8.0 15.1 11.3 9.7 12.3 9.8 8.2
CAGR(2001-11) 21.7 9.0 9.9 13.6 13.4 12.9 21.3 16.0 8.2 17.6 14
CAGR(1995-2000) 10.8 2.6 6.9 6.1 3.8 3.2 6.3 3.6 16 5.3 6.6
Source: Calculation based on data from WTO, International trade statistics
148
So through the analysis of data on export performance of few developing
countries of Asia and other we have reached to the conclusion that India has
performed better than few selected developing countries in recent years both in
absolute and relative terms but there are few countries still ahead of India specially
China so there is a need for greater self-analysis on part of India. Rules and policies
of WTO system had no doubt helped India in gaining share in world export trade but
it is quiet behind its potential so need for government to have better negotiation in
matters advantageous to country under WTO forum and should also adopt better
export production and promotion strategy.
2. TRENDS IN EXPORT PERFORMANCE OF INDIA IN
PRE AND POST WTO PERIOD
Globalisation and liberalisation has ensued sustained growth in India’s
international trade. India is one of the founder members of WTO, this membership
has affected India’s merchandise, and service trade both in a progressive and
adverse way as is evident from the export performance. WTO commitments and
obligations have posed both opportunities and challenges for India in international
trade. Now it is upon country’s potential and strategy that how far it is able to
exploit the trade opportunities and meet out the global trade challenges.
The opening and liberalisation of economy has enabled India to achieve an
increased export orientation of the economy as revealed by the increased ratio of
exports to GDP in the post-WTO period compared to the pre-WTO period (table
5.5).
Table 5.5: Exports as Percentage of GDP at Market Price
Year Exports as Percentage of GDP1980-81 4.61986-87 3.91990-91 5.71991-92 6.71992-93 7.11993-94 8.01994-95 8.11995-96 8.91996-97 8.61997-98 8.51998-99 8.01999-00 8.12000-01 9.72001-02 9.22002-03 10.42003-04 10.62004-05 11.62005-06 12.42006-07 13.32007-08 13.12008-09 15.12009-10 12.92010-11 14.22011-12 16.5
Source: Calculation is based on data taken from RBI, Handbook of Statistics on India Economy
During the early years of WTO establishment, India’s trade performance has
been disappointing as reflected by small and stagnant share in world trade (less than
1 per cent), growing trade deficit, and failure to explore new competitive market for
its export etc. This underperformance of India’s exports reflects its incapability to
exploit the global opportunities thrown upon by WTO system. But however recent
performance has shown some improvement and growth but it lacks consistency.
EXPORT PERFORMANCE IN TERMS OF VALUE, SHARE AND
GROWTH RATE
Pre-WTO Period; 1990-94
The value of India’s exports in `1990-91 was US$ 18143 million and export
growth rate was 9.2 per cent but however it fall to US$ 17866 million in 1991-92
with a negative growth rate of -1.5 per cent. The export growth rate pick up to 3.8
per cent in 1992-93 and after that registered a robust growth rate of 20 per cent in
year 1993-94, that is US$ 22238 million from US$ 18537 million in 1992-93 (table
5.6). This trend of growth was maintained in the year 1994-95 where the value of
exports recorded was US$ 26330 million and the growth rate of 18.4 per cent.
During the given period India’s export grew at CAGR of 9.75 per cent.
However, share of India’s exports in world merchandise exports remained
almost stagnant and it was 0.5 per cent in 1990-91, which increased to 0.6 per cent
in 1994-95, a rise by only 0.1 percentage points.
In the pre WTO period the value of imports continuously rise from US$
24075 million in 1990-91 to US$ 28654 million except for US$ 19411 million in
1991-92. Imports grew at the rate of 13.5 per cent in 1990-91 to 22.9 per cent in
1994-95. It also registered CAGR of 4.45 per cent.
The balance of trade remained adverse throughout the study period due to
rising import. Trade deficit was registered as US$ -5932 million in 1990-91 which
however fall to US$ -2324 million in 1994-95.
Table 5.6: Value, Growth Rate and Share of Exports and Imports of India (Value in million dollars, Growth Rate and Share in per cent)
YEAR EXPORTS IMPORTS BALANCE OF TRADEVALUE GROWTH
RATE% SHARE VALUE GROWTH % SHARE
1990-91 18143 9.2 0.5 24075 13.5 0.7 -59321991-92 17865 -1.5 0.5 19411 -19.4 0.6 -15461992-93 18537 3.8 0.5 21882 12.7 0.6 -33451993-94 22238 20 0.6 23306 6.5 0.6 -10681994-95 26330 18.4 0.6 28654 22.9 0.6 -2324CAGR 9.75 4.5Source: Calculated from data from RBI, Handbook of Statistics on Indian Economy
Inference from the trend
In the year 1991-92, India’s export growth tumble and both internal and external
factors contributed to this fall. In the year 1990-91, various internal factors that
lead to decline in exports were; i) stagnant domestic production due to various
supply constraint leading to low export surplus ii) rising prices within the
economy made Indian export product less competitive in the world market iii)
government adopted tight monetary policy and low efforts to promote export etc.
External environment too was not in favour of country’s export as recession in
developed countries like in U.S.A., U.K., Australia etc., our major trading
partners, caused fall in demand for our exports, further disruption in Soviet
union led to decline in our export. Slowdown in the expansion of volume of
world trade from 7.3 per cent in 1989-90 to 4 per cent in 1990-01 led to drop in
global trade activity and ultimately to negative export growth of India in 1991-
92( -1.5 per cent). Above all, the policy of protection adopted by developed
countries in form of tariff and non-tariff barriers prevented full flow of export
from the country.
During the year 1993-94 and 1994-95 an impressive growth in country’s export
was due to number of factors like; better economic condition of India’s major
trading partners and other countries which increased global demand and hence
rise in volume of world export by 9.4 per cent in 1994-95, Internal export credit
was available at internationally competitive rates and Government of India too
adopted various export promotion measures to enhanced country’s export
growth.
Import continue to rise causing deficit in balance of trade and reason for such
increment was rise in import of oil and import bills, removal of import
compression measures and heavy import of capital goods etc.
Post WTO Period; 1995-2012
Throughout the study period, India’s export grew at CAGR of 15.1 per cent
(1995-96 to 2011-12). In the initial years of WTO establishment, there was
significant deceleration in India’s exports and export grew at CAGR of 3.7 per cent
(1995-96 to 1999-00) which was quite low compared to CAGR of 16.0 per cent in
2001-2011. In the year 1995-96, India’s value of exports was US$ 31797 million
with reasonable annual export growth rate of 20.8 per cent but however for 3
succeeding years; 1996-97,1997-98 and 1998-99, the annual export growth rate
decline but remained positive for first two years but a negative growth rate of -5.1
per cent in 1998-99. In 1999-00, the annual export growth rate was 10.8 per cent and
in dollar terms US$ 36822 million which rise to US$ 83536 million in 2004-05 from
US$ 44560 million in 2000-01 except for the year 2001-02 where exports registered
negative growth rate of -1.6 per cent (see table 5.7). In recent years, India’s exports
had witnessed a substantial growth rate as could be seen in the figure 5.5 especially
in the respective years; 2005-06(23.4%), 2007-08(29%) and 2010-11(40.5%).
However in the year 2008-09 the export grew at moderate rate of 13.6 per cent and
in value terms was US$ 185295 million, in 2009-10 growth rate became negative
with -3.5 per cent due to global recession. In the year 2010-11, India’s export
showed robust performance and surpassed the pre-crisis trend with value of export
of US$ 251136 million and year of year export growth rate of 40.5 per cent and in
2011-12 the value of export was US$ 304623 million.
Table 5.7: Value, Growth Rate and Share of Exports and Imports of India in Post-WTO Period
(Value in million dollars, Growth Rate and Share in per cent)
YEAR EXPORTS IMPORTS BALANCE OF
TRADEVALUE GROWTH
RATE% SHARE VALUE GROWTH % SHARE
1995-96 31797 20.8 0.6 36678 28.0 0.66 -48811996-97 33470 5.3 0.6 39133 6.7 0.69 -56631997-98 35006 4.6 0.6 41484 6.0 0.72 -64781998-99 33218 -5.1 0.6 42389 2.2 0.76 -91711999-00 36822 10.8 0.6 49671 17.2 0.80 -128492000-01 44560 21.0 0.7 50536 17 0.77 -59762001-02 43827 -1.6 0.7 51413 1.7 0.78 -75872002-03 52719 20.3 0.8 61412 19.4 0.84 -86932003-04 63843 21.1 0.8 78149 27.3 0.93 -143072004-05 83536 30.8 0.8 111517 42.7 1.05 -279812005-06 103091 23.4 1.0 149166 33.8 1.3 -460752006-07 126414 22.6 1.0 185735 24.5 1.4 -593212007-08 163132 29.0 1.0 251654 35.5 1.6 -885222008-09 185295 13.6 1.2 303696 20.7 1.9 -1184012009-10 178751 -3.5 1.3 288373 -5.0 2.0 -1096212010-11 251136 40.5 1.5 369769 28.2 2.2 -1186332011-12 304623 21.3 1.67 489417 32.3 2.5 -184794CAGR(1995-2012)
15.1 17.5
CAGR(1995-2000)
3.7 7.9
CAGR(2001-2011)
16.0 22.0
Source: Calculated from RBI, Handbook of statistics on Indian Economy
Figure 5.5
1995-9
6
1996-9
7
1997-9
8
1998-9
9
1999-0
0
2000-0
1
2001-0
2
2002-0
3
2003-0
4
2004-0
5
2005-0
6
2006-0
7
2007-0
8
2008-0
9
2009-1
0
2010-1
1
*2011-1
2
-10
0
10
20
30
40
50
Annual Growth Rate in India's Exports in Post-WTO Period
Export Growth Rate
India’s share in world merchandise exports reached to 1 per cent in 2006
from 0.8 per cent in 2003 and 0.6 per cent in 1995 (see fig.5.6). In the year 2012 the
share has reached to 1.67 per cent. India’s rank in world export were 26 th in 2007
slip to 27th in 2008 again improved to 21st in 2009 and 20th in 2010.
Figure 5.6
1995 1997 1999 2001 2003 2005 2007 2009 20110
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
SHARE IN WORLD MERCHANDISE EXPORTS
% SHARE
India’s import bill continued to rise in study period from US$ 36678 million
in 1995-96 to US$ 49671 in 1999-00 to US$ 489417 million in 2011-12. Import
grew at CAGR of 17.5 per cent, which was higher than export CAGR, 15.1per cent.
This resulted into India’s trade deficit more than double in the post WTO.
Inference from the trend
Immediately after the formation of WTO India’s exports declined and registered a
negative growth rate of -5.1 in 1998-99. The reason being the fall in the growth of
world export in 1996 to 3.7 per cent from high growth of 19.8 per cent in 1995.
Then there was crisis in ASEAN countries, which share 1/6 th of India’s exports,
depreciation in foreign currencies too adversely affected price competitiveness of
India’s export and finally led to decline in country’s export. On the other hand
despite of liberalisation policy of WTO developed countries kept on adopting
protectionist policy and hampered India’s export.
Domestic factors like infrastructure constraints, high transaction cost, small scale
industries reservation, labour inflexibility, quality problems, quantitative ceilings on
agricultural export, quota problem, supply constraints, pollution control issues in
manufacturing of some items like leather, ceiling on export of iron ore, volatility of
agricultural export etc. are also responsible for downturn in India’s export
performance in 1990’s.
India’s export growth became negative again thrice in the study period once in
1998-99, -5.1 per cent, second in 2001-02, -1.6 per cent, and lastly in 2009-10, -3.5
per cent. In 2001-02, India faced setback in its exports, at large, due to the semi-
recession faced by the US; one of India’s biggest trading partners. The terrorist attack
on the World Trade Centre caused a net loss of 0.25 per cent of US GDP and also had
an impact on India’s exports. Recent negative growth was due to recessionary tendency
in world in 2008, fall in global demand causing fall in world export, growing
competition from other developing countries like China and Taiwan, protectionist
policy on export of textile by developed countries, failure on part of large industrial
houses to boost up exports, excessive use of non-tariff barriers, and anti-dumping
duty in EU for grey cloth export from India etc.
For the rest of the years in study period export growth was satisfactory due to
revival of word trade and east Asian countries after crisis, low inflation within the
country making our export competitive in international market, rupee depreciation
along with further trade liberalisation, reduction in tariff and more openness in
foreign investment in export oriented sectors, and various policy issues undertaken
by the government of India for export promotion.
So it is evident from the analysis of data on India’s exports that in post WTO
period, initially the export performance was not satisfactory but in the last decade
India has shown some improvement and had finally achieved the target of 1 per cent
share in world trade in 2005 which has now reached to 1.67 per cent in 2011-12, that
is gain of around 0.6 percentage points in 6 years compared to gain of just 0.4
percentage points in 10 years from 1995-96(0.6 per cent) to 2005-06(1 per cent). In
terms of annual export growth also some progress has been observed. However this
performance is not fully satiated as India’s has further potential to enhance her
exports and capture more share in world exports so need to direct effort towards it.
The role of WTO is also debatable here, especially in further reducing tariff and
non-tariff barriers faced by Indian exports and there is need to strengthen up
negotiations stance at WTO to resolve various other trade issues.
COMPOSITIONAL STRUCTURE OF INDIA’S EXPORTS
Composition of exports of any country represents the type and kind of
products that are exported from that country to another country. A scrutiny of the
composition of exports of a country enables us to analyse the progress of that
country and the haste of structural changes operating within it. The commodities,
which are exported from the country, are those where in the country enjoys strength
both in terms of cost and in terms of demand and enjoys high comparative advantage
in terms of production and cost, which ultimately increases its competitiveness in
world market. On the eve of independence India was the exporter of primary
products but with structural transformation of the economy and movement of the
country on the path of economic development with more emphasis on the secondary
and tertiary sector there was a shift in country’s export pattern from the primary
products to manufactured goods. Manufactured exports create greater value addition
than primary commodities as they go through more stages of processing. The
manufacturing sector has greater linkages with rest of the economy and hence
downstream effect on exports from these sectors, are likely to be greater than
primary export.
The wave of LPG era that is liberalisation, privatization and globalisation
have further brought about impetus to country’s composition of exports and new
areas of country’s export potential has been explored. The creation of WTO in mid-
1990 has brought about perceptible change in world trade including member
countries composition of export.
The India’s pattern of export under WTO regime is assessed by comparing
the growth rate of India’s principal exports and their share in total export during the
pre and post WTO period. In India, export of products are classified into four major
categories first primary products consisting of agricultural and allied products and
ores and minerals, second is manufacturing products, one of the most promising
category in the last decade, third is the petroleum products and last is the group of
unclassified items or others. In each group falls large number of items that are
exported from the country but here the most prominent one would be considered.
Pre-WTO Period; 1990-91 to 1994-95
From the table 5.8 it is evident that in the pre WTO period, it was only the
manufactured goods whose share in country’s exports constantly increased from
71.7 per cent in 1990-91 to 75.7 per cent in 1992-93 and to 77.5 per cent in 1994-95
and that of primary products share was 23.8 per cent in 1990-91 which declined to
20.38 per cent in 1992-93 and finally to 19.8 per cent. And even the petroleum
products share waned constantly and recorded 1.6 per cent in 1994-95 form 2.9 per
cent in 1990-91(see fig.5.7 for quick glance) However during early years of
independence and in 1960s and 70s the share of primary products in total exports
was very significant and fluctuated between 40 to 50 % but later on this share
declined and replaced by manufactured goods
Table 5.8: India’s Exports by Principal Categories
(Value in million dollars, Growth Rate and Share in per cent)
YEAR
PRIMARY PRODUCTS
MANUFACTURED PRODUCTS
PETROLEUM PRODUCTS OTHERS TOTAL
EXPORTS
VALUE %CHANGE VALUE %
CHANGE VALUE %CHANGE VALUE %
CHANGE VALUE % CHANGE
1990-91 4324(23.8)
11.4 12996(71.7)
8.6 522(2.9)
26.7 302(1.6)
-10.9 18145 9.2
1991-92 4132(23.1)
-4.4 13148(73.6)
1.2 414(2.3)
-20.6 170(0.9)
-43.7 17865 -1.5
1992-93 3873(20.38)
-6.3 14038(75.7)
6.8 476(2.5)
14.9 148(0.9)
-12.9 18537 3.7
1993-94 4915(22.2)
26.9 16656(74.9)
18.6 397(1.8)
-16.6 268(1.2)
81.1 22238 20.0
1994-95 5214(19.8)
6.1 20404(77.5)
22.5 416(1.6)
4.8 294(1.1)
9.7 26330 18.4
CAGR 4.8 11.9 -5.5 -0.7 9.8Data in Brackets represents share in total exports Source: Calculated from data taken from Government of India, Economic Survey (various issues)
Figure 5.7
1990-91 1991-92 1992-93 1993-94 1994-950
20
40
60
80
100
120
23.8 23.1 20.38 22.2 19.8
71.7 73.6 75.7 74.9 77.5
2.9 2.3 2.5 1.8 1.6
Share of Principal Categories in Total Exports (In Pre WTO Period)
OTHERSPETROLEUM PRODUCTSMANUFACTURED PRODUCTSPRIMARY PRODUCTS
The primary products, one of the most dominant sectors at the time of
independence, consisted of agricultural and allied products and ores and minerals,
both of these registered drops in share in total exports as revealed by table 5.9. The
share in total exports, of following commodities; coffee, tobacco, cashew, spices,
meat and preparations under agricultural and allied products remained stagnant or
shifted by 0.1 percentage points. The Annual export growth rate was highest for raw
cotton with 511.41 per cent in 1990-91 and 231.8 per cent in 1993-94, which
became negative in 1991-92 and 1993-94. Tobacco recorded export growth rate of
4.2 per cent in 1991-92 and -44.8 per cent in 1994-95. Tea ranked first in share in
agriculture and allied products in 1990-91 but drop to 6 th rank in 1994-95 with
negative growth rate of -8.0 per cent. Marine products displayed the best
performance among the rest both in terms of export growth rate and in terms of
share in agricultural and allied products with share of 4.3 per cent in 1994-95 from
2.9 per cent in 1990-91. Second place was occupied by oil meals with share of 2.2
per cent in 1994-95. Rice and cashew share either third or fourth position throughout
the study period.
On the other hand, share of ores and minerals and petroleum products
declined from 5.3 and 2.9 per cent in 1990-91 to 3.8 and 1.6 per cent in 1994-95.
Table 5.9: Growth and Share of India’s Exports by Principal Categories and Commodities
(In per cent)
COMMODITIES1990-91 1991-92 1992-93 1993-94 1994-95
GROWTH RATE
% SHARE
GROWTH RATE
% SHARE
GROWTH RATE
% SHARE
GROWTH RATE
% SHARE
GROWTH RATE
% SHARE
I.PRIMARY PRODUCTS 11.35 23.8
-4.4 23.1 -6.3 20.9
26.9 22.1 6.1 19.8
A.AGRICULTURAL AND ALLIED PRODUCTS
17.59 18.5
-4.5 17.9 -2.1 16.9
28.4 18.11
4.9 16.1
1.Tea 8.30 3.3 -17.6 2.8 -31.4 1.8 0.1 1.5 -8.0 1.2
2.Coffee -32.57
0.8 -4.2 0.8 -3.6 0.7 33.9 0.8 92.8 1.3
3.Rice 0.39 1.4 19.1 1.7 9.9 1.8 21.8 1.8 -6.4 1.5
4.Raw Cotton 511.41
2.6 -73.8 0.7 -49.2 0.3 231.8 0.9 -78.6 0.2
5.Tobacco 39.68 0.8 4.2 0.9 7.1 0.9 -10.2 0.7 -44.8 0.3
6.Cashew 12.82 1.4 10.0 1.5 -5.7 1.4 29.3 1.5 18.9 1.5
7.Spices -21.6 0.7 15.8 0.8 -10.1 0.7 33.6 0.8 7.5 0.7
8.Oil meal -7.5 1.9 10.2 2.1 42.2 2.9 38.9 3.3 -22.7 2.2
9.Fruits&Vegetables -2.0 0.7 19.1 0.8 -23.8 0.6 22.4 0.6 5.3 0.5
10.Marine Product 29.6 2.9 9.4 3.3 2.9 3.2 35.2 3.7 38.4 4.3
11.Sugar and Molasses 7.2 0.1 20.5 0.4 91.4 0.7 -53.5 0.3 -65.1 0.07
12.Meat and Meat preparations
14.0 0.4 20.2 0.5 -5.1 0.5 23.6 0.5 16.8 0.5
B.ORES and MINERALS -5.9 5.3 -4.1 5.2 -20.6 4.0 20.4 4.0 11.26 3.8
I. Iron Ore 4.9 3.2 -0.4 3.3 -34.5 2.1 14.9 2.0 -5.7 1.6
2.Mica 7.8 0.1 -26.3 0.08 -41.9 0.04
6.0 0.03 -19.3 0.02
II.MANUFACTURED GOODS 8.6 71.6
1.2 73.6 6.8 75.7
18.6 74.9 22.5 77.5
1. Leather and manufacture. 23.7 7.9 -12.4 7.1 0.7 6.9 1.7 5.8 23.9 6.1
2. chemical and allied products
9.8 7.2 13.2 8.3 -16.9 6.6 20.3 6.5 32.3 7.4
3. Engineering goods 12.6 12.4
0.1 12.6 10.1 13.4
22.5 13.7 15.5 13.3
4. Readymade garments 15.4 12.3
-1.7 12.3 8.1 12.9
8.1 11.6 26.9 12.5
5.Textile,Yarn,Fabric,Madeups
24.9 8.4 17.2 10.1 5.3 10.3
12.6 9.6 42.3 11.6
a. Cotton Yarn ,Fabric 29.3 (6.4)
11.0 (7.2) 3.9 (7.3)
13.8 (6.9) 45.3 (8.5)
6. Jute manufactures -6.6 0.9 -4.7 0.9 -22.6 0.7 1.1 0.6 21.5 0.6
7. Handicrafts -7.2 1.9 -1.5 1.3 11.7 1.2 26.0 1.4 11.7 1.4
8. Gems & jewellery -8.1 16.1
-6.4 15.3 12.2 16.6
30.0 17.9 12.6 17.1
III.PETROLEUM PRODUCTS 24.9 2.9 -20.7 2.3 14.8 2.6 -16.5 1.8 4.8 1.6
IV.OTHERS -10.9 1.7 -43.7 0.9 -12.6 0.8 80.3 1.2 1.0 1.1
TOTAL EXPORT 18143 17865 18537 22238 26330Source: Calculated from data taken from Government of India, Economic Survey and RBI Bulletin (various issues).
Among the manufactured goods, the export growth of leather and
manufactures and chemical and allied products remained sluggish and recorded
negative and poor growth rate in few years and the share in total export too declined
from 7.9 per cent in 1990-91 to 6.1 per cent in case of leather and manufacture but
in case of chemical and allied the share kept on fluctuating between increasing and
decreasing trend like it registered 7.2 per cent in 1990-91,which fall to 6.6 per cent
in 1992-93 and then rise to 7.4 per cent in 1994-95. However, the following items
registered better share in 1994-95 i.e. engineering goods (13.3 per cent), gems &
jewellery (17.1 per cent) and textile yarn (11.6 per cent) from year 1990-91(see table
5.9). However, in terms of absolute figure and annual export growth rate, the
performance was irregular, sometimes it rose and sometimes it sunk, like handicrafts
and gems and jewellery recorded a negative export growth rate of -7.2 per cent and -
8.1 per cent in 1990-91, 26 per cent and 30 per cent in 1993-94 and 11.7 per cent
and 12.6 per cent in 1994-95. It was only the engineering goods whose annual
export growth rate in spite of fluctuation remained positive and was recorded as 12.6
per cent in 1990-91, 22.5 per cent in 1993-94 and 15.5 per cent in 1994-95. Jute and
manufactures showed declining trend in share in total exports.
Inference from the trend Some export diversification in primary exports has been achieved in pre WTO
period as the share of most prominent export item that is tea and raw cotton have
declined and of marine product have risen.
Some commodities have registered negative export growth rate due to fall in foreign
demand and fall in domestic production.
In manufactured goods, not much of export diversification has been obtained and the
gems and jewellery, engineering goods and readymade garments enjoy the top three
position.
In case of petroleum and other export the share and export growth was varied.
Post-WTO Period; 1995-96 to 2011-12
In post WTO period, India’s merchandise exports have witness a shift in
commodity composition with significant decline in the share of primary products
and increase in the share of manufactured and petroleum products.
The table 5.10 illustrates that the share of primary products in country’s total
exports was 22.8 per cent in 1995-96, which shrink to 16.2 per cent in 2004-05 and
recently to 14.9 per cent in 2011-12. This decline was due to fall in the share of
agriculture and allied from 19.9 per cent in 1995-96 to 10.5 per cent in 2004-05 to
12.28 per cent in 2010-11. The share of manufactured goods was 74.7 per cent in
1995-96, which rose to 80.7 per cent in 1999-00, and then declined to 70.3 per cent
in 2005-06 and to 61.3 per cent in 2011-12. This decline in share in recent years was
due to emergence of petroleum products as an important item of export from the
country with significant share of 18.25 per cent in 2011-12 and 11.3 per cent in
2005-06 from 0.1 per cent in 1999-00 and 1.4 per cent in 1995-96(see fig.5.8).
Table 5.10: India’s Exports by Principal Categories in Post-WTO Period(Value in million dollars, Growth Rate and Share in per cent)
YEAR PRIMARY PRODUCTS
MANUFACTURED PRODUCTS
PETROLEUM PRODUCTS
OTHERS TOTAL EXPORT
VALUE
% CHANG
E
VALUE % CHANG
E
VALUE % CHANG
E
VALUE
% CHANG
E
VALUE % CHANG
E1995-
967256(22.8)
39.2 23747(74.7)
16.4 453(1.4)
8.9 583(1.1)
98.3 31794 20.8
1996-97
8035(24.0)
10.7 24613(73.5)
3.6 481(1.4)
6.2 339(1.1)
-41.8 33469 5.2
1997-98
7687(21.9)
-4.3 26546(75.8)
7.8 352(1.0)
-26.8 419(1.3)
23.6 35006 4.6
1998-99
6927(20.8)
-9.9 25791(77.6)
-2.8 89(0.3)
-74.7 409(1.3)
-2.4 33218 -5.1
1999-00
6524(17.7)
-5.8 29714(80.7)
15.2 38(0.1)
-57.3 544(1.5)
33.0 36822 10.8
2000-01
7126(16.0)
9.2 34335(77.0)
15.6 1869(4.2)
48.1 1229(2.8)
125.9 44560 21.0
2001-02
7163(16.3)
-0.5 33792(77.1)
-1.6 2119(4.8)
13.4 1174(2.7)
-4.0 43827 -1.6
2002-03
8706(16.5)
21.5 40245(76.3)
19.0 2575(4.8)
21.5 1192(2.3)
-1.5 52719 20.3
2003-04
9901(15.5)
13.7 48492(75.9)
20.4 3568(5.6)
38.5 1080(1.7)
-9.3 63843 21.1
2004-05
13553(16.2)
36.9 60731(72.7)
25.2 6989(8.4)
95.9 2262(2.7)
109.5 83536 30.8
2005-06
16377(15.9)
20.8 72563(70.3)
19.6 11639(11.3)
66.5 2510(2.4)
10.9 103091
23.4
2006-07
19686(15.6)
20.2 84920(67.1)
16.9 18635(14.7)
60 3173(2.5)
26.3 126414
22.6
2007-08
27552(16.9)
39.9 102979(63.2)
21.8 28363(17.4)
52.2 4010(2.5)
26.3 162904
29.0
2008-09
25335(13.9)
-8.0 123149(67.3)
17.7 27547(15.1)
-2.9 6768(3.7)
68.8 182799
13.6
2009- 26397 4.1 115181 -5.9 28192 2.3 8982 32.7 17875 -3.5
10 (14.8) (64.4) (16.2) (5.0) 12010-
1132845(13.0)
24.4 157994(62.9)
37.1 41480(16.5)
47.1 18817(7.4)
109.4 251136
40.5
2011-12
45574(14.9)
38.75 186784(61.3)
18.2 55603(18.25
)
34.0 16661(5.4)
-11.4 304623
21.3
CAGR
12.1 13.7 35.0 23.3 15.1
Data in Brackets represents share in total exports Source: calculated from data taken from Government of India, Economic Survey (various issues)
Figure 5.8
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
0
20
40
60
80
100
120
22.8 24 21.9 20.8 17.7 16 16.3 16.5 15.5 16.2 15.9 15.6 16.9 13.9 14.8 13 14.9
74.7 73.5 75.8 77.6 80.7 77 77.1 76.3 75.9 72.7 70.3 67.1 63.2 67.3 64.4 62.9 61.3
1.4 1.4 1 0.3 0.1 4.2 4.8 4.8 5.6 8.4 11.3 14.7 17.4 15.1 16.2 16.5 18.25
Share of Principal Categories in India's Total Exports (In Post WTO Period)
PRIMARY PRODUCTS MANUFACTURED PRODUCTSPETROLEUM PRODUCTS OTHERS
Table 5.11: Share of India’s Exports by Principal Categories and Commodities in Post-WTO Period
(In per cent)COMMODITIES 1995-
961996-
971997-
981998-
991999-
002000-
012001-
022002-
032003-
042004-
052005-
062006-
072007-
082008-
092009-
102010-
112011-
12I.PRIMARY PRODUCTS 22.8 24.0 21.9 20.8 17.7 16.0 16.3 16.6 15.5 16.2 15.9 15.6 16.9 13.9 14.8 13.0 14.9A.AGRICULTURAL AND ALLIED PRODUCTS
19.9 20.4 18.8 17.3 15.2 13.5 13.5 12.8 11.8 10.5 10.2 10.3 9.9 9.1 10.1 9.9 12.3
1.Tea 1.1 1.2 1.4 1.6 1.1 1.0 0.8 0.7 0.6 0.5 0.4 0.3 0.3 0.3 0.3 0.3 0.32.Coffee 1.4 1.2 1.3 1.2 0.9 0.6 0.5 0.4 0.4 0.3 0.3 0.3 0.3 0.3 0.2 0.3 0.33. Rice 4.2 2.6 2.6 4.4 1.9 1.4 1.5 2.2 1.4 1.8 1.3 1.2 1.7 1.3 1.3 0.9 1.64.unmanufactured tobacco 0.4 0.6 0.7 0.4 0.5 0.3 0.3 0.3 0.3 0.3 0.2 0.2 0.2 0.3 0.4 0.7 0.3
5.Spices 0.8 1.0 1.1 1.1 1.1 0.8 0.7 0.7 0.5 0.5 0.5 0.6 0.6 0.7 0.7 0.9 0.96.Cashewnuts 1.1 1.1 1.1 1.1 1.5 0.9 0.9 0.8 0.6 0.7 0.6 0.4 0.3 0.3 0.3 0.2 0.37.Oil meal 2.2 2.9 2.6 1.4 1.0 1.0 1.1 0.6 1.1 0.8 1.1 1.0 1.2 1.2 0.9 0.5 0.88.Fruits&Vegetables 0.8 0.4 0.6 0.5 0.6 0.6 0.6 0.6 0.7 0.6 0.6 0.6 0.5 0.6 0.7 1.0 0.49.Marine Product 3.2 3.4 3.4 3.1 3.2 3.1 2.8 2.7 2.1 1.7 1.7 1.4 1.1 0.8 1.2 1.1 1.110.raw cotton 0.2 1.3 0.6 0.2 .04 0.1 0.02 0.02 0.3 0.1 0.6 1.1 1.3 0.3 1.1 0.3 1.511.Sugar and Molasses 0.5 0.9 0.2 0.0 0.0 0.2 0.9 0.7 0.4 0.4 0.1 0.5 0.8 0.5 0.1 0.9 0.6
12.Meat and Meat preparations 0.6 0.6 0.6 0.5 0.5 0.5 0.6 0.5 0.6 0.5 0.6 0.6 0.6 0.6 0.7 0.7 0.9
B.ORES & MINERALS 2.7 3.0 2.6 2.5 2.6 2.9 3.8 3.7 5.5 5.2 4.8 5.5 4.2 4.9 3.4 2.6I. Iron Ore 1.6 1.4 1.4 1.1 0.7 0.8 1.0 1.6 1.8 3.9 3.7 3.1 3.6 2.5 3.4 1.8 1.4II.MANUFACTURED GOODS 74.7 73.5 75.8 77.6 80.7 77.0 77.1 76.3 75.9 72.7 70.3 67.1 63.2 67.3 64.4 62.9 61.3A. LEATHER AND MANUFACTURE 5.2 4.7 3.2 2.9 2.6 2.9 2.8 2.3 2.2 1.9 1.7 1.6 2.1 1.9 1.2 1.5 1.5
B.CHEMICAL AND RELATED PRODUCTS 10.7 9.6 12.5 12.0 12.7 13.2 13.8 14.1 14.7 14.8 14.3 13.7 13.0 12.4 12.8 11.5 12.2C.ENGINEERING GOODS 13.8 14.7 15.2 13.4 13.9 15.3 15.8 17.1 19.4 20.7 21.0 23.3 22.9 25.8 21.4 23.1 22.01.Manufacture of metals 2.5 2.7 2.9 3.2 3.3 3.6 3.7 3.5 3.8 4.1 4.1 4.0 4.3 4.1 3.1 3.3 3.1
2.Machinery &instrument 2.6 3.1 3.4 3.4 3.2 3.7 4.0 3.8 4.3 4.5 4.7 5.3 5.6 5.9 5.4 4.7 4.7
3.Transport equipment 2.9 2.9 2.6 2.2 2.2 2.4 2.3 2.5 3.1 3.4 4.2 3.9 4.3 6.0 5.5 6.6 6.8
4.Electronic goods 2.1 2.3 2.2 1.5 1.8 2.4 2.7 2.4 2.7 2.2 2.1 2.3 2.1 3.9 3.1 3.2 2.9D.TEXTILE AND TEXTILE PRODUCTS 25.2 25.8 25.8 26.7 26.6 25.3 23.2 22.0 20.0 16.2 15.9 13.7 11.9 10.9 11.1 9.6 9.21.Cotton Yarn ,Fabric 8.1 9.3 9.3 8.2 8.4 7.9 7.0 6.4 5.3 4.1 3.8 3.3 2.9 2.2 2.1 2.3 2.22.Readymade garments 11.5 11.2 11.1 13.2 12.9 12.5 11.4 10.9 9.8 7.9 8.3 7.0 5.9 5.9 6.0 4.6 4.5
3.Jute manufactures 0.5 0.5 0.5 0.4 0.3 0.3 0.3 0.3 0.3 0.3 0.2 0.2 0.2 0.1 0.1 0.1 0.1E.GEMS & JEWELLERY 16.6 14.2 15.3 17.5 20.4 16.6 16.7 17.2 16.6 16.5 15.1 12.6 12.1 15.1 16.3 16.1 18.2F.HANDICRAFT 1.3 1.4 1.4 1.9 1.4 1.2 1.4 0.8 0.4 0.4 0.3 0.3 0.3 0.2 0.1 0.1 0.07III.PETROLEUM PRODUCTS 1.4 1.4 1.0 0.3 0.1 4.2 4.8 4.9 5.6 8.5 11.5 15 17.8 14.9 16.2 16.5 18.2IV.OTHERS 1.1 2.4 1.3 2.0 1.5 1.7 2.7 2.0 2.9 1.2 1.1 1.3 2.5 4.0 1.5 7.4 5.4
Source: Calculated from data taken from Government of India, Economic Survey and RBI Bulletin (various issues).
Primary Products (Agricultural and Allied Products and Ores and Minerals)
Among the agricultural products, share of almost all the commodities in total
exports has declined in the post-WTO. The share of tea, rice, coffee and cashew has
declined significantly from 1.1, 4.2, 1.4 and 1.1 per cent in 1995-96 to 0.7, 2.2, 0.4
and 0.8 per cent in 2002-03. In 2011-12, share of respective commodities in total
exports were as follow; tea (0.3), coffee (0.3), unmanufactured tobacco (0.3),
cashew (0.3), rice (1.6 per cent), raw cotton (1.5 per cent), marine products (1.1 per
cent), oil meals (0.8 per cent) and spices (0.9 per cent), see table 5.11 and fig. 5.9.
Marine products showed better performance in India’s exports until 2000 with share
fluctuating around 3 to 3.5 per cent from 1995-2000. However, its share too declined
from 2.8 per cent in 2001-02 to 1 per cent in 2011. Products such as spices, oil
meals, and vegetables and fruits indicated fall in their share in India’s total exports
in post-WTO period but were better in share then tea, coffee, tobacco etc. At a more
detailed level, meat and meat preparations and sugar and sugar preparations showed
rise in their share of exports. Export share of ore and minerals too represented
declining trend.
Figure 5.9
1995-96
1997-98
1999-00
2000-01
2002-03
2004-05
2006-07
2008-09
2010-11
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
Share of Agriculture and Allied Products in Total Exports
1.Tea
2.Coffee
3. rice
4.unmanufactured tobacco
5.spices
6.Cashewnuts
7.Oil meal
8.Fruits&Vegetables
9.Marine Product
10.raw cotton
11.Sugar and Molasses
12.Meat and Meat preparations
The table 5.12 shows that the annual export growth rate of most of the
agricultural commodities recorded negative growth rate in 1997-98, 1998-99 and
1999-00 due to fall in demand in Asian countries and again in 2009-10 due to global
recession. The growth rate of sugar and molasses and raw cotton was better
compared other commodities
Table 5.12: Annual Export Growth Rate of India’s Primary Products (In per cent)
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
PRIMARY PRODUCTS 39.2 10.7 -4.3 -9.9 -5.8 9.2 -0.5 21.5 13.7 36.9 20.8 20.2 39.9 -8.0 4.1 24.4 38.7
A.AGRICULTURAL AND ALLIED PRODUCTS 43.8 12.8 -3.4 -8.9 -7.0 6.5 -1.2 13.7 12.2 12.4 20.5 24.1 45.3 -4.8 1.1 39.2 57.5
1.Tea 12.7 -16.5 72.8 8.4 -23.5 5.0 -16.7 -4.7 3.7 15 -12.4 11.4 16.1 15.7 6.1 14.8 17.2
2.Coffee 34.0 -10.5 13.6 -11.3 -19.4 -21.7 -11.5 -10.5 15.0 0.7 64.3 21.2 6.9 5.5 -12.1 49.0 43.3
3. Rice 25.6 -34.5 1.5 64.5 -51.6 -11.0 3.7 81.0 -24.6 66.0 -6.7 10.65 87.8 -16.8 -2.2 7.1 97.9
4. Tobacco 64.1 60.3 32.7 -43.1 37.8 -22.8 -15.7 25.0 14.3 20.0 10.2 19.9 28.7 69.0 26.9 -13.7 -4.3
5.Spices 21.5 42.6 12.0 1.3 5.1 -13.1 -11.4 9.2 -2.0 24.7 14.0 46.0 49.6 32.0 -5.8 33.0 55.7
6.Cashewnuts -6.8 -1.8 4.0 1.6 46.6 -27.4 -8.8 13.1 -12.8 49.3 5.8 -5.7 0.2 14.8 -6.4 -3.3 48.2
7.Oil meal 22.7 40.2 -6.1 -50.8 -18.1 18.4 6.0 -34.9 136 -2.9 55.7 10.5 66.2 10.4 -26.1 43.7 1.02
8.Fruits&Vegetables 12.9 3.8 -1.6 -12.3 14.0 18.6 5.8 14.2 51.0 16.7 37.7 39.3 9.8 26.9 13.1 -5.9 10.59
9.Marine Product -10.3 11.68 6.4 -14.0 13.9 17.9 -11.3 15.8 -7.2 .3 10.4 11.3 -2.7 -10.7 35.8 21.3 32.3
10.Raw cotton 36.3 629 50.1 -75.9 -63.8 175.8 -81.8 16.5 1865.6 -54.1 596.7 105.8 63.1 -71.7 222.6 41.7 56.2
11.Sugar and Molasses 662 100.5 -77 -92 60.3 1089 237.8 0.3 -28 -91 297 433 95 -29.9 13.5 45.3 51.6
12.Meat and Meat preparations 46.0 6.6 8.9 -13.9 0.9 70.1 22.2 3.7 31.3 13.6 46.4 17.8 27.1 25.0 13.5 45.3 49.7
B.ORES and MINERALS 18.8 -0.17 -9.5 -16.0 2.5 26.5 8.9 58.7 18.2 136.5 17.4 12.6 30.5 -14.6 9.9 16.5 -5.6
I. Iron Ore 24.4 -6.5 -0.9 -20.2 -29.4 31.9 19.2 103.6 29.7 191.1 16.0 2.7 49.0 -18.7 26.6 -21.4 -5.9
Source: Calculated from data taken from Government of India, Economic Survey and RBI Bulletin (various issues
Manufactured GoodsIn manufactured goods, share of chemicals, machinery, transport equipment,
and electronic goods increased in total exports. However, the share of manufactures
of metals declined in country’s total exports but enhanced in world exports. In the
post-WTO period, most important concern is the declining share of textiles; its share
has fallen to less than 10 per cent of total exports. This signifies that phasing of
MFA arrangement in 2005 as per the WTO agreements could not benefit much to
Indian textile exports. To a lesser extent similar is the case with the gems and
jewellery. The product composition has changed to some extent from 2000-01 to
2011-12 (see table 5.11 and fig 5.10). the erstwhile competitive export sectors,
especially like textiles, clothing, garments, leather and leather products, etc. have
been witnessing shrinking share and in turn leading to erosion of over-all share of
manufactured goods sector. In the manufactured category, the traditional goods
exports were making the way for new products. The structural change was relatively
minor in the first five years of the establishment of WTO but noteworthy changes
occurred in the second decade with engineering products and chemicals leading the
way.
Figure 5.10
1995
-96
1996
-97
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
2010
-110
5
10
15
20
25
30
Share of Manufactured goods in Total Exports
A. LEATHER AND MANU-FACTUREB.CHEMICAL AND RELATED PRODUCTSC.ENGINEERING GOODSD.TEXTILE AND TEXTILE PRODUCTSE.GEMS & JEWELLERYF.HANDICRAFT
The annual export growth rate of almost all the manufactured goods
remained positive (some products with significant growth rate in few years refer
table 5.13) in the post-WTO period except for the year 1998-99 and 2009-10 which
represented negative growth rate, the fall was maximum in case of leather products
and minimum for readymade garments. This decline was due to fall in global
demand owing to recession. The annual growth rate was high for engineering goods
in most of the year then followed by chemical and allied and gems and jewellery.
However, the leather and textile products did not showed high growth performance
in post-WTO and in case of handicrafts in some years performance was decent and
in some years not pleasing.
Table 5.13: Annual Export Growth Rate of India’s Manufactured Goods (In per cent)1995-
961996-
971997-
981998-
991999-
002000-
012001-
022002-
032003-
042004-
052005-
062006-
072007-
082008-
092009-
102010-
112011-
12II.MANUFACTURED GOODS 15.17 3.64 7.8 -2.8 15.2 16.9 -3.9 21.0 20.0 24.9 19.6 16.9 21.8 17.7 -5.9 16.5 18.2
A. LEATHER AND MANUFACTURE 8.79 -8.35 5.0 -11.3 -9.2 33.5 -3.2 -3.1 15.7 9.4 7.4 8.1 16.1 1.5 -5.4 12.73 22.4
B.CHEMICAL AND ALLIED PRODUCTS 20.63 8.78 12.35 -8.80 17.39 25.05 2.81 23.19 26.7 31.73 18.69 17.37 22.25 7.14 0.88 26.49 28.8
C.ENGINEERING GOODS 25.17 13.0 7.52 -16.34 15.41 32.34 2.04 29.82 37.3 39.84 25.19 36.13 26.37 26.54 -19.6 51.9 15.4
1.Manufacture of metals - 10.5 12.0 5.7 17.8 31.3 -0.3 16.6 29.8 40.2 24.6 20.0 38.8 7.1 -26.8 53.1 13.7
2.Machinery &instrument - 27.3 13.1 -4.3 2.4 37.7 6.5 16.1 37.9 34 30.6 32.4 35.8 19.9 -12.9 24.1 21.3
3.Transport equipment - 4.7 -4.1 -21.8 6.3 30.5 -3.4 31.0 46.2 44.7 52.8 14.5 41.9 58.8 -11.9 63.3 30.2
4.Electronic goods - 16.9 -3.1 -34.2 35.4 57.5 11.2 7.2 37.6 6.0 18.5 31.3 19.1 104.2 -23.6 50.2
D.TEXTILE AND TEXTILE PRODUCTS 12.8 7.52 4.80 -2.03 10.78 14.89 -9.5 13.81 10.11 5.97 21.0 5.92 11.81 3.04 -0.81 22.0 20.10
1.Cotton Yarn ,Fabric 15.36 3.7 4.6 -15.0 11.5 13.6 -12.4 9.6 0.8 1.6 14.3 6.9 10.2 -11.5 -10.5 57.0 17.1
2.Readymade garments 12.0 2.1 3.3 14.4 9.2 17.0 -10.2 14.6 8.6 5.3 30.6 3.2 8.9 12.9 -2.1 8.3 17.9
3.Jute manufactures 23.3 -16.2 20.2 -26.0 -9.0 20.2 -15.1 46.2 29.4 13.9 7.2 -12.1 25.8 -8.7 -27 111.5 -0.4
E.GEMS & JEWELLERY 17.2 -9.8 12.5 10.4 26.4 -1.5 -1.1 23.9 16.8 30.2 12.8 2.9 23.2 42.1 3.7 27.0 15.8
F.HANDICRAFT 15.0 9.63 15.6 5.3 6.6 2.2 -18.6 30.0 -4.8 -7.0 30.2 -5.2 16.0 -40.8 -25.3 46.8 -8.9
Source: Calculated from data taken from Government of India, Economic Survey and RBI Bulletin (various issues)
Petroleum Products
The petroleum products became an important segment of exports with the
share of 18.25 per cent in 2011-12 and have become the leading export item from
India. In 1995-96, it has marginal share of 1.0 per cent, which rose to 8.5 per cent in
2004-05(fig.5.11). India has become one of the leading petroleum refining centres in
Asia. In near future India is likely to emerge global hub of petroleum refining due to
its proximity to the Gulf countries.
Figure 5.11
1995-9
6
1997-9
8
1999-0
0
2001-0
2
2003-0
4
2005-0
6
2007-0
8
2009-1
0
2011-1
20
2
4
6
8
10
12
14
16
18
20
Share of Petroleum Products in Total Exports
PETROLEUM PRODUCTS
The annual export growth rate of petroleum products was very trivial until
1999-00 from 1995-96 and had registered negative growth rate for three consecutive
years following 1996-97 (refer fig. 5.12). However, in 2000-01, it recorded
extraordinary growth rate of 4692 per cent with value of export of US$ 1869 million
from US$ 39 million in 1999-00. In past decade the annual export growth of
petroleum products had remained pleasing except in year 2008-09 with negative
growth rate of -2.8 per cent and in 2009-10 positive but negligible growth rate of 2.3
per cent due to global recession which was soon recovered with annual growth rate
of 48.68 per cent in 2010-11.
Figure 5.12
1995-96
1996-97
1997-98
1998-99
1999-00
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
-100
-50
0
50
100
150
Annual Export Growth Rate of Petroleum Products
Annual Growth Rate
Inference from the trend In the post-WTO period the share of primary exports has significantly
declined and of manufactured goods, it increased first but in recent years it
has declined due to increase in share of petroleum products, this itself reveals
that certain diversification in India’s export basket was achieved.
Declining agricultural exports, shows that Agreement on Agriculture under
WTO did not benefitted much to India. It was due to failure in reduction of
subsidies in developed countries and difficulty in market accessibility for
Indian agricultural products.
The share of manufactured products in the export basket was affected in
recent years due to the slowing down of exports in two major sectors, that is,
textiles and clothing and gems and jewellery. Gems and jewellery, which has
been a leading item in India’s export basket, sustained a reverse because of
the decision of the US Government to withdraw the GSP benefit, whereby
Indian exports have lost the preferential tariff advantage over some of the
competing supplying countries that were not receiving the benefits earlier.
The elimination of MFA by 2005 in phased manner as per WTO agreements
under textile has not proved gainful for India’s textile export, as its share has
declined significantly in recent years.
In terms of annual growth rate almost all the commodities represented
negative growth rate in 1998-99 due to Asian crisis of 1997 leading to fall in
demand in Asian countries and in 2009-10 due to global recession and hence
fall in global demand.
The export of petroleum products has shown the robust performance with
share of 18.25 per cent in 2011-12 and has become the leading export item of
country in FY2012.
DESTINATION OF INDIA’S EXPORTS
At the time of independence, India’s major export was to U.K. and U.S.A. as
it could not explore the possibilities of developing trade relations with other
countries but as the country set on the path of development with its political and
diplomatic contacts advancing with other countries, its trading relationship with
other countries emerged up leading to fall in the share of above two countries in
India’s total exports and a rise in the share of other developing countries of Asia and
OPEC region. In last two decades, India has achieved greater export market
diversification.
Here the time-series data on India’s export destinations in pre and post
WTO era is analysed to find out that how far the share of traditional export partners
has altered and how far the country have succeeded in capturing new markets for its
export in post WTO period.
Pre-WTO Period; 1990-91 to 1994-95
In pre WTO period, the major portion of India’s goods was exported to
OECD countries, in terms of percentage share in total exports it was 56.5 per cent in
1990-91, which rise to 58.7 per cent in 1994-95. Under OECD countries, EU
countries accounted for maximum share in India’s exports and then followed by
North America. However, since 1990-91, the share of EU in India’s exports has
declined from 38.9 per cent to 26.7 per cent in 1994-95. Among the EU countries,
the share of given countries in 1994-95 was as follow; U.K. (6.4 per cent), Italy (3.3
per cent), France (2.2 per cent) and Belgium (3.8 per cent), this share was not
changed much from 1990-91 and was almost stagnant and changed by marginal
share of 0.1 percentage points throughout the study period while the share of
Germany was highest with 7.8 per cent in 1990-91 and 6.6 per cent in 1994-95. The
share of U.S.A. in India’s export was highest in 1994-95 that is 19.1 per cent with
this share it enjoyed top rank in India’s export destinations followed by Germany,
U.K., Hong Kong and U.A.E. in 1994-95 (refer table 5.14).
In the pre WTO period, the share of OPEC and developing countries in
India’s total exports constantly increased and reached to 9.2 per cent and 26.5 per
cent in 1994-95 from 5.6 and 17.1 per cent in 1990-91(see fig. 5.13). Among OPEC
countries, share of UAE was highest both in 1990-91(2.4 per cent) and in 1994-95
(4.8 per cent), followed by Saudi Arabia that is 1.3 per cent and 1.7 per cent in the
same period. Among developing countries, share of ASIAN countries was highest
with 14.4 per cent in 1990-91 and 21.7 per cent in 1994-95. The SAARC countries
share was 3.0 per cent in 1990-91, which rose to 4.6 per cent in 1994-95. However,
the share of African and Latin American countries in India’s total exports did not
raise much and was 2.2 per cent and 0.5 per cent in 1990-91 and 3.3 per cent and 1.5
per cent in 1994-95. One remarkable change was the fall in the share of East
European country, especially Russia, in country’s exports. In 1990-91 share of East
Europe in India’s exports was 17.9 per cent, which sink to 4.0 per cent in 1994-95.
Table 5.14: India’s Major Export Markets in Pre- WTO Period (Percentage share)
GROUP/COUNTRY 1990-91 1991-92 1992-93 1993-94 1994-95I.OECD COUNTRIES 56.5 57.9 60.5 56.9 58.7A.EU 38.9 27.0 28.3 26.1 26.71.BELGIUM 3.9 3.7 3.7 3.8 3.82.FRANCE 2.4 2.4 2.5 2.3 2.23.GERMANY 7.8 7.1 7.7 6.9 6.64.ITALY 3.1 3.2 3.4 2.7 3.35.U.K. 6.5 6.4 6.5 6.2 6.4B.NORTH AMERICA 15.6 17.4 20.0 19 20.11.CANADA 0.9 1.1 1.0 1.0 1.02.U.S.A. 14.7 16.4 18.9 18.0 19.1C.ASIA AND OCEANIA 10.4 10.5 9.1 9.1 9.21.AUSTRALIA 0.9 1.1 1.2 1.1 1.32.JAPAN 9.3 9.2 7.7 7.8 7.7D.OTHER OECD COUNTRIES 3.0 2.9 3.0 2.7 2.6II.OPEC 5.6 8.7 9.6 10.7 9.21.IRAN 0.4 0.7 0.6 0.7 0.62.IRAQ 0.1 0.03 0.01 0.03.SAUDI ARABIA 1.3 2.0 2.2 2.3 1.7
4.U.A.E. 2.4 4.1 4.4 5.2 4.8III.EASTERN EUROPE 17.9 10.9 4.4 4.5 4.01.RUSSIA 16.1IV.DEVELOPING COUNTRIES
17.120.1 22.9 26.1 26.5
A.ASIA 14.4 16.9 18.8 30 21.7a. SAARC 3.0 3.5 4.0 4.0 4.6b. OTHER ASIAN DEVELOPING COUNTRIES 11.4 13.4 14.8 17.9 17.11.CHINA2.HONKONG 3.3 3.4 4.1 5.6 5.83.SINGAPORE 2.1 2.2 3.2 3.4 2.9B.AFRICA 2.2 2.5 3.1 3.0 3.3C.LATIN AMERICA 0.5 0.7 1.0 1.1 1.5V.OTHERS 6.2 2.4 2.6 1.8 1.6TOTAL EXPORT 18145.2 17865.8 18537.2 22238.3 26330.5
Source: Government of India, Economic Survey (Various issues), RBI Bulletin (various issues).
Figure 5.13
1990-91 1991-92 1992-93 1993-94 1994-950
20
40
60
80
100
120
56.5 57.9 60.5 56.9 58.7
5.6 8.7 9.6 10.7 9.217.9 10.9 4.4 4.5 4
17.1 20.1 22.9 26.1 26.5
6.2 2.4 2.6 1.8 1.6
Share of India's Export Markets in Pre-WTO
0THERSDEVELOPING COUNTRIESEASTERN EUROPEOPECOECD
So it is concluded from the analysis of data that in pre-WTO period the
fastest growing destination for India’s exports is the developing countries specially
the Asian nations. OPEC countries too are emerging export destination for India. In
addition, in case of developed countries much of market diversification has not been
achieved.
Post-WTO Period; 1995-96 to 2010-11
Sub Period; 1995-96 to 1999-2000
During the first five years of the establishment of WTO, the trend in India’s
exports destination did not changed much but a drastic shift was observed in last
decade as could be observed from the table 5.15. In the year 1995-96, the share of
OECD countries in India’s total exports was 55.7 per cent which rose to 57.3 per
cent in 1999-00, here one thing is noticeable that among OECD countries, the share
of EU and Asia and Oceania declined from 26.5 and 8.3 per cent in 1995-96 to 24.7
and 5.8 per cent in 1999-00 so the above given growth in share was due to increase
in the share of North America in India’s exports from 18.3 per cent in 1995-96 to
24.4 per cent in 1999-00. The share of Belgium, France, Germany, Italy, and U.K.
was 3.5, 2.4, 6.2, 3.2, and 6.5 per cent in 1995-96, which reached to 3.7, 2.4, 4.7, 3.0
and 5.5 per cent in 1999-00. The U.S.A. was the principal export destination with
the share of 18.3 per cent in 1995-96 and 22.8 per cent in 1999-00. The share of
Japan constantly declined and reached to 4.6 per cent in 1999-00 while that of
Australia remained stagnant.
The share of OPEC countries in India’s exports did not changed much during
immediate succeeding five years since 1995 and was recorded 9.7 per cent in 1995-
96 and 10.6 per cent in 1999-00 difference of about 1 per cent point. Among OPEC
countries share of UAE was highest with 5.7 per cent in 1999-00. The share of
Eastern Europe remained almost stagnant with around 3 per cent during five years
(1995-2000). The share of developing countries in India’s exports has risen but
during 1995 to 2000, much growth in share has not been observed and was 25.7 per
cent in 1995-96, 27.8 per cent in 1998-99 and 25.6 per cent in 1999-00. The Hong
Kong, China emerged as an important trading partner of India during five years’
time and its share continuously rise from 5.7 per cent in 1995-96 to 6.8 per cent in
1999-00. However, the share of Latin America and Africa was varied, sometimes
increasing and sometimes decreasing between 0.5 per cent to 1 per cent points.
Other countries share in total exports was 5.1 per cent in 1995-96 and 3.4 per cent in
1999-00.
Therefore, through the study of trends in table 5.15 and fig 5.14 we have
reached to the conclusion that during the first five year immediately after the
establishment of WTO there was not significant change in India’s export markets.
Table 5.15: India’s Major Export Markets in Post-WTO Period (Percentage share)
Group/ Country
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
I.OECD 55.7 55.6 55.7 58.0 57.3 52.7 49.3 50.0 46.4 43.7 44.5 42.0 39.5 37.4 35.9 33.3
A.Eu 26.5 25.9 26.1 26.1 24.7 22.7 21.8 21.9 21.1 21.0 21.7 21.2 21.2 21.3 20.1 18.4
1.Belgium 3.5 3.3 3.5 3.9 3.7 3.3 3.2 3.2 2.8 3.0 2.8 2.7 2.6 2.4 2.1 2.5
2.France 2.4 2.1 2.2 2.5 2.4 2.3 2.2 2.0 2.0 2.0 2.0 1.7 1.6 1.6 2.1 2.0
3.Germany 6.2 5.7 5.5 5.6 4.7 4.3 4.1 4.0 4.0 3.4 3.5 3.1 3.1 3.5 3.0 2.6
4.Italy 3.2 2.8 3.2 3.2 3.0 2.9 2.8 2.6 2.7 2.7 2.4 2.8 2.4 2.1 1.9 1.8
5.U.K. 6.5 6.1 6.1 5.6 5.5 5.2 4.9 4.7 4.7 4.4 4.9 4.4 4.1 3.6 3.5 2.8
B.North 18.3 20.6 20.7 23.1 24.4 22.4 20.8 22.0 19.2 17.5 17.8 15.8 13.5 12.2 11.5 10.6
America1.Canada 1.0 1.1 1.2 1.4 1.6 1.5 1.3 1.3 1.2 1.0 1.0 0.9 0.8 0.7 0.6 0.5
2.U.S.A. 17.3 19.6 19.4 21.7 22.8 20.9 19.4 20.7 18.0 16.5 16.8 14.9 12.7 11.5 10.9 10.1
C.Asia & Oceania
8.3 7.3 6.9 6.3 5.8 5.1 4.5 4.6 3.7 3.5 3.3 3.4 3.2 2.5 2.9 2.8
1.Australia 1.2 1.2 1.3 1.2 1.1 0.9 1.0 0.9 0.9 0.9 0.8 0.7 0.7 0.8 0.8 0.7
2.Japan 7.0 6.0 5.4 5.0 4.6 4.0 3.4 3.5 2.7 2.5 2.4 2.3 2.4 1.6 2.0 2.1D.Other OECD
Countries 1.6 1.7 2.0 1.7 1.6 1.9 1.6 1.6 1.7 1.7 1.6 1.6 1.6 1.4 1.3 1.5
II.OPEC 9.7 9.6 10.1 10.7 10.6 10.9 12 13.1 15.0 15.8 14.8 16.6 16.6 21.3 21.1 21.5
1.Iran 0.5 0.6 0.5 0.5 0.4 0.5 0.6 1.2 1.4 1.5 1.2 1.1 1.2 1.4 1.0 1.1
2.Iraq 0.0 0.00 0.03 0.1 0.1 0.2 0.5 0.4 0.1 0.2 0.2 0.2 0.2 0.2 0.3 0.3
3.Saudi Arabia 1.5 1.7 2.0 2.3 2.0 1.8 1.9 1.8 1.8 1.7 1.8 2.0 2.3 2.7 2.2 2.0
4.U.A.E. 4.5 4.4 4.8 5.6 5.7 5.8 5.7 6.3 8.0 8.8 8.3 9.5 9.6 13.1 13.4 13.0
III. Eastern Europe
3.8 3.3 3.7 3.2 3.1 2.4 2.3 2.4 1.8 2.1 1.9 1.2 1.1 1.1 1.0 1.2
1.Russia 2.4 2.7 2.1 2.6 2.0 1.8 1.3 1.1 0.8 0.7 0.7 0.6 0.6 0.5 0.6IV. Developing
Countries 25.7 30.0 29.5 27.8 25.6 26.7 28 33.9 32.6 37.8 38.5 39.9 42.5 37.5 39.2 41.6
A.Asia 21.3 24.3 22.8 20.6 20.9 21.4 22.4 26.5 27.6 29.9 30.1 29.8 31.6 28.0 29.8 30.9
A.SAARC 5.4 5.1 4.6 5.1 3.8 4.3 4.6 5.2 6.5 5.3 5.4 5.1 5.9 4.6 4.7 5.0B.Other Asian
Developing Countries
17.6 19.2 18.2 15.5 18.5 18.2 18.9 21.4 22.4 24.6 24.7 24.6 25.7 23.4 25.1 25.9
1.China 1.8 2.1 1.3 1.5 1.9 2.2 3.7 4.6 6.7 6.6 6.6 6.6 5.0 6.5 7.6
2.Honkong, China
5.7 5.6 5.5 5.7 6.8 5.9 5.4 5.0 5.1 4.4 4.3 3.7 3.9 3.6 4.4 4.5
3.Singapore 2.8 2.9 2.2 1.6 1.8 2.0 2.2 2.7 3.3 4.8 5.3 4.8 4.5 4.4 4.2 4.2
B.Africa 3.4 4.2 4.7 5.3 3.0 3.2 3.7 4.9 3.3 5.4 5.5 6.9 7.5 6.3 5.8 6.5
C.Latin America
1.1 1.4 2.0 1.9 1.7 2.1 1.9 2.5 1.7 2.6 3.0 3.3 3.4 3.1 3.6 4.1
V.Others 5.1 1.5 1.1 0.4 3.4 7.3 8.4 0.6 0.5 0.5 0.3 0.3 0.4 2.7 2.8 2.5
Total Export 31794.933469.7 35006.
433218.736822.444560.343826.7 52719.4 63842.683535.9 103090.
5126414
.1162904
.2182799
.5 178751.4254402.1
Source: Government of India, Economic Survey (Various issues), RBI Bulletin (various issues).
Figure 5.14
1995-
96
1996-
97
1997-
98
1998-
99
1999-
00
2000-
01
2001-
02
2002-
03
2003-
04
2004-
05
2005-
06
2006-
07
2007-
08
2008-
09
2009-
10
2010-
110
20
40
60
80
100
120
Share of India's Export Markets in Post-WTO
OTHERSDEVELOPING COUNTRIESEASTERN EUROPEOPECOECD
Sub Period; 2000-01 to 2010-11
OECD Countries
The period from 2001 to 2011 have witnessed radical change in India’s
export markets, refer table 5.15. In the year 2000-01, the share of OECD countries
in India’s exports was 52.7 per cent, which declined by significant percentage to
46.4 per cent in 2003-04, to 39.5 per cent in 2007-08 and to 33.3 per cent in 2010-
11, a difference of 19 percentage points in 10 years (see fig.5.15). This performance
was due to marginal decline in share of EU countries from 22.7 per cent in 2000-01
to 21.2 per cent in 2006-07 to 18.4 per cent in 2010-11 and greater decline of North
American countries from 22.4 per cent in 2000-01 to 17.8 per cent in 2005-06 to
10.6 in 2010-11. Among EU countries, share of U.K. remained highest for almost all
the years that is 5.2 per cent in 2000-01 and 2.8 per cent in 2010-11.The share of
Germany (4.3 per cent), Belgium (3.3 per cent), France (2.3 per cent) and Italy (2.9
per cent) in 2000-01 was sunk to 2.6, 2.5, 2.0 and 1.8 per cent in 2010-11. However,
the share of Australia remained stagnant.
Figure 5.15
A.EU
1.BELG
IUM
2.FRA
NCE
3.GERM
AN
Y
4.ITA
LY
5.U.K
.
B.NO
RTH A
MERIC
A
1.CA
NA
DA
2.U.S
.A.
C.ASIA
AN
D O
CEAN
IA
1.AU
STRALIA
2.JAPA
N
D.O
THER O
ECD C
OU
NTRIE
S0
5
10
15
20
25
30
Share of OECD Countries in India's Exports
1995-961998-992000-012002-032004-052006-072008-092010-11
OPEC Countries and Eastern Europe
OPEC countries have emerged as an important trading partner in last decade
and its share in country’s exports has increased from 10.9 per cent in 2000-01 to
14.8 per cent in 2005-06 to 21.5 per cent in 2010-11 and with share of 13 per cent in
2010-11, UAE ranks top in India’s export destinations, since 2008-09 (Fig 5.16).
The share of Iran, Iraq and Saudi Arabia has increased but at moderate rate and was
1.1 per cent, 0.3 per cent and 2.3 per cent in 2010-11.
The share of Eastern Europe has declined to 1.2 per cent in 2010-11 from 2.4
per cent in 2000-01 due to fall in the share of Russia to 0.6 per cent from 2.0 per
cent in same period.
Figure 5.16
1.IRAN 2.IRAQ 3.SAUDI ARABIA 4.U.A.E.0
2
4
6
8
10
12
14
Share of OPEC Countries in India's Exports
1995-961997-981999-002000-012002-032004-052006-072008-092010-11
Developing Countries
In the past 10 to 15 years, the developing countries have become the most
promising export destination of Indian products with share of 26.7 per cent in 2000-
01, 37.8 per cent in 2004-05 and 41.6 per cent in 2010-11. Among its, Asian
countries are the leading destination point followed by Africa and Latin American
countries with share of 30.9 per cent (Asia), 6.5 per cent (Africa) and 4.1 per cent
(Latin America) in 2010-11(see fig.5.17). Among Asian nations, China leads with
share of 1.9 per cent in 2000-01, 6.7 per cent in 2005-06 and 7.6 per cent in 2010-
11, share of Hong Kong, China and Singapore has also increased to 4.5 and 4.2 per
cent in 2010-11. The share of SAARC country in India’s exports has been
fluctuating there by showing rising and falling trend over the year and was 4.3 per
cent in 2000-01, 5.3 per cent in 2004-05, 4.6 per cent in 2008-09 and 5.0 per cent in
2010-11.
Figure 5.17
A.ASIA
a.SAARC
b.OTHER A
SIAN D
EVELOPIN
G COUNTRIE
S
1.CHIN
A
2.HONKONG
3.SIN
GAPORE
B.AFRIC
A
C.LATI
N AM
ERICA0
5101520253035
Share of Developing Countries in India's Exports
1995-961997-981999-002000-012002-032004-052006-072008-092010-11
The figure 5.18 given below represents top 6 destinations for India’s exports
in past decade where U.S.A. ranked first prior to 2008-09 but now ranks second. On
top is U.A.E. replacing U.S.A and on third position is China since 2003-04. In past
two years on fourth position is Hong Kong replacing Singapore, which is on fifth
position and on sixth rank is U.K.
Figure 5.18
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
0
5
10
15
20
25
India's Export to Top 6 Destinations
U.A.E.U.S.A.U.K.CHINAHONGKONGSINGAPORE
Hence, it could be seen that greater India’s exports market diversification has
been obtained in the post WTO period, especially during the past decade.
Inference of the trend In the pre WTO period, there was not much exports market diversification but in the
post WTO period, greater market diversification was obtained as the share of
traditional export trading partner of India has declined and market of newly
emerging developing countries of Asia and OPEC countries have become more
significant.
Most striking feature is the growing importance of Asian countries as an export
destination. Asian share in total exports has increased by substantial proportion and
it is nearly 55 per cent in 2010-11. This is due to India’s “Look East Policy” and
sustained effort to develop strong relations with China and the ASEAN.
The reason attributed to decline in share of OECD countries in India’s exports was
sluggish and depressed demand in EU and Japan. Global depression in the year 2008
lead to decline in USA share in country’s exports and also snatch away its top rank
in export destination.
Existence of tariffs and NTMs in U.S.A. and EU countries and use of protectionist
measures are also the important cause for their decline in India’s market share. This
refutes the efficiency of WTO regime.
The share of Eastern European countries, basically of Russia declined due to
political disturbances in these countries.
During some years, the share of East Asian countries declined due to economic
crisis in these countries but recovered soon and regains their position in country’s
export destination.
Share of developing and OPEC countries in India’s exports have increased
drastically in the last decade due to growing regional trade agreements between
them and liberalization of economies in Asia and Africa and impact of WTO
commitments on trade policies of member countries.
The share of African and Latin American countries have also increased in recent
years due to adoption of policy of focus Africa and Latin America markets.
WTO was established with the aim of liberalising trade so as to enable least
developed and developing nations to have greater access to the market of developed
countries but the study of trends in India’s direction of exports reveals that the share
of developed countries in country’s exports is continuously weakening which
definitely creates a doubt about the success of liberal market policy of WTO.
It could be concluded that the World Trade Organisation was established to
make conducive market for global trade with special consideration given to the least
developed and developing countries. India being the founder member of WTO was
expected to have substantial gain in its exports through greater export opportunities
provided by the WTO. However, the creation of WTO has not bestowed that gain as
expected initially. However, one cannot fully discard the role of WTO in India’s
export trade as the recent trade developments and diversification achieved in exports
market and basket is the result of liberalised trade policy of WTO system. In the
present chapter, India’s export performance was compared with that of selected
developed and developing nations where the performance of India was not
satisfactory during late 90’s, which reflects countries internal policy flaws and other
domestic factors and also the weak role of WTO in stimulating country’s exports but
in recent years, India has performed better than few developing countries like
Indonesia, Malaysia, Thailand and brazil. In terms of year of year growth rate there
was better performance than many developed and developing countries except for
few like China. The share of India’s merchandise exports in world export was 0.6
per cent in 1995-96, which increased to 1.67 per cent in 2011. In the first three years
after the establishment of WTO, India’s exports declined but in recent years, there
was an impressive growth in export in dollar terms due to both external and
domestic factors. Improved global growth and recovery in world trade after the
recession in 2007-08 aided the strengthening of Indian exports, firming up of
domestic economic activity especially in the manufacturing sector also provided a
supporting base for strong sector specific exports. The opening up of the economy
since the creation of WTO and corporate restructuring have enhanced the
competitiveness of Indian industry. Various policy initiatives for export promotion
and various regional arrangements with other countries and strong negotiation
position at WTO forum too have contributed to this growth. In spite of gain in
export trade in recent years India’s trade deficit could not be controlled, as there is
lack of consistency in expansion of export growth as observed in few years. It is
believed that India’s is still underperforming in terms of export and has much
potential. Along with domestic bottlenecks like supply constraints, lack of
infrastructure, flaws in export promotion strategy and policies external factors too
has contributed to this deficit.
In recent years, significant decline in export of textile products has posted
qualm on gain of agreement on textile under WTO for India. However, the robust
export of engineering goods in recent also signifies that reduction of tariff in
developed countries and others brought by WTO has proved lucrative. It was the
petroleum products that shown robust export performance in post-WTO period
causing decline in the share of both primary and manufactured goods in total export
of the country.
The study of time-series data on India’s direction of exports have revealed
the declined share of developed countries of EU and North America in India’s
export, which shows that the formation of WTO has not opened up market of EU for
India. Non-tariff barriers, antidumping and countervailing duties have become
important barriers to market access in developed countries to the export from
developing countries like India, apart from above the rules regarding environments,
health and labour standards are also challenging issues for India. However, the share
of other developing countries in India’s export has increased which is more due to
country’s individual efforts and role of WTO was marginal.
To make Indian product more competitive in international market there is
need to remove bottlenecks such as to provide information about potential markets,
develop export infrastructure, eliminate bureaucratic hurdles in making of export
policy, and allow flow of FDI and to have better negotiation under WTO forum.
CHAPTER VI
WTO AND INDIA’S AGRICULTURAL EXPORTS
1. IMPORTANCE OF AGRICULTURE IN INDIA
The development process of a country enters into different transitional stage where
in the agricultural sector plays the most dominant role in the early stage of development and
then followed by the secondary and tertiary sector. Since the agriculture sector forms the
main source of livelihood and food security for masses, its significance lies in each stage of
development and in each economy of the world especially in the developing countries. In
developing countries like India, economic growth and development largely depends on this
sector. At the time of independence, when Indian economy was stagnant agriculture played
the leading role, even at the present stage of development its key position in country’s
economy could not be overlooked.
Indian agriculture plays significant role in different sphere of economy like it
contributes to around 1/4th to GNP, however the share of agriculture in the aggregate
economy has declined rapidly over the years but it assumes a crucial role in the rural
economy. Despite the declining share of agriculture in the economy, it absorbs around 50
per cent of the total work force, provides raw material to agro-based industries including
sugar, textile, jute, paper industries etc., many of agricultural products like tea, coffee,
spices, cereals are exported abroad which enables country to earn foreign exchange, it also
provides market for capital goods, inputs and consumer goods and above all it supplies the
basic subsistence of living that is food and fodder to the people and animal. Owing to above
importance, the Government of India has allocated huge resources for the development of
agriculture under various plans.
Sustained and broad-based growth of agriculture is essential for alleviating poverty,
generating incomes and employment, assuring food security and sustaining a buoyant
domestic market for industry and services1.
Majority of population in India lives in rural areas where agriculture is the main
source of livelihood for rural people. The economic condition of rural population depends to
far extent on agriculture and hence sustained and broad based growth of agriculture is
essential for eliminating rural poverty. At the time of independence, Indian agriculture was
more backward so in order to improve agricultural productivity Government of India has
introduced several measures and reforms over years, like land reforms, green revolution
programme, provided improved infrastructure and increased public and private investment
in agriculture.
Role of Agriculture in GDP
In India, the share of agriculture sector in GDP has declined after the independence.
Its contribution to the overall Gross Domestic Product (GDP) of the country has fallen from
about 30 per cent in 1990-91 to less than 15 per cent in 2011-12 (Table 6.1), a trend that is
expected in the development process of any economy, agriculture yet forms the backbone of
development and the share of agriculture sector in India is much higher in comparison to
other nations.
Table 6.1: Share of Agriculture in GDP (In per cent)
Year Share of Agriculture and Allied sector to total GDP
1950-511960-61 54.741970-71 48.121980-81 41.821990-91 31.371993-94 33.541995-96 30.581997-98 29.031999-00 27.492000-01 23.92001-02 242002-03 21.42003-04 21.742004-05 20.22005-06 19.52006-07 18.52007-08 17.82008-09 172009-10 14.22010-11 142011-12 14
Source: CSO; Advance Estimates dated 7 February, 2012
Employment:
This sector plays a fundamental role in providing employment as around 191.58
million of population was employed in this sector in 1993-94 and 200.40 millions in 2004-
05(table 6.2). The agriculture sector employs more people than the non-agriculture sector as
could be seen from the table. The table 6.3 represents the employment growth rates in
agricultural sector.
Table 6.2: Employment (Agriculture and Non-Agriculture) in various NSS rounds (CDS basis)* (in millions)
Year Agriculture Non-Agriculture Total1993-94 191.58 122.35 313.931999-2000 191.55 146.64 338.192004-05 200.40 184.51 384.91* CDS estimates not available for earlier NSS RoundsSource: Planning Commission of India
Table 6.3: Agricultural Employment Growth Rates (In per cent)1993-94 to 1999- 1999-00 to 2004- 1993-94 to
00 05 2004-05Agricultural Self Employment -0.53 2.89 1.01Agricultural Wage Employment 1.06 -3.18 -0.89Total agricultural Employment 0.03 0.85 0.40Agricultural GDP 2.88 1.76 2.37Implied Employment Elasticity 0.01 0.49 0.17Real Agricultural Wage Rate (CPIAL deflated)
2.74 1.46 2.15
Source: Planning Commission of India
Trade
Indian agriculture has greatly contributed to foreign trade even in its traditional
form. Agriculture has been a source of foreign exchange for India in the past. Most of the
export earnings of agriculture came from the conventional items such as tea, cashew and
spices. However, in recent year’s rice, marine products and spices etc. are playing
dominating role in agriculture export share. The share of Indian agricultural exports in
world agricultural exports was around 2 per cent in 2010-11.
2. PERFORMANCE OF INDIAN AGRICULTURAL EXPORTS
UNDER THE WTO REGIME
The new economic regime, initiated since early nineties, has led to retuning of the
goals of Indian agriculture towards global competitiveness and export orientation without
compromising the basic premise of self-reliance. Indian agriculture has the great potential to
meet the domestic as well foreign market demand thereby making it important not only for
the domestic economy but for the global economy. In the era of liberalization and
globalization, Indian agriculture has fully integrated with world economy and any
uncertainty in the world agriculture market will definitely have an impact on this sector.
When we compare agriculture sector of developed countries and India, we finds vast
difference with regards to the extent of application of modern technology, skill and literacy
level of farmers, individuals farm size holding and infrastructural support. The developed
countries are highly competitive and efficient and agriculture is much more mechanised
there. Not only this, they provide extensive subsidization to their agricultural products as
compared to developing countries, which led to distortion in the prices of agricultural
commodities in international market. As a result, the poor and developing countries like
India finds it difficult to have access to the markets of agricultural products in the developed
and developing countries and are left at the periphery of world market. In order to provide
equal opportunities in agriculture trade to all the economies of the world through more fair
and market oriented trading system, the Agreement on Agriculture was included under
WTO and came into force on January 1st 1995. An underlying objective of the WTO is to
enhance the rule-oriented approach of world trade and to promote the economic
development through effective participation in world trade2. The Agreement on Agriculture
gave hope to the developing nations that the opening up of the economy would go a long
way in removing discrimination against tradable agriculture and would confer immense
benefits to them through increased exports.
Over the years, Indian government has provided extensive domestic-policy controls
and protection to the agriculture. However, to certain extent protection and controls is
feasible to protect the interest of vulnerable group of society that is farmer, but to increase
the competitiveness of this sector it should be made more open by phasing out protection in
gradual manner. The provision of AOA under WTO is expected to offer sufficient
opportunities to India to expand its export market.
WTO AND AGREEMENT ON AGRICULTURE
With the objective to liberalise agricultural trade on a global level by curbing
policies that have created distortions in agricultural production and trade, the Agreement on
Agriculture became part of the final act of the Uruguay Round of Multilateral Trade
Negotiations and was implemented from 1 January 1995 under WTO. Agriculture was kept
outside of GATT until 1995. The AOA encloses rules and discipline that shall govern trade
in agriculture.
The Agreement on Agriculture includes commitments in three broad areas:1) Market
Access ,2) Domestic Support and 3) Export Competition3.
I. Market Access
Under this, trade restrictions are to be removed, all non-tariff barriers like,
import quotas, import licensing etc., that are imposed by the developed and the
developing countries are to be converted into tariffs (a process known as
tariffication). The Tariffs had to be bound that is each country commits not to
exceed particular level of tariff. The developed countries are to reduce tariff by
36 per cent over a period of 6 years and developing countries like India will
reduce tariff by 24 per cent over period of 10 years.
II. Domestic Support
Aggregate Measure of Support (AMS): It is the non-exempted support
of the following two types that is; product-specific support, i.e. market
price support/subsidy given to the producer of a specific crop and the
other one is non-product specific support i.e. total of subsidies on inputs
like power, irrigation, fertilizers and credit. If AMS exceed 5 per cent of
the total value of agricultural production in the case of developed
countries and 10 per cent in case of developing countries these are to be
reduced by 20 per cent over six years from 1995 in case of developed
countries and 13.3 per cent over period of ten years in case of developing
countries.
Green Box Support: It is an exempted support and includes measure
which has minimal effect on trade and production like, pest and disease
control, market intelligence, infrastructure facilities, relief from natural
disaster, buffer stock operations and environment protection programmes
and regional assistance programme provided to disadvantage region.
Blue Box Support: It is product-limiting subsidy and pertains mainly to
the developed countries. It is exempted from reduction under WTO.
Special and Differential Treatment Box support: (for developing
countries) it includes investment subsidy to agricultural sector for farm
development work like; land levelling, shallow wells etc. It also includes
agricultural input services to low-income and resource poor farmers. It is
exempted from WTO commitments.
III. Export Competition
The commitment requires the developed countries to reduce the value of direct
export subsidies by 36 per cent over a period of six years and in terms of volume by 24 per
cent. The developing countries are to reduce the same by 24 per cent and 14 per cent
(volume) respectively within ten years. The base period for these cuts is 1986-90 or 1991-
92 if exports were higher in that period.
The Agreement on Agriculture is the most talk about in the various rounds of
negotiations under WTO. The Doha Round of trade negotiations in the World Trade
Organizations (WTO), which were launched in November 2001, is essentially on hold
currently. The last revised Draft Modalities on Agriculture was brought on 6 December
2008. Ten issues are namely Blue box support for US, Cotton, Sensitive Products / Non
Sensitive Products beyond 100 per cent duties, Tariff Simplifications, Tropical Products &
Diversification Products and Preservation of Long Standing Preferences have been in
square brackets or otherwise annotated in the modalities since December 2008.
The focus shifted to possibility of selecting some issues for finalization as an ‘Early
Harvest’ in time for the 8th Ministerial Conference of the WTO in December 2011. As part
of the “Early Harvest’, it was decided to take up LDCs issues, which were enlarged to
LDCs issues as largely insisted upon by USA. Australia has been taking the lead in pushing
the Early Harvest Package, which would include several other issues apart from LDC
issues. Core LDC issues are Duty Free Quota Free (DFQF) market access and cotton
subsidies. USA has been insisting that all the major players including Brazil, China, and
India should make significant contributions in the package to take shape.
India has said that though the early harvest of LDC issues was important, the
remaining issues of the Doha Development Agenda should also be dealt with. USA is
unwilling to commit in LDC core issues such as DFQF and cotton it has been seeking to
shift the onus on Brazil, China and India.
A Mini Ministerial was held in Geneva from 21 -29 July 2008, to finalize the
Modalities for Agriculture and NAMA. However, the Agricultural Negotiations broke down
due to lack of consensus on the Special Safeguard Mechanism (SSM) apart from lack of
consensus on other important areas of negotiation like sensitive products, tariff capping,
tariff simplification etc. There were several other important developing country issues like
cotton, preference erosion, tropical products, Duty Free Quota Free (DFQF) market access
on which no agreement has been reached.
It is reported that the July 2008 negotiations in Geneva had moved very close to
consensus. This development has enough flexibility to enable India to protect its agriculture
against imports from developed countries. In recent Eighth Ministerial Conference held in
Geneva, 2011, India again stressed on the few basic issues to be concluded like substantial
and effective reductions in overall trade distorting domestic support (OTDS) of the US and
EU, self-designation of an appropriate number of special products (SPs), an operational and
effective special safeguards mechanism (SSM) and the simplification and tapping of
developed country tariffs but however yet again many of the issues remained unsettled.
Hence India has to try hard to hasten the conclusion of this round.
Prior to economic reforms of 1991, Indian agriculture was under strict control of
domestic policy and various kinds of import and export restrictions like licence,
prohibitions, quotas, etc. was imposed for the sake of domestic food security. However,
under the WTO regime, India liberalised it trade in agriculture.
India’s agricultural trade policies began to change in late nineties. The Ministry of
Commerce, through the Director General of Foreign Trade formulated policies according to
the objective laid down under economic reforms and commitment made under AOA of
WTO, which required the removal and reduction of restrictions on export and import of
agricultural products. In order to promote export while ensuring sufficient domestic supplies
of essential commodities at reasonable prices many changes was included in the policies
like reductions in products subject to state trading, relaxation of export quotas, the abolition
of minimum export prices, increased credit availability for exports, and opening of
agriculture export processing.
TRENDS IN INDIAN AGRICULTURAL EXPORT
In pre-WTO period, 1990-91 to 1994-95, India’s agricultural and allied exports
performed extremely well. It recorded average share of 17.5 per cent in total exports and
average value of US$ 3589.4 million (1990-91 to 1994-95). The compound annual growth
rate recorded in pre-WTO was low that is 5.94 per cent as compared to post-WTO period
that is 12.02 per cent (1995-96 to 2011-12). However, in the post-WTO Period the
agricultural exports have shown extreme fluctuations. Although the World Trade
Organization (WTO) Agreement on Agriculture in 1995 was expected to improve India’s
agricultural exports, this does not seem to have happened. In recent years there have been
some signs of improvement in year of year growth rate especially between 2005 and 2008
and after global recession.
In case of share of agricultural exports in GDP originated from agriculture sector,
there was rise from 4.1 per cent in 1990-91 to 7.1 per cent in 1997-98 (see figure 6.1). Later
in next two years there was a decline to 5.7 per cent in 1999-00, thereafter, it gradually
increased from 6.4 per cent in 2000-01 to 9.4 per cent in 2007-08 and again declined in
2010-11 to 8.7 per cent. From these observations, it can be inferred that the degree of
openness or outward orientation of the agricultural sector, with regard to exports, has
increased in recent times, albeit a marginal decline occurred in 1999-00. It reflects the
effects of the liberalisation of agricultural exports and improvement in the supply capacity
of the economy in recent times. However, the data also reveals that agricultural sector is
less outward-oriented than the economy as a whole. This is evident from the share of total
exports to national GDP as against the share of agricultural export to national GDP. Further,
the share of agricultural exports in the total merchandise exports has come down steadily
over the years.
Figure 6.1
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
0
1
2
3
4
5
6
7
8
9
10
4.14.5 4.7
5.65.1
7.47.8
7.16.4
5.76.4 6.1
7.3 77.4 7.7
8.6
9.4 9.3
8.28.7
Agriculture Exports as % of Agriculture GDP
Source: Economic survey (various issues), GOI & RBI, Handbook of Statistics on Indian Economy
The average value of agriculture and allied exports in post-WTO period (1995-96 to
2011-12) was US$ 12030.64 million and the average share was 13.59 per cent (see table
6.4). In pre-WTO, agricultural and allied exports constituted about 18.49 per cent of the
total exports in 1990-91 and 16.05 per cent in 1994-95. In post-WTO the share of
agricultural and allied exports in the total exports was 20.50 per cent in 1996-97, there after
the share continuously declined and in 2000-01 went down to 13.5 per cent, in 2003-04 it
constituted only 11.8 per cent of total exports. Between the year 2006-07 and 2007-08 there
was an increase in share by 1.1 per cent. With a fall in share in 2008-09 to 9.5 per cent it has
seen a growth by 0.4 per cent in 2009-10. However in 2011-12 it recorded share of 17.19
per cent (see figure 6.2). Although the relative share of agriculture in total exports has been
falling over time, the share of agricultural products in total export earnings is still substantial .
Figure 6.2
1990-91
1991-92
1992-93
1993-94
1994-95
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
0
5
10
15
20
25
18.489999999999817.93
16.9218.11
16.05
19.13
20.5
18.9318.17
15.68
13.5 13.512.8
11.8
10.1 9.9 10.311.3
9.5 10 9.9
17.19
Agricultural Exports as % of Total Exports
Source: Computed on the basis of data from RBI, Handbook of Statistics on Indian Economy
The value of India’s agricultural exports in 1995-96 was US$ 6082 million, which
increased to US$ 37420.8 million in 2011-12. During the first five years of establishment of
WTO, year of year growth rate in Indian agriculture exports recorded a declining trend, 43.9
per cent in 1995-95 and -7.0 per cent in 1999-00. In year 2002-03, the growth rate was 14.1
per cent. In the year 2005-06, 2006-07 and 2007-08, agricultural exports registered
impressive year of year growth rate of 20.5, 24.0 and 45.0 per cent. However the global
recession in 2008 and 2009 resulted into negative annual growth rate of export in 2008-09 (-
4.8 per cent) but after the recession and with global recovery achieved impressive growth of
39.2 per cent and 52.5 per cent in 2010-11 and 2011-12 (see table 6.4). Increase in value of
Indian agricultural exports during 2010-11 was primarily because of higher exports of
sugar, molasses, cotton, guar gum meal, spices, niger seed, groundnut, maize, coffee, oil
meal, castor oil, tea and jute compared to corresponding period of previous year. Export
growth was high in 2010-11 and the first half of 2011-12 in case of agriculture and allied
products due to export growth in cereals, meat preparations, oil meals, and coffee4.
Table 6.4: Exports of Agricultural Commodities from India (Value in Million US$)
Year Total Exports Agricultural and allied Exports
Growth Rate in Agricultural Exports
Agricultural Exports as % Total Exports
Pre-WTO Period1990-91 18145 3354 17.59 18.49
1991-92 17865 3203 -4.5 17.931992-93 18537 3136 -2.1 16.921993-94 22238 4028 28.4 18.111994-95 26331 4226 4.9 16.05Average 20623.2 3589.4 17.5CAGR 5.94
Post-WTO Period1995-96 31795 6082 43.9 19.131996-97 33470 6863 12.8 20.501997-98 35006 6626 -3.4 18.931998-99 33219 6035 -11.3 18.171999-00 36822 5608 -7.0 15.682000-01 44560 5973 6.5 13.52001-02 43827 5901 -1.7 13.52002-03 52719 6710 14.1 12.82003-04 63843 7533 12.2 11.82004-05 83536 8475 11.7 10.12005-06 103091 10214 20.5 9.92006-07 126414 12683 24.0 10.32007-08 163132 18432 45 11.32008-09 185295 17534 -4.8 9.52009-10 178751 17735 1.1 10.02010-11 251136 24696 39.2 9.92011-12 217664 37420.8 51.52 17.19Average 99075.29 12030.64 13.59CAGR 12.02Source: Calculation based on data from RBI, Handbook of Statistics on Indian Economy
The slow rise in agricultural exports calls for the change in strategic approach of
Indian agriculture in a big way to achieve higher levels of production in crops in which
India has comparative advantage and generate surpluses for exports. The government’s
commitment towards agriculture is seen from the ambitious 4 per cent growth target set
under the Eleventh Plan. In its quest for accelerated growth, India has to increase its
agricultural growth rates of 2.0 per cent to the long-term trend of around 4 % per annum.
India also needs to have strong stance at WTO regarding the need for better access in the
markets of developed countries and to make Indian agricultural exports price competitive
need for greater reduction of subsidies and domestic support in developed countries.
India’s Share and Rank in World Agricultural Exports
India's share in the world agricultural export was very low in the pre-WTO period
that is 0.80 in 1990 and 0.88 in 1994 (see table 6.5). In post-WTO, India’s share in world
agricultural exports has increased substantially from 1.0 per cent in 1995 to 2.06 per cent in
2011 (Fig 6.3). In fact the graph shows that for the UR Agreement on Agriculture
implementation period (1995- 2001), India’s share in world agricultural exports was on a
decline in most of the years. Even in absolute terms (current US Dollars), India registered a
decline in agricultural exports over the period 1995 to 2001. However, in recent years
growth in Indian agriculture exports was registered both in absolute terms and in terms of
share in world agricultural exports. The share of India’s agricultural exports in world
agricultural exports was recorded as 1.3 per cent in 2006, 1.5 per cent in 2008, 1.69 per cent
in 2010 and 2.06 in 2011. This increase in share in recent years has enabled India to fall
among the leading exporters of agricultural exports and also signifies that end of transition
period and complete implementation of AOA by 2001(in case of developed countries) and
2005(in case of developing countries) has proved beneficial to India in capturing global
market share.
Table 6.5: Value of Agricultural Exports and Percentage Share of India in World Agricultural Exports
(Value in US$ million)YEAR WORLD INDIA India’s Share in World
Agricultural Exports Pre-WTO1990 414723 3506 0.801991 418236 3361 0.801992 447887 3676 0.821993 429335 4167 0.971994 500913 4399 0.88CAGR (1990-1994) 4.83 5.83Post-WTO1995 583200 6322 1.01996 592870 7040 1.181997 589230 6863 1.161998 560560 6235 1.111999 543820 5835 1.072000 552250 6401 1.152001 554130 6265 1.132002 582530 7025 1.202003 683366 7935 1.162004 788084 8588 1.082005 851847 10134 1.182006 943676 12353 1.302007 1127667 16020 1.422008 1348136 21251 1.572009 1181391 16384 1.382010 1366469 23106 1.692011 1659524 34323 2.06CAGR (1995-2011) 6.75 11.15Source: WTO, International Trade Statistics
Figure 6.3
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
0
0.5
1
1.5
2
2.5
0.8 0.80.8200000000000010.970000000000001
0.881
1.180000000000011.159999999999981.11 1.071.149999999999981.12999999999998
1.21.159999999999981.08
1.180000000000011.3
1.421.57
1.38
1.69000000000002
2.06
India’s Share in World Agricultural Exports(in per cent)
Leading Exporters of Agricultural Products in Post WTO Period
India is amongst 15 leading exporters of agricultural products in the world. As per
the International Trade Statistics 2011, published by the World Trade Organization (WTO),
India’s agricultural exports amounted to US $ 23.2 billion with a 1.7 per cent share of world
trade in agriculture in 2010. Until 2001, India was not among the top fifteen countries
leading in the world export of agricultural products, however since 2001 with forming of
group European Union, it falls amongst the category of leading exporters of agricultural
products and in recent years its rank has improved refer table 6.6. Over the past many
decades the top two positions is occupied by European Union and United States.
Developing countries like Argentina, Brazil, China, Mexico, Indonesia, Malaysia, Russia
Federation and Thailand enjoys a good share in the leading exporters of agricultural
products along with the developed countries. In the table 6.6 and figure 6.4(a,b,c,d,e) we
can see the rank of many countries has been fluctuating in the past decades.
Table 6.6: Leading Exporters of Agricultural Products in Post WTO Period(Value in US$ billions)
2001 2003 2005 2008 2010 2011Countries/ group Value Countries/
group Value Countries/ group Value Countries/
group Value Countries/ group Value Countries/
group Value
European Union 213 European Union (15) 284.14 European
Union 369.71 European Union
566.32
European Union 532 European
Union 626
United states 70.0 United States 76.24 United states 82.67 United
states139.9
7United states 143 United
states 168
Canada 33.57 Canada 33.69 Canada 41.18 Brazil 61.40 Brazil 69 Brazil 86Brazil 18.43 Brazil 24.21 Brazil 35.04 Canada 54.08 Canada 52 China 65China 16.63 China 22.16 China 28.71 China 42.29 China 52 Canada 60Australia 16.56 Australia 16.34 Australia 21.21 Argentina 37.50 Indonesia 36 Indonesia 48Argentina 12.20 Thailand 15.08 Argentina 19.18 Indonesia 32.86 Thailand 35 Thailand 48Thailand 12.06 Argentina 12.14 Thailand 17.32 Thailand 31.66 Argentina 35 Argentina 45Mexico 9.07 Malaysia 11.06 Russia
Federation 14.87 Malaysia 27.80 Malaysia 29 Malaysia 39
Russia Federation 8.17 Mexico 9.98 Indonesia 14.32 Australia 26.14 Australia 27 India 34
New Zealand 7.97 Indonesia 9.94 Malaysia 13.38 Russia Federation 5.02 India 23 Australia 34
Malaysia 7.19 New Zealand 9.60 New Zealand 13.01 India 21.37 Russia
Federation 21 Russia Federation 30
Indonesia 7.02 Russian Federation 9.37 Mexico 12.72 New
Zealand 17.90 New Zealand 20 New
Zealand 24
India 6.97 Chile 7.47 India 10.13 Mexico 17.56 Mexico 19 Mexico 23Chile 6.41 India 7.03 Chile 10.1 Chile 15.61 Chile 15 Vietnam 22
Source: WTO, International Trade StatisticsFigure 6.4(a)
Euro
pea
n U
nio
n
United
sta
tes
Can
ada
Bra
zil
Chin
a
Austra
lia
Arg
entina
Thai
land
Mex
ico
Russ
ia F
eder
atio
n
New
Zea
land
Mal
aysia
Indones
ia
India
Chile0
5
10
15
20
25
30
35
40
4539
12.8
6.13.4 3 3 2.2 2.2 1.7 1.5 1.5 1.3 1.3 1.3 1.2
Leading Exporters of Agricultural Products in Year 2001
% Share
Source: WTO, International Trade StatisticsFigure 6.4 (b)
Euro
pean U
nion
Unit
ed st
ates
Canad
a
Brazi
l
China
Austra
lia
Argen
tina
Thai
land
Russia
Fed
erati
on
Indones
ia
Mal
aysi
a
New
Zea
land
Mex
ico
India
Chile0
5
10
1520
25
30
3540
45
5043.4
9.7
4.8 4.1 3.4 2.5 2.3 2.1 1.7 1.7 1.6 1.5 1.5 1.2 1.2
Leading Exporters of Agricultural Products in Year 2005
% Share
Source: WTO, International Trade StatisticsFigure 6.4 (c)
Europ
ean
Uni
on
Uni
ted st
ates
Brazil
Canad
a
China
Indo
nesia
Thaila
nd
Arg
entin
a
Mala
ysia
Aus
tralia
Indi
a
Russia
Fed
erati
on
New
Zea
land
Mex
ico
Chile
0
5
10
15
20
25
30
35
40
4539.1
10.5
5 3.8 3.8 2.6 2.6 2.5 2.1 2 1.5 1.7 1.4 1.4 1.1
Leading Exporters of Agricultural Products in Year 2008
% Share
Source: WTO, International Trade Statistics
Figure 6.4 (d)
Europ
ean
Uni
on
Uni
ted st
ates
Brazil
Canad
a
China
Arg
entin
a
Indo
nesia
Thaila
nd
Mala
ysia
Aus
tralia
Russia
Fed
erati
on
Indi
a
New
Zea
land
Mex
ico
Chile
0
5
10
15
20
25
30
35
40
45 42.2
10.4
4.6 4 3.2 2.8 2.4 2.4 2.1 1.9 1.9 1.6 1.3 1.3 1.2
Leading Exporters of Agricultural Products in Year 2010
% Share
Source: WTO, International Trade Statistics
Figure 6.4 (e)
Europ
ean U
nion
United
state
s
Brazil
China
Canad
a
Indo
nesia
Thaila
nd
Argen
tina
Mala
ysia
India
Austra
lia
Russia
Fed
eratio
n
New Z
ealan
d
Mex
ico
Vietna
m0
5
10
15
20
25
30
35
40 37.7
10.1
5.2 3.9 3.6 2.9 2.9 2.7 2.3 2.1 2.1 1.8 1.5 1.4 1.3
Leading Exporters of Agricultural Products in Year 2011
% Share
Source: WTO, International Trade Statistics3. COMMODITY WISE ANALYSIS OF INDIA’S AGRICULTURAL
EXPORTS
The agricultural commodities like tea, coffee, sugar, tobacco, spices, oil meals,
cashew incl. CSNL, marine products etc. are the most principal items of India’s
international trade of agricultural commodities. Their export performance has been analysed
in detail over the period from 1989-90 to 2011-2012 (pre and post WTO periods). The
average value (in triennium), percentage share, compound annual growth rate , Simpson
index and revealed comparative advantage of agricultural export commodities has been
calculated to ascertain the impact of WTO on agricultural exports.
India’s Share in World Exports of Selected Agricultural Commodities
The table 6.7 reveals that India’s share of some of the traditional items in world
exports has declined rapidly in the post-WTO period. In case of tea and mate, India’s share
in world exports declined from 22.1 per cent in 1990 to 14.5 per cent in 1995, 12.6 per cent
in 2002 and 8.6 per cent in 2007 and recently increased to 9.9 per cent in 2010. India
enjoyed respectable place in spice exports in pre- WTO period with its share in world
exports around 19.3 per cent in 1985, but it came down in 1990s, it had share of 7.7 per cent
in 1990 and since the WTO establishment the share had fluctuated between increasing and
declining trend and registered 9.6 per cent in 1995, 2.8 per cent in 1999, 9.4 per cent in
2005. In recent years, Indian spice has shown an improved share in world exports with
share of 14.5 per cent in 2008 and 15.5 per cent in 2010 and has become leading
agricultural export item from India. A mixed trend was observed in case of tobacco with
share of 0.8 per cent in 1990, 0.5 per cent in 1995, 2.4 per cent in 1999, 0.9 per cent in 2005
and 2.4 per cent in 2010.
India had a reasonable presence in the world exports market of rice. The share of
Indian rice in world market was around 18.7 per cent in 1995, it increased to 20.1 per cent
in 1999, which was really commendable but however in the past decades it showed mixed
performance with share of 8.4 per cent in 2001, 18 per cent in 2004 which further declined
for two subsequent years and raised to 17.9 per cent in 2007 and finally fall to 11.2 per cent
in 2010.
On the other hand, India’s share in the world fisheries products exports was around
1.6 per cent in 1990 and in post-WTO period it remained almost constant and changed by 2
to 4 percentage points, it recorded 2.2 per cent in 1995, 2.7 per cent in 2000, 2.2 per cent in
2005 and 2.4 per cent in 2010. The share of India’s vegetables and fruits in world exports
was 1.0 per cent in 1995, 1.1 per cent in 2003 and 1.3 per cent in 2010, thereby not showing
substantial presence in world exports. India’s share in world coffee exports increased from
1.7 per cent in 1990 to 2.8 per cent in 1995, 3.4 per cent in 1999, 2.3 per cent in 2005 and
1.9 per cent in 2010.
The share of Indian meat and meat preparations in world exports has increased in
post-WTO period and registered 0.4 per cent in 1995, 0.7 per cent in 2000, 0.9 per cent in
2006 and 1.4 per cent in 2010. The share of sugar, sugar preparations and honey too
increased from 0.8 per cent in 1995 to 2.4 per cent in 2010. The oilseed exports observed
mixed trend in some years share fall and in some years share increased as in 1995 share was
1.2 per cent, in 2002 it was 0.9 per cent and 1.6 per cent in 2010.
With the exception of a few commodities like rice, cotton, tea, coffee, and spices,
the share of agricultural exports of India in total world agricultural exports was very
insignificant. In recent year’s share of fishery products, tobacco and sugar preparations have
improved and the share in world exports is particularly low in case of commodities like
meat, vegetables and fruits and oilseeds. In past decade, India has made substantial
advances in the total world production of many commodities. However, its share in the
export market is relatively very small. The pertinent questions of marketable surplus and
export surplus are ailing the export potentials of Indian agricultural products. Nevertheless,
the country has made phenomenal efforts in enhancing the agricultural exports.
Table 6.7: India’s share in World Exports of Selected Agricultural Commodities (In per cent)
Commodities 1990
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Meat and Meat Preparations 0.2 0.4 0.4 0.4 0.4 0.5 0.7 0.7 0.6 0.7 0.6 0.8 0.9 0.9 1.1 1.0 1.4
Fish, Crustaceans and molluscs & preparations
1.6 2.2 2.3 2.3 2.5 2.4 2.7 2.7 2.6 2.2 2.1 2.2 2.2 2.0 1.7 1.8 2.4
Rice 6.4 18.7 12.1 12.5 10.4 20.1 10.2 8.4 18.1 12.5 18.0 14.3 14.6 17.9 14.3 12.6 11.2Vegetables and fruits 0.8 1.0 0.9 0.9 1.0 1.0 1.3 1.2 1.1 1.1 1.1 1.4 1.3 1.1 1.2 1.3 1.3
Sugar, sugar preparations and honey
0.1 0.8 1.6 1.6 0.4 0.1 0.9 0 2.4 1.6 0.3 0.8 2.6 3.6 4.8 0.3 2.4
Coffee and coffee substitutes
1.7 2.8 2.9 2.6 2.7 3.4 2.3 2.6 2.3 2.4 1.9 2.3 2.4 2.0 2.0 1.7 1.9
Tea and mate 22.1 14.5 11.4 11.9 16.4 18.8 14.0 13.9 12.6 10.9 10.3 9.4 9.1 8.6 9.0 9.3 9.9Spices 7.7 9.6 12.5 12.1 11.2 2.8 10.3 10.3 8.5 7.7 0.0 9.4 13.3 15.3 14.5 13.8 15.5Tobacco and tobacco manufactures
0.8 0.5 0.7 0.9 1.0 2.4 0.7 0.7 0.8 0.9 1.1 1.1 1.6 2.6 2.4
Oilseeds and oleaginous fruit
0.8 1.2 1.2 1.5 1.6 1.0 1.7 1.5 0.9 1.7 1.3 1.4 1.7 1.8 1.5 1.2 1.6
Source: Economic Survey (various issues), Government of India
Share and Annual Growth Rate of Selected Agricultural Exports in India’s Total Exports
The country’s export basket in the pre-WTO period was heavily dependent upon
items like tea and mates, coffee etc., however, in the post-WTO period their share has
declined and to included commodities like marine products, rice, oil meals, fruits and
vegetables etc., which have high potential for export.
Pre- WTO Period; 1990-91 to 1994-95
In the pre-WTO period, tea and coffee were the largest contributors followed by
marine products, raw cotton and oil meals. Rice and cashew contributed 1.4 per cent in
1990-91. In the same year, contribution of vegetables and fruits, tobacco, meat and meat
preparations and sugar and molasses was less than 1 per cent (see table 6.8). In 1994-95, the
contribution from marine products and oil meal was highest with share of 4.3 and 2.2 per
cent, the share of tea and coffee reduced to 1.2 and 1.3 per cent and for raw cotton and
tobacco there was a marginal decline to 0.2 and 0.3 per cent. Hence, it can be observed that
the relative importance of tea and coffee and raw cotton has marginally declined in 1994-
95. The contribution of others with few exceptions like cashew and rice too remained
insignificant.
Table 6.8: Percentage Share of Selected Agricultural Commodities in India’s Total Exports in Pre-WTO Period
1990-91 1991-92 1992-93 1993-94 1994-95A.AGRICULTURAL AND ALLIED PRODUCTS
18.5 17.9 16.9 18.1 16.1
1.Tea 3.3 2.8 1.8 1.5 1.22.Coffee 0.8 0.8 0.7 0.8 1.33.Rice 1.4 1.7 1.8 1.8 1.54.Raw Cotton 2.6 0.7 0.3 0.9 0.25.Tobacco 0.8 0.9 0.9 0.7 0.36.Cashew 1.4 1.5 1.4 1.5 1.57.Spices 0.7 0.8 0.7 0.8 0.78.Oil meal 1.9 2.1 2.9 3.3 2.29.Fruits&Vegetables 0.7 0.8 0.6 0.6 0.510.Marine Product 2.9 3.3 3.2 3.7 4.311.Sugar and Molasses 0.1 0.4 0.7 0.3 0.0712.Meat and Meat preparations 0.4 0.5 0.5 0.5 0.5Source: Calculated on the basis of data collected from RBI, Handbook of Statistics on Indian Economy
Post WTO Period; 1995-96 to 2011-12
The share of agricultural exports in total exports registered declining trend in the
post-WTO period. This decline was basically due to fall in the share of many traditional
products like tea, coffee, rice, spices and cashew etc. The share of tea, rice, coffee and
cashew has declined significantly from 1.1, 4.2, 1.4 and 1.1 per cent in 1995-96 to 0.7, 2.2,
0.4 and 0.8 per cent in 2002-03. In 2011-12, share of respective commodities in total export
were as follow; tea (0.3), coffee (0.3), unmanufactured tobacco (0.3), cashew (0.3), rice (1.6
per cent), raw cotton (1.5 per cent), marine products (1.1 per cent), oil meals (0.8 per cent)
and spices (0.9 per cent), see table 6.9. Marine products showed better performance in
India’s exports until 2000 with share fluctuating around 3 to 3.5 per cent from 1995-2000.
However, its share too declined from 2.8 per cent in 2001-02 to 1.1 per cent in 2011-12.
Products such as spices, oil meals, and vegetables and fruits indicated fall in their share in
India’s total exports in post-WTO period but were better in share then tea, coffee, tobacco
etc. At a more detailed level, meat and meat preparations and sugar and sugar preparations
showed rise in their share of exports.
The table 6.9 shows that the annual export growth rate of most of the agricultural
commodities recorded negative growth rate in 1997-98, 1998-99 and 1999-00, due to fall in
demand in Asian countries and again in 2009-10 due to global recession. The growth rate of
sugar and molasses and raw cotton was better compared to other commodities
Table 6.9: Percentage Share and Annual Export Growth Rate of Selected Agricultural Commodities in India’s Total Exports in Post-WTO Period.1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
A.AGRICULTURAL AND ALLIED
PRODUCTS
19.9 20.4 18.8 17.3 15.2 13.5 13.5 12.8 11.8 10.5 10.2 10.3 9.9 9.1 10.1 9.9 12.28
Growth Rate 43.8 12.8 -3.4 -8.9 -7.0 6.5 -1.2 13.7 12.2 12.4 20.5 24.1 45.3 -4.8 1.1 39.2 54.51.Tea 1.1 1.2 1.4 1.6 1.1 1.0 0.8 0.7 0.6 0.5 0.4 0.3 0.3 0.3 0.3 0.3 0.3
Growth Rate 12.7 -16.5 72.8 8.4 -23.5 5.0 -16.7 -4.7 3.7 15 -12.4 11.4 16.1 15.7 6.1 14.8 17.22.Coffee 1.4 1.2 1.3 1.2 0.9 0.6 0.5 0.4 0.4 0.3 0.3 0.3 0.3 0.3 0.2 0.3 0.3
Growth Rate 34.0 -10.5 13.6 -11.3 -19.4 -21.7 -11.5 -10.5 15.0 0.7 64.3 21.2 6.9 5.5 -12.1 49.0 43.33.Rice 4.2 2.6 2.6 4.4 1.9 1.4 1.5 2.2 1.4 1.8 1.3 1.2 1.7 1.3 1.3 0.9 1.6
Growth Rate 25.6 -34.5 1.5 64.5 -51.6 -11.0 3.7 81.0 -24.6 66.0 -6.7 10.65 87.8 -16.8 -2.2 7.1 97.94.Raw Cotton 0.2 1.3 0.6 0.2 .04 0.1 0.02 0.02 0.3 0.1 0.6 1.1 1.3 0.3 1.1 0.3 1.5Growth Rate 36.3 629 50.1 -75.9 -63.8 175.8 -81.8 16.5 1865.6 -54.1 596.7 105.8 63.1 -71.7 222.6 41.7 56.2
5.unmanuf. Tobacco 0.8 1.0 1.1 1.1 1.1 0.8 0.7 0.7 0.5 0.5 0.5 0.6 0.6 0.7 0.7 0.7 0.3Growth Rate 64.1 60.3 32.7 -43.1 37.8 -22.8 -15.7 25.0 14.3 20.0 10.2 19.9 28.7 69.0 26.9 -13.7 -4.3
6.Cashew 1.1 1.1 1.1 1.1 1.5 0.9 0.9 0.8 0.6 0.7 0.6 0.4 0.3 0.3 0.3 0.2 0.3Growth Rate -6.8 -1.8 4.0 1.6 46.6 -27.4 -8.8 13.1 -12.8 49.3 5.8 -5.7 0.2 14.8 -6.4 -3.3 48.2
7.Spices 2.2 2.9 2.6 1.4 1.0 1.0 1.1 0.6 1.1 0.8 1.1 1.0 1.2 1.2 0.9 0.9 0.9Growth Rate 21.5 42.6 12.0 1.3 5.1 -13.1 -11.4 9.2 -2.0 24.7 14.0 46.0 49.6 32.0 -5.8 33.0 55.7
8.Oil meal 0.8 0.4 0.6 0.5 0.6 0.6 0.6 0.6 0.7 0.6 0.6 0.6 0.5 0.6 0.7 0.5 0.8Growth Rate 22.7 40.2 -6.1 -50.8 -18.1 18.4 6.0 -34.9 136 -2.9 55.7 10.5 66.2 10.4 -26.1 43.7 1.02
9.Fruits&Vegetables 3.2 3.4 3.4 3.1 3.2 3.1 2.8 2.7 2.1 1.7 1.7 1.4 1.1 0.8 1.2 1.0 0.4Growth Rate 12.9 3.8 -1.6 -12.3 14.0 18.6 5.8 14.2 51.0 16.7 37.7 39.3 9.8 26.9 13.1 -5.9 10.59
10.Marine Product 0.2 1.3 0.6 0.2 .04 0.1 0.2 .02 0.3 0.1 0.6 1.1 1.3 0.3 1.1 1.1 1.1Growth Rate -10.3 11.68 6.4 -14.0 13.9 17.9 -11.3 15.8 -7.2 .3 10.4 11.3 -2.7 -10.7 35.8 21.3 32.311.Sugar and
Molasses0.5 0.9 0.2 0.0 0.0 0.2 0.9 0.7 0.4 0.4 0.1 0.5 0.8 0.5 0.1 0.9 0.6
Growth Rate 662 100.5 -77 -92 60.3 1089 237.8 0.3 -28 -91 297 433 95 -29.9 -97.2 4347 51.612.Meat and Meat
preparations0.6 0.6 0.6 0.5 0.5 0.5 0.6 0.5 0.6 0.5 0.6 0.6 0.6 0.6 0.7 0.7 0.9
Growth Rate 46.0 6.6 8.9 -13.9 0.9 70.1 22.2 3.7 31.3 13.6 46.4 17.8 27.1 25.0 13.5 45.3 49.7Source: Calculated on the basis of data collected from RBI, Handbook of Statistics on Indian Economy
196
The deteriorating agricultural exports from India in recent years was due to distorted domestic prices for products like rice, oil meals, tea, coffee etc., beside it, inadequate infrastructure like shortage of storage, lack of adequate processing technology and poor handling etc. makes supply sources unreliable and fall in export potentials. Indian products also carries high price than their competitors in the foreign market, which leads to decline in their demand. TRENDS IN AGRICULTUAL EXPORT OF SELECTED COMMODITIES
Table 6.10: Compound Annual Growth Rate of Selected Agricultural Commodities in Pre and Post WTO Period
CommoditiesPre-WTO Period
1990-91 to 1994-95Post-WTO Period
1995-96 to 2011-12Value Value
1.Tea -15.0 5.82.Coffee 24.2 4.73.Rice 10.5 8.54.Raw Cotton incl. Waste 44.5 30.95.Tobacco 13.7 12.16.Cashew incl. CNSL 12.3 5.97.Spices 10.5 16.58.Oil meal 13.9 8.19.Fruits&Vegetables 4.0 13.510.Processed Fruits, juices, misc. Processed items 0.7 9.511.Marine Product 20.4 8.012.Sugar and Molasses 1.3 17.013.Meat and Meat preparations 13.28 18.8Source: computed on the basis of data collected from RBI, Handbook of statistics on Indian Economy
Table 6.11: Average Value, Percentage Share and Simpson Index of Selected Agricultural commodities
(Value in US$ million and share in per cent)1989-90 to 1991-92
1992-93 to 1994-95
1995-96 to 1997-98
1998-99 to 2000-01
2001-02 to 2003-04
2004-05 to 2006-07
2007-08 to 2009-10
A. Agriculture and Allied Products 3,136.5 3,796.47 6915.93 5871.9 6714.76 10457.3 17900.31. Tea 546.2
(17.4)328.53(8.65)
382.36(5.52)
447.26(7.61)
352.73(5.25)
411.93(3.93)
570.1(3.18)
2. Coffee 161.26(5.14)
213.03(5.70)
435.86(6.30)
333.73(5.68)
223.76(3.33)
343.93(3.28)
461.26(2.57)
3. Rice 273.3(8.71)
377(9.93)
1055.4(15.26)
952.03(16.21)
925.83(13.78)
1488.8(14.23)
2573.1(14.37)
4. Cotton Raw incl. Waste 224.06(7.14)
105.23(2.77)
241.8(3.49)
38.47(0.65)
74.83(1.11)
699.93(6.69)
1611.76(9.00)
5. Tobacco 134.93(4.30)
130.6(3.44)
211.6(3.05)
201.23(3.42)
206.46(3.07)
317.4(3.03)
716(3.99)
6. Cashew incl. CNSL 247.96(7.90)
329.96(8.69)
370.46(5.35)
468.4(7.97)
391.06(5.82)
564.56(5.39)
596.2(3.33)
7. Spices 149.26(4.75)
170.73(4.49)
318.36(4.60)
383.33(6.52)
330.66(4.92)
531.63(5.08)
1249.2(6.97)
8. Oil Meal 359.8(11.47)
615.66(16.21)
870.33(12.58)
429.03(7.30)
503.5(7.49)
1008.23(9.64)
1968.53(10.99)
9. Fruits and Vegetables 127.26(4.05)
126.36(3.32)
159.8(2.31)
153.8(2.61)
285.5(4.25)
302.5(2.89)
957.7(5.35)
10. Processed Fruits, Juices, misc. Processed Items
107.4(3.42)
94.8(2.49)
248.66(3.59)
218.26(3.71)
290.4(4.32)
349.7(3.34)
635.73(3.55)
Table 6.11 (contd….)
11. Marine Products 510.96(16.29)
847.3(22.3)
1115.66(16.13)
1204.93(20.52)
1332.36(19.84)
1599.06(15.29)
1781.2(9.95)
12. Sugar and Molasses 34.73(1.10)
66.23(1.74)
174.53(2.52)
41.9(0.71)
339.16(5.05)
296.7(2.83)
806.36(4.50)
13. Meat and Meat Preparations 79.93(2.54)
108.96(2.89)
201.53(2.91)
232.7(3.96)
302.63(4.50)
592.53(5.66)
1141.4(6.37)
Simpson Index 0.90 0.89 0.91 0.90 0.91 0.92 0.93Note: Figures in bracket indicate the percentage to total agricultural exports in triennium.Sources: Average Value, Percentage Share and Simpson Index are estimated on the basis of data collected
from Directorate General of Commercial Intelligence and Statistics, Kolkata.
TeaIndian tea enjoys good repute in the international market and has been one of
the most important traditional commodities in our exports. When India was typically
an agrarian economy at early years of independence, tea exports constitute the
important source of foreign exchange as country enjoyed export surplus as it being
the highest producer and consumer of black tea in the world. Tea is grown in 16
states in India. Assam, West Bengal, Tamil Nadu, and Kerala account for about 95
per cent of total tea production. Tea production in India during the year 2010-11 has
been estimated at 0.97 million tonnes as against 0.99 million tonnes in 2009-10 .
However, in the post-WTO period tea exports have exhibited a considerable year-to-
year variation.
The table 6.11 shows the average value and percentage share of tea exports
in triennium in the pre and post WTO period (1989-90 to 2009-10). The average
value of exports in T.E. 1989-90 to 1991-92 was US$ 546.2 million, which fall to
US$ 328.53 million in T.E. 1992-93 to 1994-95. The percentage share in average
agricultural exports was as follow for the above Triennium 17.4 and 8.65 per
cent .In post-WTO, the average value of tea exports was US$ 382.36 million in T.E.
1995-96 to 1997-98, after increasing in T.E. 1998-99 to 2000-01 to US$ 447.26
million, it declined in next triennium and ultimately increased to US$ 570.1 million
in T.E. 2007-08 to 2009-10. However, the average share has declined from 5.52 per
cent in T.E. 1995-96 to 1997-98 to 3.18 per cent in T.E. 2007-08 to 2009-10. Thus,
it could be seen that in post-WTO average value of tea exports was more than in pre-
WTO but average percentage share was highest in pre-WTO period compared to
post-WTO.
The compound annual growth rate in terms of value of exports in pre-WTO
period was 15 per cent that is higher than in post-WTO period which was only 5.8
per cent (see table 6.10).
Coffee India is the sixth largest producer of coffee after Brazil, Vietnam, Colombia,
Indonesia, and Ethiopia. With 2 per cent share in global area under coffee, India
contributes about 4 per cent to world coffee production as well as international trade.
Coffee is cultivated in an area about 4.0 lakh ha primarily in the southern states of
Karnataka, Kerala, and Tamil Nadu. Presently consumption in the country is over 1
lakh tonnes and India produces about 3 lakh tonnes of coffee comprising both
Arabica (32 per cent) and Robusta (68 per cent) coffee. The country’s coffee
production reached a high of 3.02 lakh tonnes during 2011-12.
Indian coffee is primarily an export-oriented commodity with about 70 per
cent of production being exported. The table 6.11 indicates the average value of
coffee exports in T.E. 1989-90 to 1991-92 was US$ 161.26 million, which increased
to US$ 213.03 million in T.E. 1992-93 to 1994-95. The percentage share in average
agricultural exports was 5.14 per cent in T.E. 1989-90 to 1991-92 and 5.70 per cent
in T.E. 1992-93 to 1994-95 .In post-WTO, the average value of coffee exports was
US$ 435.58 million in T.E. 1995-96 to 1997-98, which declined to US$ 333.73
million in T.E. 1998-99 to 2000-01, declined in next triennium (2001-02 to 2003-04)
to US$ 223.76 million, this decline was due to a fall in global coffee prices. The
average value of exports again increased to US$ 461.26 million in T.E. 2007-08 to
2009-10. However, the average share has declined from 6.30 per cent in T.E. 1995-
96 to 1997-98 to 2.57 per cent in T.E. in 2007-08 to 2009-10. Thus, it could be seen
that in post-WTO average value of coffee exports was more than in pre-WTO but
average percentage share was highest in pre-WTO period compared to post-WTO.
The compound annual growth rate in terms of value of exports in pre-WTO
period was 24.2 per cent that is higher than in post-WTO period, which was only 4.7
per cent (table 6.10).
RiceRice has become one of the most important items of agricultural exports
from India to many countries in the world. Rice plays an important role in the export
earnings of the country. Export of rice from India consists of basmati rice and non-
basmati rice. India tends to face stiff competition in the international markets for the
export of rice. Thailand is the world's largest rice exporting country. Vietnam is
another large exporter of rice; however, in recent years the demand for Vietnamese
rice has steeply declined in the international market due to which India is likely to
become world's second largest exporter of rice.
About two third of basmati rice produced in India is exported. The percentage share
of export value of Basmati rice in food grains export earnings was 65 per cent
during 1995-96 and it decreased to 35.36 per cent during 2008-09. However, in
absolute term it has increased. Basmati rice is getting good export price in the
international markets for its pleasant aroma, superfine grains and extreme grain
elongation. The export value of non-basmati rice also contributes considerable share
in the export earnings of total agricultural products. The export in percentage term
was around 25% to 60% during 1995 to 2008.
Export earnings from rice have continuously increased. The table 6.11
indicates the average value of rice exports in T.E. 1989-90 to 1991-92 was US$
273.3 million, which increased to US$ 377 million in T.E. 1992-93 to 1994-95. The
percentage share in average agricultural exports was as follow; 8.71 and 9.93 per
cent for the above Triennium. In post-WTO, the average value of exports was US$
1055.43 million in T.E. in 1995-96 to 1997-98; this increase was due to abolition of
quota system and quantitative restrictions in 1992. The average value of rice exports
was then declined to US$ 952.03 million in T.E. 1998-99 to 2000-01, declined
marginally in next triennium (2001-02 to 2003-04) to US$ 925.83 million and
ultimately increased and registered more than double increase in average value of
exports that is US$ 2573.1 million in T.E. 2007-08 to 2009-10. This increase in
value of exports was due to increase in rice production as result of various initiatives
taken by the Government of India in the implementation of a number of Crop
Development Schemes, the productivity of rice has increased from 1984 kg per
hectare in 2004-05 to 2314 kg per hectare in 2011-12. The production of rice has
shown an upward trend during the period 2005-06 to 2008-09 and it reached a
record level of 99.18 million tonnes in 2008-09. The production of rice, which
declined to 89.09 million tonnes in 2009-10 due to long spells of drought, has
increased to 102.75 million tonnes in 2011-12, the highest ever.
The average share has increased to 15.26 from per cent in T.E. 1995-96 to
1997-98 and then declined marginally to 14.37 per cent in T.E. in 2007-08 to 2009-
10. Thus, it could be seen that in post-WTO average value of rice exports was more
than in pre-WTO and average percentage share was also at significant level in post-
WTO.
The compound annual growth rate in terms of value of exports in pre-WTO
period was 10.5 per cent that is higher than in post-WTO period which was only 8.5
per cent (see table 6.10).
Cotton Raw Including WasteCotton raw is also an important traditional commodity of export from India.
The table 6.11 indicates the average value of cotton raw including waste exports in
T.E. 1989-90 to 1991-92 was US$ 224.06 million, which declined to US$ 105.23
million in T.E. 1992-93 to 1994-95. The percentage share in average agricultural
exports was as follow for the above Triennium; 7.14 per cent and 2.77 per cent. In
post-WTO, the average value of raw cotton exports was US$ 241.8 million in T.E.
1995-96 to 1997-98, which declined substantially to US$ 38.47 million in T.E.
1998-99 to 2000-01, in next triennium (2001-02 to 2003-04) also the average value
of export was poor, that is US$ 74.83 million, which however increased to US$
1611.76 million in T.E. 2007-08 to 2009-10. The average share was 3.49 per cent in
T.E. 1995-96 to 1997-98, which fluctuated between the study periods and reached to
9.0 per cent in T.E. in 2007-08 to 2009-10. Thus, it could be seen that in post-WTO
average value of cotton raw including waste export was more than in pre-WTO and
the average percentage share kept on fluctuating between increasing and decreasing
trend in post-WTO.
The compound annual growth rate in terms of value of exports in pre-WTO
period was 44.5 per cent that is higher than in post-WTO period, which was only
30.9 per cent (table 6.10).
TobaccoTobacco is another traditional export commodity from India, which
contributes good amount in foreign exchange. The table 6.11 indicates the average
value of tobacco exports in T.E. 1989-90 to 1991-92 was US$ 134.93 million, which
fall to US$ 130.6 million in T.E. 1992-93 to 1994-95. The percentage share in
average agricultural exports was as follow for the above Triennium; 4.30 and 3.44
per cent .In post-WTO, the average value of tobacco exports was US$ 211.6 million
in T.E. 1995-96 to 1997-98, which declined to US$ 201.23 million in T.E. 1998-99
to 2000-01, increased marginally in next triennium (2001-02 to 2003-04) to US$
206.46 million and ultimately increased to US$ 716 million in T.E. 2007-08 to
2009-10. The average share was 3.05 per cent in T.E. 1995-96 to 1997-98, which
declined and then increased by marginal share to reach 3.99 per cent in T.E. in 2007-
08 TO 2009-10. Thus, it could be seen that in post-WTO average value of tobacco
exports was more than in pre-WTO but average percentage share was highest in pre-
WTO period compared to post-WTO.
The compound annual growth rate in terms of value of exports in pre-WTO
period was 13.78 per cent that is higher than in post-WTO period, which was only
12.1 per cent.
Cashew Incl. CNSL
Cashew incl. CNSL is also an important traditional commodity of export
from India. The table 6.11 indicates the average value of cashew incl. CNSL exports
in T.E. 1989-90 to 1991-92 was US$ 247.96 million, which increased to US$ 329.96
million in T.E. 1992-93 to 1994-95. The average percentage share in average
agricultural exports was as follow for the above Triennium, 7.90 and 8.69 per cent.
In post-WTO the average value, of cashew exports was US$ 370.46 million in T.E.
1995-96 to 1997-98, which increased to US$ 468.4 million in T.E. 1998-99 to 2000-
01, declined in next triennium (2001-02 to 2003-04) to US$ 391.06 million and
ultimately increased to US$ 596.2 million in T.E. 2007-08 to 2009-10. However, the
average share has declined from 5.35 per cent in T.E. 1995-96 to 1997-98 to 3.3 per
cent in T.E. in 2007-08 to 2009-10. Thus, it could be seen that in post-WTO average
value of cashew incl. cnsl exports was more than in pre-WTO but average
percentage share was highest in pre-WTO period compared to post-WTO.
The compound annual growth rate in terms of value of exports in pre-WTO
period was 12.3 per cent that is higher than in post-WTO period, which was only 5.9
per cent (table 6.10).
SpicesIndia is the largest producer, consumer and exporter of spices and spice
products in the world. Over 100 plants species are known to yield spices and spice
products among which around 50 are grown in India. The spice production in India
is currently at 5.73 million tonnes from an area of about 3.03 million ha. The table
6.11 indicates that the average value of spices exports in T.E. 1989-90 to 1991-92
was US$ 149.26 million, which increased to US$ 170.73 million in T.E. 1992-93 to
1994-95. The percentage share in average agricultural exports was as follow; 4.75
and 4.49 per cent for the above Triennium .In post-WTO, the average value of
spices exports was US$ 318.36 million in T.E. in 1995-96 to 1997-98, which
increased to US$ 383.33 million in T.E. 1998-99 to 2000-01, declined in next
triennium (2001-02 to 2003-04) to US$ 330.66 million and ultimately increased to
high value of US$ 1249.2 million in T.E. 2007-08 to 2009-10.
The average share has increased from 4.60 per cent in T.E. 1995-96 to 1997-98 to
6.97 per cent in T.E. in 2007-08 TO 2009-10. Thus it could be seen that in post-
WTO average value of spices exports was more than in pre-WTO but average
percentage share was highest in pre-WTO period compared to post-WTO, however
in recent years it has improved.
The compound annual growth rate in pre-WTO period was 10.5 per cent that
is lower than in post-WTO period, which was 16.5 per cent (table 6.10).
Oil MealsOil meals export performance has declined in post-WTO period. The table
6.11 indicates that the average value of oil meals exports in T.E. 1989-90 to 1991-92
was US$ 359.8 million, which increased to US$ 615.66 million in T.E. 1992-93 to
1994-95. The average percentage share in average agricultural exports was as
follow; 11.47 per cent and 16.21 per cent, for the above Triennium .In post-WTO,
the average value of oil meals exports was US$ 870.33 million in T.E. 1995-96 to
1997-98, which declined to US$ 429.03 million in T.E. 1998-99 to 2000-01, it was
US$ 503.8 in triennium (2001-02 to 2003-04) which increased noticeably to US$
1968.53 million in T.E. 2007-08 to 2009-10. However, the average share has
declined from 12.58 per cent in T.E. 1995-96 to 1997-98 to 10.99 per cent in T.E. in
2007-08 to 2009-10. Thus, it could be seen that in post-WTO average value of oil
meals exports was more than in pre-WTO but average percentage share was more in
pre-WTO period compared to post-WTO.
The compound annual growth rate in pre-WTO period was 13.9 per cent that
is higher than in post-WTO period, which was only 8.1 per cent.
Fruits and VegetablesIndia is the second largest producer of vegetables after China and is a leader
in the production of peas and okra. Besides, India occupies the second position in
the production of brinjal, cabbage, cauliflower, onion, potato and is third in tomato
production in the world. Vegetables that are produced in abundance are potato,
onion, tomato, brinjal, okra, cucurbits, etc. While India is the second largest
producer of fruits in the world, it is the largest producer of fruits like mango, banana,
papaya, sapota, pomegranate and aonla. The area under vegetables in India increased
from 6 million ha in 2001-02 to 8.49 million ha during 2011-125.
The table 6.11 indicates the average value of fruits and vegetables exports in T.E.
1989-90 to 1991-92 was US$ 127.26 million, which fall marginally to US$ 126.36
million in T.E. 1992-93 to 1994-95. The percentage share in average agricultural
exports was as follow; 4.05 and 3.32 per cent, for the above Triennium .In post-
WTO, the average value of fruits and vegetables exports was US$ 159.8 million in
T.E. in 1995-96 to 1997-98, which declined to US$ 153.8 million in T.E. 1998-99 to
2000-01, increased in triennium (2001-02 to 2003-04) to US$ 285.5 million and to
US$ 957.7 million in T.E. 2007-08 to 2009-10. However, the average share has
increased from 2.31 per cent in T.E. 1995-96 to 1997-98 to 5.35 per cent in T.E. in
2007-08 to 2009-10. Thus, it could be seen that in post-WTO average value of fruits
and vegetables exports was more than in pre-WTO and average percentage share is
also substantial in recent years of post-WTO.
The compound annual growth rate in terms of value of export in pre-WTO
period was 4.0 per cent that is lower than in post-WTO period, which was 13.5 per
cent.
Processed Fruits, Juices, misc. Processed ItemsProcessed fruits, juices, misc. processed items export performance remained
decent in post WTO period. The table 6.11 indicates the average value of exports in
T.E. 1980-09 to 1991-92 was US$ 107.4 million which fall to US$ 94.8 million in
T.E. 1992-93 to 1994-95. The percentage share in average exports was as follow;
3.42 and 2.49 per cent for the above Triennium. In post-WTO, the average value of
export was US$ 248.66 million in T.E.1995-96 to 1997-98, which declined to US$
218.26 million in T.E. 1998-99 to 2000-01, increased in triennium (2001-02 to
2003-04) to US$ 290.4 million and to US$ 635.73 million in T.E. 2007-08 to 2009-
10. The average share remained almost constant in post WTO period, fluctuated
between 0 to 1 percentage points, and was 3.59 per cent in T.E. 1995-96 to 1997-98
and 3.55 per cent in T.E. in 2007-08 to 2009-10. Thus, it could be seen that in post-
WTO average value of exports was more than in pre-WTO but percentage share was
in pre-WTO and post-WTO did not changed significantly.
The compound annual growth rate in terms of value in pre-WTO period was
0.7 per cent that is lower than in post-WTO period, which was 9.5 per cent (table
6.10).
Marine ProductsMarine products had performed better in exports compared to many other
traditional export commodities. India’s marine product exports have for the first
time crossed USD 2 billion. During 2010-11, the volume of fish and fish products
exported was 8, 13,091 tonnes worth Rs. 12,901 crore registering the highest growth
rate of 10% in volume of fish exports in recent years. India is the second largest
producer of fish in the world, contributing 5.54 per cent of global production. The
present enhanced fish production in the marine sector has been largely possible due
to the introduction of mechanized fishing vessels and synthetic gear materials, and
the development of infrastructure for preservation, processing and storage. It has
represented increasing trend in average value of exports in triennium. The table 6.11
indicates that the average value of marine exports in T.E. 1989-90 to 1991-92 was
US$ 510 million, which increased to US$ 847.3 million in T.E. 1992-93 to 1994-95.
The average percentage share in average exports was as follow; 16.29 and 22.3 per
cent, for the above Triennium. In post-WTO, the average value was US$ 1115.66
million in T.E. 1995-96 to 1997-98, which further increased to US$ 1204 million in
T.E. 1998-99 to 2000-01, increased in triennium (2001-02 to 2003-04) to US$
1332.36 million and to US$ 1781.2 million in T.E. 2007-08 to 2009-10. However,
the average share has declined from 16.13 per cent in T.E. 1995-96 to 1997-98 to
9.95 per cent in T.E. in 2007-08 TO 2009-10 after increasing substantially in few
years. Thus, it could be seen that in post-WTO average value of marine products
exports was more than in pre-WTO but average percentage share was high only in
few years in post-WTO.
The compound annual growth rate in terms of value in pre-WTO period was
20.4 per cent that is higher than in post-WTO period, which was 8.0 per cent.
Sugar and MolassesSugar and molasses was also a significant commodity of export from India
and has shown wide fluctuation in export in post-WTO. The table 6.11 indicates that
the average value of sugar and molasses exports in T.E. 1989-90 to 1991-92 was
US$ 34.73 million, which increased to US$ 66.23 million in T.E. 1992-93 to 1994-
95. The percentage share in average exports was as follow; 1.10 per cent and 1.74
per cent for the above Triennium. In post-WTO, the average value of sugar and
molasses export was US$ 174.53 million in T.E. 1995-96 to 1997-98, which
declined to US$ 41.9 million in T.E. 1998-99 to 2000-01, increased in triennium
(2001-02 to 2003-04) to US$ 339.16 million and to US$ 806.36 million in T.E.
2007-08 to 2009-10. This violent fluctuation was due to sharp rise in domestic
demand and marginal decline in production in few years and increase in productivity
in recent years. The average share was 2.52 per cent in T.E. 1995-96 to 1997-98,
which increased to 4.50 per cent in T.E. in 2007-08 to 2009-10. Thus, it could be
seen that in post-WTO average value of sugar and molasses exports was more than
in pre-WTO and average percentage share has also increased in post-WTO.
The compound annual growth rate in terms of value in pre-WTO period was
1.3 per cent that is lower than in post-WTO period, which was 17.0 per cent (table
6.10).
Meat and Meat PreparationsMeat and meat preparations has become an important commodity of export
from India in recent years. Total meat production from cattle, buffalo, sheep, goat,
pig and poultry at the all India level increased from 1.5 million tonnes in 2000-01 to
an estimated 4.83 million tonnes in 2010-11. The table 6.11 indicates the average
value of meat and meat preparations exports in T.E. 1989-90 to 1991-92 was US$
79.93 million, which increased to US$ 108.96 million in T.E. 1992-93 to 1994-95.
The percentage share in average agricultural exports was as follow; 2.54 and 2.89
per cent for the above Triennium. In post-WTO, the average value of exports was
US$ 201.53 million in T.E. 1995-96 to 1997-98, which increased to US$ 232
million in T.E. 1998-99 to 2000-01, increased in triennium (2001-02 to 2003-04) to
US$ 302.63 million and to US$ 1141.4 million in T.E. 2007-08 to 2009-10. The
average share has increased from 2.91 per cent in T.E. 1995-96 to 1997-98 to 6.37
per cent in T.E. in 2007-08 to 2009-10. Thus, it could be seen that in post-WTO
average value of meat and meat preparations exports was more than in pre-WTO
and average percentage share has also improved in post-WTO.
The compound annual growth rate in pre-WTO period was 13.23 per cent that is
lower than in post-WTO period, which was 18.8 per cent (6.10).
Competitiveness of Indian Agricultural Exports
To measure export competiveness, the Revealed Comparative Advantage (RCA)
method developed by Balassa (1965) is used. An RCA (for a commodity) greater than
unity implies that the country is said to have a revealed comparative advantage in
exports of that commodity. The revealed comparative advantage index represents that in
post-WTO period, India enjoyed maximum comparative advantage in spices, rice and
tea and mate products see table 6.12. In case of rice, RCA has increased from 7.51 per
cent in 1990 to 18.76 per cent in 1999 and then declined to 9.56 per cent in 2006 to 6.6
per cent in 2010. Similarly in case of tea and mate, it has shown declining trend and
registered RCA of 26.09 per cent (in 1990), 9.49 per cent (in 2004) and 5.85 per cent (in
2010) in case of coffee and coffee substitutes, it was 2.02 per cent (in 1990), 1.72 per
cent (in 2004) and 1.11 per cent (in 2010).
On the other hand, few commodities like fish, crustaceans and molluscs &
preparations, vegetables and fruits, sugar, sugar preparations, tobacco and tobacco
manufactures and Oilseeds and oleaginous fruit have registered either increasing trend
in RCA in few years or declining trend and even no RCA has been achieved in few
years. Like for vegetables and fruits enjoyed revealed comparative advantage only in
2000(1.08 per cent) and 2004 (1.04 per cent), in case of fish, crustaceans and molluscs
& preparations increasing comparative advantage was achieved till 2000, that is 2.36 per
cent from 2.0 per cent in 1995 and then declined in recent years to 1.3 per cent in 2010.
For sugar, sugar preparations and honey no comparative advantage in 1995, 0.75 per
cent, but RCA of 1.9 per cent in 2002 and 1.3 per cent in 2010. Similarly Tobacco and
tobacco manufactures has enjoyed RCA only in recent years.
Meat and Meat Preparations has not registered any RCA in the post-WTO period.
The total agricultural exports performance indicates that India has comparative
advantage in agricultural exports as the entire period has registered RCA for most of the
commodities; however, it is declining in the recent years of post-WTO.
Table 6.12: Revealed Comparative Advantage of Selected Indian Agricultural Commodities in Pre and Post WTOCommodities 1990 1995 1997 1999 2000 2002 2004 2006 2008 201
0
Meat and Meat Preparations
0.26 0.36 0.39 0.42 0.62 0.49 0.54 0.60 0.66 0.83
Fish, Crustaceans and molluscs & preparations
1.81 2.0 2.19 2.2 2.36 2.17 1.9 1.46 1.07 1.3
Rice 7.51 17.2 10.72 18.76 8.81 15.0 16.52 9.56 9.05 6.6Vegetables and fruits
0.94 0.89 0.90 0.89 1.08 0.91 1.04 0.88 0.77 0.76
Sugar, sugar preparations and honey
0.17 0.75 3.4 0.07 0.75 1.9 0.31 1.7 3.03 1.3
Coffee and coffee substitutes
2.02 2.57 2.27 3.1 1.9 1.9 1.72 1.5 1.3 1.11
Tea and mate 26.09 13.39 15.85 17.55 12.06 10.45 9.49 5.99 5.73 5.85Spices 9.1 8.87 10.4 11.1 8.87 7.0 8.0 8.71 9.22 9.14Tobacco and tobacco manufactures
0.96 0.44 0.81 0.60 0.58 0.60 0.61 0.69 1.01 1.44
Oilseeds and oleaginous fruit
0.94 1.13 1.28 0.94 1.46 0.79 1.17 1.13 0.98 0.96
TOTAL AGRICULTURAL EXPORTS
1 1.8 1.86 1.71 1.76 1.58 1.31 1.30 1.30 1.17
Source: RCA is calculated on the basis of data collected from Economic Survey and WTO, International Trade Statistics (various issues)
4. COUNTRY WISE ANALYSIS OF INDIAN AGRICULTURAL EXPORTS
The country-wise trends, performance and export diversification has been measured
by considering average value (in triennium), percentage share, Simpson index and
compound annual growth rate and the study is made for two sub-periods; pre-WTO period
(1989-90 to 1994-95) and post-WTO period (1995-96 to 2011-12). The agricultural
commodities considered for the analysis of exports are tea, coffee, rice, tobacco, spices, oil
meals, cashew incl. CNSL and marine product.
OECD is the major importers of Indian agriculture and allied products however in
recent years share of Asian countries has increased. The exporting countries with low
technology infrastructure have not only to satisfy highly demanding customer but also to
comply with the strict food laws of the importing countries.
Tea
The country wise average value of exports, percentage share to the total tea exports
and Simpson index of tea export from India for 1989-90 to 2009-10 periods is given below
in the table 6.13. The table shows the major export destinations of Indian tea in recent
triennium 2007-08 to 2009-10 was Russia, U.A.E., U.K., U.S.A. and Iran.
In pre-WTO period, the average value of tea exports in T.E. 1989-90 TO 1991-92
was maximum to Russia (US$ 297.93 million) and then followed by U.K. (US$ 56.3
million) and Iran (US$ 37.57 million). In T.E. 1991-92 to 1994-95, the average value of tea
exports from India was maximum to Russia, followed by U.K., U.A.E., Poland and
Germany. In post-WTO period, the average value of tea exports in T.E. 1995-96 to 1997-98
was mainly highest in Russia (US$ 138.57 million) and at second place was again U.K.
(US$ 46.1 million). In recent triennium 2007-08 to 2009-10, the average value of tea
exports from India was highest to Russia (US$ 82.9 million), followed by U.A.E. (US$ 72.9
million), U.K. (US$ 64.73 million) and U.S.A. (US$ 46.2 million).
The percentage share of some of the above mentioned countries in India’s tea
exports has declined in the post-WTO period like of Russia from 54.5 per cent in T.E. 1989-
90 to 1991-92 to 14.5 per cent in T.E. 2007-08 to 2009-10, but still it shares the topmost
destination for India’s tea exports. However many countries share in total tea exports has
increased for the same period like for U.A.E. 12.78 per cent from 2.9 per cent, U.S.A. 8.1
per cent from 1.38 per cent.
The country wise export diversification measured by Simpson index indicates that in
recent triennium high export diversification of 0.84 per cent has been achieved as compared
to the pre-WTO period, 0.67 per cent. The country wise compound annual growth rate was
high in the post-WTO period as compared to pre-WTO period (see table 6.14). The CAGR
of tea exports from India to few countries like Iran, Iraq and U.S.A was recorded as highest
in the post-WTO period as compared to pre-WTO period.
Table 6.13: Country wise Average Value, Share and Simpson Index of Tea Exports
from India
(Value in US$ million and share in per cent)Pre-WTO Period Post-WTO Period
Country 1989-90 to 1991-92
1992-93 to 1994-95
1995-96 to 1997-98
1998-99 to 2000-01
2001-02 to 2003-04
2004-05 to 2006-07
2007-08 to 2009-10
Germany 21.73(3.98) 20.67(6.29) 22.8(5.9) 23.7(5.2) 21.7(6.1) 22.7(5.67) 26.33(4.61)
Iran 37.57(6.87) 13.47(4.09) 4.4(1.15) 9.57(2.13) 4.2(1.19) 6.88(1.72) 44.23(7.75)
Iraq 1.93(0.35) - 1.6(0.42) 18.97(4.24) 28.4(8.05) 23.68(5.92) 11.57(2.29)
Japan 12.27(2.240 9.13(2.78) 11.27(2.94) 12.63(2.82) 11.4(3.23) 12.01(3.00) 15.7(2.75)
Kazakhstan - 1.5(0.46) 6.6(1.72) 16.57(37.0) 23.27(6.59) 19.96(4.99) 23.9(4.19)
Poland 15.8(2.8) 25.43(7.74) 21.13(5.52) 15.6(3.48) 14.13(4.00) 14.87(3.71) 9.53(1.67)
Russia 297.93(54.5)
98.5(29.98) 138.57(36.2)
154.87(34.6)
66.8(18.93) 110.83(27.7)
82.9(14.5)
U.A.E. 16.1(2.9) 28.2(8.58) 42.33(11.07)
48.87(10.9) 52.67(14.93)
50.77(12.69)
72.9(12.78)
U.K. 56.3(10.3) 49.6(15.0) 46.1(12.05) 46.67(10.4) 37.9(10.74) 42.28(10.57)
64.73(11.35)
U.S.A 7.57(1.38) 12.73(3.87) 14.1(3.6) 21.33(4.76) 24.93(7.06) 23.13(5.78) 46.2(8.1)
Others 79.03(14.4) 69.2(21.06) 73.5(19.22) 78.43(17.5) 67.33(19.08)
72.88(18.22)
172.1(30.18)
Total 546.2 328.53 382.36 447.26 352.73 400 570.1
Simpson Index
0.67 0.82 0.80 0.82 0.87 0.85 0.84
Notes:1. Average Value and Percentage in Triennium.2. Figures in brackets indicate the percentage to total tea exports.
Source: Average Value, Percentage Share and Simpson Index are estimated on the basis of data collected from RBI, Hand Book of Statistics on Indian Economy.
Table 6.14: Country wise Annual Compound Growth Rate of India’s Tea Exports in Pre and Post WTO Period (In per cent)
Country Pre-WTO Period (1990-91 to 1994-95)
Post-WTO Period (1995-96 to 2011-12)
Germany -0.5 3.88Iran -39.2 23.6Iraq - 0
Japan -7.5 7.1Kazakhstan - 13.3
Poland -7.5 -4.4Russia -28.6 -1.0U.A.E. 19.5 4.5U.K. -4.5 6.3
U.S.A 15.4 13.5Others -19.5 16.91Total -15.0 5.8
Source: Compound Annual Growth Rate is computed on the basis of data collected from RBI, Handbook of Statistics on Indian Economy.
Coffee
The country wise average value of exports, percentage share to the total coffee
exports and Simpson index of coffee export from India for 1989-90 to 2009-10 periods is
given below in the table 6.15. The table shows the major export destinations of Indian
coffee in recent T.E. 2007-08 to 2009-10 was Italy, Russia, Germany and Belgium.
In pre-WTO period, the average value of coffee exports in T.E. 1989-90 to 1991-92
was maximum to Russia (US$ 78.27 million) and then followed by Germany (US$
13.87million) and Italy (US$ 12.1 million). In T.E. 1991-92 to 1994-95, the average value
of coffee exports from India was maximum to Germany, followed by Russia, Italy, and
U.S.A. In post-WTO period, the average value of coffee exports in T.E. 1995-96 to 1997-98
was mainly highest to Russia (US$ 93.83 million) and then to Italy (US$ 57.43 million) and
Germany (US$ 57.27 million). In recent triennium 2007-08 to 2009-10, the average value of
coffee exports from India was highest to Italy (US$ 108.57 million), followed by Russia
(US$ 48.3 million), Germany (US$ 35.53 million) and Belgium (US$ 22.93 million).
The average percentage share in total coffee exports was highest for Italy than for
Russia and Germany in recent triennium as compared to pre-WTO period. The percentage
share of few countries in India’s total coffee export has declined in the post-WTO period
like of Russia from 48.5 per cent in T.E. 1989-90 to 1991-92 to 10.47 per cent in T.E. 2007-
08 to 2009-10; however, it shares second top destination for India’s coffee export. Many
countries share in total coffee export has shown an increasing trend in post-WTO period
like for Italy 12.65 per cent in T.E. 1995-96 to 1997-98 and 23.53 per cent in T.E. 2007-08
to 2009-10 and for Spain, it was 2.07 and 3.23 for the same period. Some countries like
Germany, Belgium had mixed trend; sometimes increasing or decreasing.
The country wise export diversification measured by Simpson index indicates that in
recent triennium export diversification of 0.73 per cent has been achieved as compared to
the pre-WTO period, 0.69 per cent. It points concentration of trade towards a particular
product in a particular triennium. In pre-WTO period, India’s principal export destination
countries have registered high CAGR compared to post-WTO period (Table 6.16). The
CAGR of coffee export from India to Belgium (13.6 per cent) was recorded as highest and
then followed by Spain (11.4 per cent) in the post-WTO period.
Table 6.15: Country wise Average Value, Per cent Share and Simpson Index of Coffee Exports from India
(Value in US$ million and share in per cent)
Commodity Pre-WTO Period Post-WTO Period1989-90 to 1991-92
1992-93 to 1994-95
1995-96 to 1997-98
1998-99 to 2000-01
2001-02 to 2003-04
2004-05 to 2006-07
2007-08 to 2009-10
Belgium 0.77(0.47) 2.2(0.01) 11.13(2.45) 16.93(5.07) 14.3(6.39) 15.67(5.62) 22.93(4.97)Germany 13.87(8.59) 41.57(19.5) 57.27(12.61) 48.43(14.51) 25.6(11.44) 37.02(13.28) 35.53(7.70)Italy 12.1(7.5) 30.6(14.36) 57.43(12.65) 45.73(13.70) 36.33(16.23) 41.03(14.71) 108.57(23.53)Latvia - 1.23(0.58) 1.2(0.26) 6.03(1.80) 1.17(0.52) 3.6(1.29) 4.5(0.97)Netherlands 2.4(1.48) 3.43(1.6) 9.83(2.16) 9.37(2.80) 3.97(1.77) 6.67(2.39) 4.57(0.99)
Russia 78.27(48.5) 35.13(16.49) 93.83(20.67) 59.67(17.87) 53(23.68) 56.33(20.20) 48.3(10.47)
Spain 0.97(0.59) 1.83(0.86) 9.4(2.07) 15.73(4.71) 9.17(4.09) 12.45(4.46) 14.93(3.23)Switzerland 1.23(0.76) 2.87(1.34) 5.23(1.15) 6(1.79) 3.77(1.68) 4.88(1.75) 7.63(1.65)U.K. 0.87(0.54) 3.6(1.68) 2.93(0.64) 4.67(1.39) 2.27(1.01) 3.47(1.24) 3.3(0.71)U.S.A 9.03(5.6) 19.87(9.3) 48(10.57) 23.8(7.13) 6.37(2.84) 15.08(5.40) 10.1(2.18)Others 41.83(25.9) 70.73(33.2) 139.57(30.75) 97.37(29.17) 67.8(30.39) 82.58(29.62) 200.9(43.55)Total 161.27 213.03 435.87 333.73 223.77 278.75 461.27Simpson Index 0.69 0.79 0.80 0.83 0.81 0.78 0.73Notes: 1.Average Value and Percentage in Triennium.
2. Figures in brackets indicate the percentage to total coffee exports. Source: Average Value, Percentage Share and Simpson Index are estimated on the basis of data collected
from RBI, Hand Book of Statistics on Indian Economy.
Table 6.16: Country wise Annual Compound Growth Rate of India’s Coffee Exports in Pre and Post WTO Period (In per cent)
Country Pre-WTO Period (1990-91 to 1994-95)
Post-WTO Period (1995-96 to 2011-12)
Belgium 52.2 13.6Germany 52.9 5.7
Italy 55.9 7.7Latvia - 11.4
Netherlands 5.5 4.7Russia -13.8 -5.0Spain 78.7 11.4
Switzerland 52.3 5.7U.K. 80.0 5.1
U.S.A 77.1 -4.7Others 31.7 7.7Total 24.2 4.7
Source: Compound Annual Growth Rate is computed on the basis of data collected from RBI, Handbook of Statistics on Indian Economy.
Rice
The country wise average value of exports, percentage share to the total rice exports
and Simpson index of rice export from India for 1989-90 to 2009-10 periods is given in the
table 6.17. The table shows the major export destinations of Indian rice in recent T.E. 2007-
08 to 2009-10 was Saudi Arab, U.A.E., Bangladesh and Kuwait.
In pre-WTO period, the average value of rice exports in T.E. 1989-90 to 1991-92
was maximum to Saudi Arab (US$ 96.93 million) and then followed by U.K. (US$ 23.87
million) and U.A.E. (US$ 18.4 million). In T.E. 1991-92 to 1994-95, the average value of
rice exports from India was maximum to Saudi Arab, followed by Russia, Italy, and U.S.A.
In post-WTO period, the average value of rice exports in T.E. 1995-96 to 1997-98 was
mainly highest to Saudi Arab (US$ 229.2 million) and then to Bangladesh (US$ 140.83
million) and South Africa (US$ 71.73 million). In recent triennium 2007-08 to 2009-10, the
average value of rice exports from India was highest to Saudi Arab (US$ 663.17 million),
followed by U.A.E. (US$ 556.5 million), Bangladesh (US$ 290.93 million) and Kuwait
(US$ 164.9 million). So it could be seen that in post-WTO period Kuwait and U.A.E. has
emerged as important export destinations of Indian rice.
The percentage share in total rice exports was highest for Saudi Arab than U.A.E
and Bangladesh in recent triennium as compared to pre-WTO period. But however Saudi
Arab has observed declining trend in share in India’s total rice export in the post-WTO
period, that is from 35.2 per cent in T.E. 1989-90 to 1991-92 to 25.77 per cent in T.E. 2007-
08 to 2009-10. Many countries share in total rice exports has shown an increasing trend in
post-WTO period like for Kuwait 3.66 per cent in T.E. 1995-96 to 1997-98 and 6.41 per
cent in T.E. 2007-08 to 2009-10 and for U.A.E. it was 4.27 and 21.62 per cent for the same
period. Some countries like a Bangladesh and U.K. had mixed trend; sometimes increasing
or decreasing.
The country wise export diversification measured by Simpson index indicates that in
recent triennium high export diversification of 0.80 per cent has been achieved as compared
to the pre-WTO period, 0.69 per cent. In pre-WTO period, India’s principal export
destination countries have registered high CAGR compared to post-WTO period. The
CAGR of rice export from India to Singapore (19.9 per cent) and Yemen (18.8 per cent)
was recorded as highest and then followed by U.A.E. (18.4 per cent) and Kuwait (16.2 per
cent) in the post-WTO period (Table 6.18).
Table 6.17: Country wise Average Value, Share and Simpson Index of Rice Exports from India
(Value in US$ million and share in per cent)
Commodity Pre-WTO Period Post-WTO Period1989-90 to
1991-921992-93 to
1994-951995-96 to
1997-981998-99 to
2000-012001-02 to
2003-042004-05 to
2006-072007-08 to
2009-10Bangladesh 0.27(0.97) 9.43(2.5) 140.83(13.34) 228.2(23.96) 110.17(7.93) 169.18(14.45) 290.93(11.3)France 1.53(0.56) 3.93(1.04) 6.4(0.60) 9.1(0.95) 6.77(0.48) 7.93(0.67) 2.07(0.80)Kuwait 12.63(4.6) 30.07(79.7) 38.67(3.66) 36.23(3.80) 38.17(2.74) 37.2(3.17) 164.97(6.41)Saudi Arabia 96.93(35.2) 183.23(48.6) 229.2(21.71) 313.87(32.96) 252.33(18.16) 283.1(24.18) 663.17(25.77)Singapore 1.93(0.70) 2.23(0.59) 3.7(0.35) 6.83(0.71) 12.7(0.91) 9.77(0.83) 13.67(0.53)South Africa 0 0.47(0.12) 71.73(6.79) 60.1(6.3) 81.7(5.88) 70.9(6.05) 33.8(1.31)U.A.E. 18.4(6.7) 37.17(9.85) 45.17(4.27) 32.07(3.36) 32.73(2.35) 32.4(2.76) 556.5(21.62)U.K. 23.87(8.73) 29.1(7.7) 36.63(3.47) 49.03(5.15) 66.45(4.78) 57.74(4.93) 72.5(2.81)U.S.A 13.07(4.78) 13.93(3.69) 51.7(4.89) 17.17(1.80) 37.85(2.72) 27.51(2.35) 49.77(1.93)Yemen 0.17(61) 0.03(0.08) 9.73(0.92) 10.17(1.06) 17.65(1.27) 13.91(1.18) 53.2(2.06)Others 104.6(38.27) 67.4(17.37) 421.8 189.3(19.88) 465(33.48) 327.15(27.9) 672.53(26.13)Total 273.3 377 1055.43 952.03 1388.75 1170.39 2573.1Simpson Index 0.71 0.71 0.77 0.78 0.78 0.77 0.80
Notes: 1.Average Value and Percentage in Triennium. 2. Figures in brackets indicate the percentage to total rice exports.
Source: Average Value, Percentage Share and Simpson Index are estimated on the basis of data collected from RBI, Hand Book of Statistics on Indian Economy.
Table 6.18: Country wise Annual Compound Growth Rate of India’s Rice Exports in Pre and Post WTO Period (In per cent)
Country Pre-WTO Period (1990-91 to 1994-95)
Post-WTO Period (1995-96 to 2011-12)
Bangladesh - -9.5France 32.3 4.8Kuwait 53.5 16.2
Saudi Arabia 19.9 10.8Singapore 55.4 19.9
South Africa - 0.01U.A.E. 22.9 18.4U.K. 5.8 7.8
U.S.A 3.2 8.8Yemen -15.9 18.8Others 26.2 8.8Total 10.5 8.5
Source: Compound Annual Growth Rate is computed on the basis of data collected from RBI, Handbook of Statistics on Indian Economy.
Tobacco
The country wise average value of exports, percentage share to the total tobacco
exports and Simpson index of tobacco export from India for 1989-90 to 2009-10 periods is
given in the table 6.19. The table shows the major export destinations of Indian tobacco in
recent T.E. 2007-08 to 2009-10 was Belgium, U.A.E., Russia and Germany.
In pre-WTO period, the average value of tobacco exports in T.E. 1989-90 to 1991-
92 was maximum to Russia (US$ 32.73 million) and then followed by U.K. (US$ 22.83
million), Belgium (US$ 15.6million) and Saudi Arab (US$ 12.69 million). In T.E. 1991-92
to 1994-95, the average value of tobacco exports from India was maximum to Russia,
followed by U.K., Saudi Arab, and Belgium. In post-WTO period, the average value of
tobacco exports in T.E. 1995-96 to 1997-98 was mainly highest to Russia (US$ 38.67
million), U.K. (US$ 34.01 million) and then to Belgium (US$ 16.27million) and Germany
(US$ 16 million). In recent triennium 2007-08 to 2009-10, the average value of tobacco
exports from India was highest to Belgium (US$ 126.7 million), followed by U.A.E. (US$
51.63 million),Russia (US$ 39.17 million) and Germany (US$ 33.43 million) and
Netherlands (US$ 31.87 million).
The percentage share to total tobacco exports was high for Belgium than, U.A.E.
and Russia in recent triennium as compared to pre-WTO period. The percentage share of
few countries in India’s total tobacco exports has declined in the post-WTO period like of
Russia from 24.25 per cent in T.E. 1989-90 to 1991-92 to 5.47 per cent in T.E. 2007-08 to
2009-10. Many countries share in total tobacco exports has shown an increasing trend in
post-WTO period like for U.A.E. 3.87 per cent in T.E. 1995-96 to 1997-98 and 7.21 per
cent in T.E. 2007-08 to 2009-10 and for Belgium it was 7.68 and 17.69 per cent for the
same period. Some countries like Germany, U.K. had mixed trend; sometimes increasing or
decreasing.
The country wise export diversification measured by Simpson index indicates that in
recent triennium low export diversification of 0.72 per cent has been achieved as compared
to the pre-WTO period, 0.84 per cent. However, in T.E. 2001-02 to 2003-04 export
diversifications was 0.84 per cent. In pre-WTO period, India’s principal export destination
countries have registered high CAGR compared to post-WTO period (Table 6.20). The
CAGR of tobacco exports from India to Belgium (20.3 per cent) was recorded as highest
and then followed by Netherlands (17.7 per cent) and USA (15.9 per cent) in the post-WTO
period.
Table 6.19: Country wise Average Value, Share and Simpson Index of Tobacco Exports from India
(Value in US$ million and share in per cent)
CommodityPre-WTO Period Post-WTO Period
1989-90 to 1991-92
1992-93 to 1994-95
1995-96 to 1997-98
1998-99 to 2000-01
2001-02 to 2003-04
2004-05 to 2006-07
2007-08 to 2009-10
Belgium 15.6(11.56) 7.5(5.74) 16.27(7.68) 19(9.44) 22.8(11.04) 20.9(10.25) 126.7(17.69)
Germany 6.5(4.8) 6.1(4.67) 16(7.56) 15.1(7.50) 18.33(8.8) 16.72(8.20) 33.43(4.66)
Netherlands 2.77(2.05) 4.43(3.39) 2.87(1.35) 7(3.47) 8.9(4.31) 7.95(3.89) 31.87(4.45)
Russia 32.73(24.25) 33.6(25.72) 38.67(18.27) 33.54(16.66) 22.33(10.81) 27.93(13.70) 39.17(5.47)
Saudi Arabia 12.67(9.39) 9.6(7.35) 7.43(3.5) 8.63(4.28) 7.27(3.52) 7.95(3.89) 15.9(2.22)
Singapore 1.7(1.25) 1.67(1.27) 5.87(2.77) 6.2(3.08) 8.7(4.21) 7.45(3.65) 13.9(1.94)
U.A.E. 2.8(2.07) 5.63((4.31) 8.2(3.87) 12.9(6.41) 19.1(9.25) 16(7.84) 51.63(7.21)
U.K. 22.83(16.91) 20.8(15.92) 34.07(16.10) 20.73(10.30) 10.07(4.87) 15.4(7.55) 19.27(2.69)
U.S.A 2.23(1.65) 1.67(1.27) 3.87(1.82) 11.8(5.86) 15.53(7.52) 13.67(6.70) 27.27(3.80)
Yemen 5.73(4.24) 0.93(0.71) 2.23(1.05) 4.83(2.40) 5.06(2.45) 4.95(2.42) 12.1(1.68)
Others 29.37(21.76) 38.77(29.68) 76(35.9) 61.6(30.61) 68.37(33.11) 64.98(31.87) 344.77(48.15)
Total 134.93 130.6 211.6 201.23 206.47 203.85 716.03Simpson Index 0.84 0.81 0.80 0.84 0.84 0.79 0.72Notes: 1.Average Value and Percentage in Triennium. 2. Figures in brackets indicate the percentage to total tobacco exports. Source: Average Value, Percentage Share and Simpson Index are estimated on the basis of data collected
from RBI, Hand Book of Statistics on Indian Economy.
Table 6.20: Country wise Annual Compound Growth Rate of India’s Tobacco Exports in Pre and Post WTO Period (In per cent)
Country Pre-WTO Period (1990-91 to 1994-95)
Post-WTO Period (1995-96 to 2011-12)
Belgium -19.2 20.3Germany -19.6 9.2
Netherlands 1.1 17.7Russia -44.8 3.1
Saudi Arabia -7.8 8.5Singapore -10.2 15.2
U.A.E. 38.0 14.0U.K. -1.3 2.1
U.S.A -17.5 15.9Yemen -30.2 7.9Others -1.5 15.5Total 13.7 12.1
Source: Compound Annual Growth Rate is computed on the basis of data collected from RBI, Handbook of Statistics on Indian Economy.
Spices
The country wise average value of exports, percentage share to the total spices
exports and Simpson index of spices export from India for 1989-90 to 2009-10 periods is
given below in the table 6.21. The table shows the major export destinations of Indian
spices in recent T.E. 2007-08 to 2009-10 was U.S.A., U.A.E., U.K. Germany and Japan.
In pre-WTO period, the average value of spice exports in T.E. 1989-90 to 1991-92
was maximum to U.S.A. (US$ 23.73 million) and then followed by Bangladesh (US$ 10.7
million), Germany (US$ 6.77 million) and U.K. (US$ 6.733 million) and U.A.E. (US$ 6.33
million). In T.E. 1991-92 to 1994-95, the average value of spices exports from India was
maximum to U.S.A, followed by U.K., U.A.E. and Japan. In post-WTO period, the average
value of spices exports in T.E. 1995-96 to 1997-98 was mainly highest to U.S.A. (US$
92.17 million) and then to U.K. (US$ 19.13 million) and U.A.E. (US$ 16.4 million). In
recent triennium 2007-08 to 2009-10, the average value of spices exports from India was
highest to U.S.A. (US$ 232.83 million), followed by U.A.E. (US$ 68.3 million), U.K. (US$
66.97 million), Germany (US$ 47.77 million) and Japan (US$ 47.4 million). So it could be
seen that even in post-WTO period U.S.A. remained the important export destination of
Indian spices.
The percentage share in total spices exports was highest for U.S.A. (18.63 per cent)
than U.A.E (5.46 per cent), U.K. (5.36 per cent) and Germany (3.82 per cent) in recent
triennium 2007-08 to 2009-10 as compared to pre-WTO period. U.S.A. has observed
declining trend in share in India’s total spices exports in the post-WTO period that is from
28.95 per cent in T.E. 1995-96 TO 1997-98 to 18.63 per cent in T.E. 2007-08 to 2009-10.
Many countries share in total spices exports has shown an increasing trend in post-WTO
period like for U.A.E, 5.15 per cent in T.E. 1995-96 to 1997-98 and 5.46 per cent in T.E.
2007-08 to 2009-10. Some countries like Japan and Singapore had mixed trend; sometimes
increasing or decreasing.
The country wise export diversification measured by Simpson index indicates that in
recent triennium 2007-08 to 2009-10 export diversification of 0.71 per cent has been
achieved which is low as compared to 0.74 per cent in the pre-WTO period, however in
T.E. 2001-02 to 2003-04 high export diversification of 0.78 was registered. In pre-WTO
period India’s principal export destination countries have registered high CAGR compared
to post-WTO period (Table 6.22). The CAGR of spices exports from India to Germany
(17.4 per cent) and Singapore (16.0 per cent) was recorded as highest and then followed by
USA (15.1 per cent) in the post-WTO period.Table 6.21: Country wise Average Value, Share and Simpson Index of Spices Exports from India
(Value in US$ million and share in per cent)Commodity Pre-WTO Period Post-WTO Period
1989-90 to 1991-92
1992-93 to 1994-95
1995-96 to 1997-98
1998-99 to 2000-01
2001-02 to 2003-04
2004-05 to 2006-07
2007-08 to 2009-10
Bangladesh 10.7(7.16)
4.07(2.38)
5.93(1.86)
10.23(2.66)
11.47(3.46)
10.85(3.03)
41.4(3.31)
Germany 6.77(4.53)
6.9(4.04)
12.13(3.81)
15.47(4.03)
13.8(4.17)
14.63(4.09)
47.77(3.82)
Japan 6.27(4.20)
8.83(5.17)
15.37(4.82)
20.47(5.34)
20.47(6.19)
20.47(5.73)
47.4(3.79)
Saudi Arabia 5.47(3.66)
4.6(2.69)
6.47(2.03)
9(2.34)
10.3(3.11)
9.65(2.70)
32.63(2.61)
Singapore 3.97(2.65)
6.47(3.78)
13.93(4.37)
14.1(3.67)
8.63(2.60)
11.37(3.18)
42.8(3.42)
Spain 1.33(0.89)
1.4(0.82)
7.1(2.23)
7.7(2.0)
6.73(2.03)
7.22(2.02)
12.8(1.02)
Sri Lanka 5.07(3.39)
5.03(2.92)
7.5(2.35)
9.93(2.59)
16.97(5.13)
13.45(3.76)
45.47(3.63)
U.A.E. 6.33(4.24)
10.27(6.01)
16.4(5.15)
18.67(4.87)
16.3(4.92)
17.48(4.89)
68.3(5.46)
U.K. 6.73(4.50)
10.67(6.24)
19.13(6.0)
25.07(6.54)
23.73(7.17)
24.4(6.83)
66.97(5.36)
U.S.A 23.73(15.89)
50.93(29.83)
92.17(28.95)
110.93(28.9)
74.23(22.44)
92.58(25.9)
232.83(18.63)
Others 72.93(48.85)
61.63(36.09)
122.23(38.39)
141.73(36.97)
127.93(38.68)
134.83(37.7)
610.83(48.89)
Total 149.27 170.73 318.37 383.33 330.67 357 1249.2Simpson Index 0.74 0.76 0.75 0.77 0.78 0.75 0.71Notes: 1.Average Value and Percentage in Triennium.
2. Figures in brackets indicate the percentage to total spices exports. Source: Average Value, Percentage Share and Simpson Index are estimated on the basis of data collected
from RBI, Hand Book of Statistics on Indian Economy.
Table 6.22: Country wise Annual Compound Growth Rate of India’s Spices Exports in Pre and Post WTO Period (In per cent)
Country Pre-WTO Period (1990-91 to 1994-95)
Post-WTO Period (1995-96 to 2011-12)
Bangladesh -32.9 9.5Germany -0.3 17.4Japan 8.8 13.4Saudi Arabia -5.4 14.1Singapore 11.8 16.0Spain 22.4 13.1Sri Lanka 53.7 13.0U.A.E. 37.9 13.9U.K. -19.1 14.2U.S.A 27.3 15.1Others 13.9 18.5Total 10.5 16.5Source: Compound Annual Growth Rate is computed on the basis of data collected from RBI, Handbook of Statistics on Indian Economy.
Cashew including Cashew Nut Shell Liquid
The country wise average value of exports, percentage share to the total cashew incl.
CNSL exports and Simpson index of cashew incl. CNSL export from India for 1989-90 to
2009-10 periods is given below in the table 6.23. The table shows the major export
destinations of Indian cashew incl. CNSL in recent T.E. 2007-08 to 2009-10 was U.S.A.,
U.A.E., Netherlands, Japan and U.K.
In pre-WTO period, the average value of cashew incl. CNSL exports in T.E. 1989-
90 to 1991-92 was maximum to Netherlands (US$ 49.73 million) then to U.S.A. (US$
46.47 million), Japan (US$ 22.2 million) and U.A.E. (US$ 4.97 million). In T.E. 1991-92 to
1994-95, the average value of cashew incl. CNSL exports from India was maximum to
U.S.A, followed by Netherlands, Japan, and U.K. In post-WTO period, the average value of
cashew incl. CNSL exports in T.E. 1995-96 to 1997-98 was mainly highest to U.S.A. (US$
125.83 million) and then to Netherlands (US$ 80.87 million) and Japan (US$ 28.23
million). In recent triennium 2007-08 to 2009-10, the average value of cashew incl. CNSL
export from India was maximum to U.S.A. (US$ 190.6 million), followed by U.A.E. (US$
85.03 million), Netherlands (US$ 64.1 million), Japan (US$ 29.4 million) and U.K. (US$
20.37 million). So it could be seen that even in post-WTO period U.S.A. remained the
important export destination of Indian cashew incl. CNSL.
The percentage share in total cashew incl. CNSL exports was highest for U.S.A.
(31.96 per cent) than for U.A.E (14.26 per cent), Netherlands (10.75 per cent) and Japan
(4.93 per cent) in recent triennium 2007-08 to 2009-10 as compared to pre-WTO period.
U.S.A. and Netherlands has observed first increasing and then declining trend in share in
India’s total cashew exports in the post-WTO period that is it registered 33.96 and 21.28 per
cent in T.E. 1995-96 to 1997-98 and 31.96 and 10.75 per cent in T.E. 2007-08 to 2009-10.
Many countries share has shown an increasing trend in post-WTO period like for U.A.E,
3.15 per cent in T.E. 1995-96 to 1997-98 and 14.26 per cent in T.E. 2007-08 to 2009-10.
Some countries like Japan and U.K. had mixed trend in share.
The country wise export diversification measured by Simpson index indicates that in
recent triennium 2007-08 to 2009-10 export diversification of 0.79 per cent has been
achieved which is high as compared to 0.71 per cent in the pre-WTO period. In pre-WTO
period India’s principal export destination countries have registered high CAGR compared
to post-WTO period (Table 6.24). The CAGR of cashew incl. CNSL exports from India to
Saudi Arab (17.4 per cent) and U.A.E. (16.1 per cent) was recorded as highest and then
followed by Italy (14.7 per cent) in the post-WTO period.
Table 6.23: Country wise Average Value, Share and Simpson Index of Cashew including Cashew Nut Shell Liquid Exports from India
(Value in US$ million and share in per cent)Commodity Pre-WTO Period Post-WTO Period
1989-90 to 1991-92
1992-93 to 1994-95
1995-96 to 1997-98
1998-99 to 2000-01
2001-02 to 2003-04
2004-05 to 2006-07
2007-08 to 2009-10
Canada 1.63(0.65)
3.77(1.14)
2.07(0.55)
6.23(1.33)
6.03(1.54)
6.13(1.42)
3.27(0.54)
France 0.27(0.10)
1.73(0.52)
5.97(1.61)
11.23(2.39)
10.9(2.78)
11.07(2.57)
18.93(3.17)
Israel 0.7(0.28)
4.27(1.29)
5.73(1.54)
6.6(1.40)
3.93(1.0)
5.27(1.22)
4.17(0.69)
Italy 0.57(0.23)
0.43(0.13)
2.67(0.72)
5.33(1.13)
4.2(1.07)
4.77(1.10)
4.23(0.70)
Japan 22.2(8.95)
25.37(7.68)
28.23(7.62)
27.4(5.84)
18.63(47.5)
23.017(5.35)
29.4(4.93)
Netherlands 49.73(20.05)
65.17(19.75)
80.87(21.82)
88(18.78)
49.8(12.73)
68.9(16.0)
64.1(10.75)
Saudi Arabia 0.67(0.27)
1.8(0.54)
3.93(1.06)
6.97(1.48)
7.2(1.84)
7.08(1.64)
18.67(3.13)
U.A.E. 4.97(2.0)
8.07(2.44)
11.7(3.15)
17.7(3.77)
17.17(4.39)
17.43(4.05)
85.03(14.26)
U.K. 4.93(1.98)
20.93(6.34)
20.6(5.56)
35.27(7.52)
23.13(5.91)
29.2(6.79)
20.37(3.41)
U.S.A 46.47(18.74)
132.03(40.01)
125.83(33.96)
215.1(45.92)
197.13(50.40)
206.12(47.96)
190.6(31.96)
Others 115.83(46.71)
66.43(20.1)
82.9(22.37)
48.5(10.35)
52.53(13.43)
50.57(11.76)
157.43(26.4)
Total 247.97 329.97 370.47 468.4 391.07 429.73 596.2Simpson Index 0.71 0.75 0.78 0.73 0.70 0.76 0.79Notes: 1.Average Value and Percentage in Triennium.
2. Figures in brackets indicate the percentage to total Cashew including Cashew Nut Shell Liquid exports. Source: Average Value, Percentage Share and Simpson Index are estimated on the basis of data collected
from RBI, Hand Book of Statistics on Indian Economy.
Table 6.24: Country wise Annual Compound Growth Rate of India’s Cashew including Cashew Nut Shell Liquid exports in Pre and Post WTO Period (In per cent)
Country Pre-WTO Period (1990-91 to 1994-95)
Post-WTO Period (1995-96 to 2011-12)
Canada 50.2 13.4France - 12.6Israel 114.0 1.07Italy -17.5 14.7Japan 10.2 3.2Netherlands 16.7 1.2Saudi Arabia 130.0 17.4U.A.E. 42.8 16.1U.K. 67.1 3.7U.S.A 46.4 7.1Others 16.0 12.3Total 12.3 5.9Source: Compound Annual Growth Rate is computed on the basis of data collected from RBI, Handbook of Statistics on Indian Economy.
Oil Meals
The country wise average value of exports, percentage share to the total oil meals
exports and Simpson index of oil meals export from India for 1989-90 to 2009-10 periods is
given below in the table 6.25. The table shows the major export destinations of Indian oil
meals in recent T.E. 2007-08 to 2009-10 was Vietnam, Japan, Indonesia, Korea republic of
and Thailand.
In pre-WTO period, the average value of oil meals exports in T.E. 1989-90 to 1991-
92 was maximum to Russia (US$ 102.93 million) and then to Singapore (US$ 14.63
million) and Thailand (US$ 13.77 million). In T.E. 1991-92 to 1994-95, the average value
of oil meals exports from India was maximum to Singapore followed by Thailand and
Korea Republic of. In post-WTO period, the average value of oil meals exports in T.E.
1995-96 to 1997-98 was mainly highest to Singapore (US$ 153.3 million) and then to
Indonesia (US$ 122.3 million) and Korea Republic of (US$ 96.3 million). In recent
triennium 2007-08 to 2009-10, the average value of oil meals export from India was highest
to Vietnam (US$ 495.2 million), followed by Japan (US$ 246.5 million), Indonesia (US$
169.63 million), Korea republic of (US$ 165.73 million) and Thailand (US$ 153.6million).
So it could be seen that in post-WTO period Vietnam became the important export
destination of Indian oil meals.
The percentage share in total oil meals exports was highest for Vietnam (25.15 per
cent) than Japan (12.52 per cent), Indonesia (8.61 per cent) and Korea republic of (8.41 per
cent) in recent triennium 2007-08 to 2009-10 as compared to pre-WTO period. The share of
Vietnam has increased in India’s total oil meals exports in the post-WTO period that is from
2.48 per cent in T.E. 1995-96 to 1997-98 to 25.15 per cent in T.E. 2007-08 to 2009-10.
Many countries share in total oil meals export has shown a deceasing trend in post-WTO
period like for Indonesia 14.0 per cent in T.E. 1995-96 to 1997-98 and 8.61 per cent in T.E.
2007-08 to 2009-10. Some countries like Japan and Singapore had mixed trend in share;
sometimes increasing or decreasing.
The country wise export diversification measured by Simpson index indicates that in
recent triennium 2007-08 to 2009-10 high export diversification of 0.85 per cent has been
achieved as compared to 0.60 per cent in the pre-WTO period. In pre-WTO period, India’s
principal export destination countries have registered high CAGR compared to post-WTO
period (Table 6.26). The CAGR of oil meals exports from India to Bangladesh (49.9 per
cent) and Vietnam (22.4 per cent) was recorded as highest and then followed by Japan (16.9
per cent) and Pakistan (13.9 per cent) in the post-WTO period.
Table 6.25: Country wise Average Value, Share and Simpson Index of oil meals Exports from India
(Value in US$ million and share in per cent)Commodity Pre-WTO Period Post-WTO Period
1989-90 to 1991-92
1992-93 to 1994-95
1995-96 to 1997-98
1998-99 to 2000-01
2001-02 to 2003-04
2004-05 to 2006-07
2007-08 to 2009-10
Bangladesh - - 0.77(0.88)
10.2(2.37)
46(9.1)
28.1(6.0)
133.5(6.78)
Indonesia 0.07(0.19)
0.2(0.03)
122.3(14.0)
57.03(13.29)
80.8(16.05)
68.93(14.78)
169.63(8.61)
Japan 3.13(0.86)
11.6(1.88)
43.43(4.94)
39.13(9.12)
26.47(5.25)
32.8(7.03)
246.5(12.52)
Korea, Republic of 5.77(1.60)
35.3(5.73)
96.3(11.06)
48.37(11.270
50.8(10.08)
49.58(10.63)
165.73(8.41)
Pakistan 4.6(1.27)
14.77(2.39)
20.67(2.37)
20.87(4.86)
12.67(2.51)
16.77(3.59)
92.8(4.71)
Russia 102.93(28.6)
16.93(2.74)
8(0.91)
6.17(1.43)
0.17(0.33)
3.17(0.67)
0.33(0.02)
Singapore 14.63(4.06)
129.4(21.0)
153.3(17.6)
50.2(11.70)
46.73(9.28)
48.47(10.39)
38.43(1.95)
Sri Lanka 2.27(0.63)
8.53(1.38)
11.8(1.35)
9.47(2.20)
17.57(3.48)
13.52(2.89)
43.03(2.18)
Thailand 13.77(3.82)
61.33(9.96)
57.1(6.56)
31.17(7.260
45.6(9.05)
38.38(8.23)
153.6(7.80)
Vietnam 0 1.07(0.17)
21.63(2.48)
30.23(7.04)
49.63(9.85)
39.93(8.56)
495.2(25.15)
Others 201.57(56)
276.4(44.89)
341.97 126.2(29.41)
127.03(25.27)
126.62(27.15)
429.77(21.8)
Total 359.8 615.67 870.33 429.03 503.5 466.27 1968.53Simpson Index 0.60 0.73 0.78 0.85 0.86 0.87 0.85Notes:1. Average Value and Percentage in Triennium.
2. Figures in brackets indicate the percentage to total oil meals exports. Source: Average Value, Percentage Share and Simpson Index are estimated on the basis of data collected from RBI,
Hand Book of Statistics on Indian Economy.
Table 6.26: Country wise Annual Compound Growth Rate of India’s oil meals Exports in Pre and Post WTO Period (In per cent)
Country Pre-WTO Period (1990-91 to 1994-95)
Post-WTO Period (1995-96 to 2011-12)
Bangladesh - 49.9Indonesia 218.0 1.6Japan 55.3 16.9Korea, Republic of - 1.9Pakistan 20.8 13.9Russia -37.8 -100Singapore 131 -14.9Sri Lanka 34.8 10.6Thailand 44.2 7.5Vietnam - 22.4Others 6.5 9.4Total 13.9 8.1Source: Compound Annual Growth Rate is computed on the basis of data collected from RBI, Handbook of Statistics on Indian Economy.
Marine Product
The country wise average value of exports, percentage share to the total marine
product exports and Simpson index of marine products export from India for 1989-90 to
2009-10 periods is given below in the table 6.27. The table shows the major export
destinations of Indian marine products in recent T.E. 2007-08 to 2009-10 was Japan,
U.S.A., China People’s Republic of, Spain and Hong Kong.
In pre-WTO period, the average value of marine product exports in T.E. 1989-90 to
1991-92 was maximum to Japan (US$ 250 million) and then to U.S.A. (US$ 57.5 million),
U.K. (US$ 37.6 million) and Spain (US$ 33.9 million). In T.E. 1991-92 to 1994-95, the
average value of marine products exports from India was maximum to Japan, U.S.A.,
U.A.E. and U.K. In post-WTO period, the average value of marine product exports in T.E.
1995-96 to 1997-98 was mainly highest to Japan(US$ 484.43 million) and then to U.S.A.
(US$ 115.5 million), U.A.E. (US$ 112.97 million) and China People’s Republic of. In
recent triennium 2007-08 to 2009-10, the average value of marine product export from India
was highest to Japan (US$ 246.83 million), followed by U.S.A. (US$ 211.73 million), Spain
(US$ 137.77 million), China People’s Republic of (US$ 169.33 million) and Hong Kong
(US$ 97.9 million). So it could be seen that even in post-WTO period Japan remained the
topmost export destination of Indian marine products.
The percentage share in total marine product exports was highest for Japan (13.8 per
cent) than for U.S.A. (11.88 per cent), China People’s Republic of (9.50 per cent) and Spain
(7.73 per cent) in recent triennium 2007-08 to 2009-10 in post-WTO period. Japan has
observed significant declining trend in share in India’s total marine product exports in the
post-WTO period that is from 43.47 per cent in T.E. 1995-96 to 1997-98 to 13.8 per cent in
T.E. 2007-08 to 2009-10. Many countries share in total marine products export has shown
an increasing trend in post-WTO period like for China People’s Republic of, 6.0 per cent in
T.E. 1995-96 to 1997-98 and 9.50 per cent in T.E. 2007-08 to 2009-10. Some countries like
U.S.A. and Spain had mixed trend; sometimes increasing or decreasing.
The country wise export diversification measured by Simpson index indicates that in
recent triennium 2007-08 to 2009-10 export diversification of 0.82 per cent has been
achieved which has increased compared to 0.71 per cent in the pre-WTO period. In pre-
WTO period India’s principal export destination countries have registered high CAGR
compared to post-WTO period (Table 6.28). The CAGR of marine product exports from
India to China people’s Republic of (17.6 per cent) was registered as highest and then
followed Chinese Taipei (13.2 per cent) and Thailand (11.4 per cent) in the post-WTO.
Table 6.27: Country wise Average Value, Share and Simpson Index of Marine Product Exports from India
(Value in US$ million and share in per cent)
CommodityPre-WTO Period Post-WTO Period
1989-90 to 1991-92
1992-93 to 1994-95
1995-96 to 1997-98
1998-99 to 2000-01
2001-02 to 2003-04
2004-05 to 2006-07
2007-08 to 2009-
10China People's Republic of
0 12.2(0.01)
67.57(6.0)
85(7.05)
97.27(7.3)
91.13(7.18)
169.33(9.50)
Chinese Taipei 0.17(.03)
4.4(0.52)
13.93(1.24)
17.67(1.46)
29.3(2.19)
23.48(1.85)
29.27(1.64)
Hong Kong 11.97(2.34)
28.73(3.39)
29(2.59)
19.07(1.58)
23(1.72)
21.03(1.65)
97.9(5.49)
Italy 24.33(4.76)
34.13(4.02)
34(3.04)
24.4(2.0)
32.27(2.42)
28.33(2.23)
75.93(4.26)
Japan 250(48.92)
374.3(44.17)
484.43(43.42)
496.4(41.19)
302.6(22.7)
399.5(31.4)
246.83(13.8)
Spain 33.9(6.63)
40.73(4.80)
33.03(2.96)
39.03(3.23)
68.63(5.15)
53.83(4.24)
137.77(7.73)
Thailand 2.17(0.42)
13.87(1.63)
16.83(1.50)
25.5(2.11)
34.23(2.56)
29.87(2.35)
52.2(2.9)
U.A.E. 9.13(1.78)
61.77(7.29)
112.97(10.12)
72.83(6.04)
37.27(2.79)
55.05(4.33)
61.87(3.4)
U.K. 37.6(7.35)
42.1(4.96)
42.57(3.81)
46.8(3.88)
62.27(4.69)
54.53(4.29)
76.6(4.30)
U.S.A 57.5(11.25)
103.37(12.19)
115.5(10.35)
189.37(15.70)
357.3(26.8)
273.33(21.5)
211.73(11.88)
Others 84.27(16.40)
131.77(15.5)
165.83(14.86)
188.93(15.67)
288.17(21.62)
238.55(18.80)
621.77(34.90)
Total 510.97 847.3 1115.67 1204.93 1332.37 1268.65 1781.2Simpson Index 0.71 0.75 0.76 0.77 0.82 0.82 0.82Notes:
1. Average Value and Percentage in Triennium.2. Figures in brackets indicate the percentage to total marine product exports.
Source: Average Value, Percentage Share and Simpson Index are estimated on the basis of data collected from RBI, Hand Book of Statistics on Indian Economy.
Table 6.28: Country wise Annual Compound Growth Rate of India’s Marine products Exports in Pre and Post WTO Period (In per cent)
Country Pre-WTO Period (1990-91 to 1994-95)
Post-WTO Period (1995-96 to 2011-12)
China People's Republic of - 17.6Chinese Taipei - 13.2Hong Kong 34.7 9.7Italy 7.5 4.5Japan 1.1 0.02Spain 1.1 10.7Thailand 108 11.4U.A.E. 104 0.04U.K. 6.7 4.0U.S.A 23.0 9.4Others 24.4 15.4Total 20.4 8.0Source: Compound Annual Growth Rate is computed on the basis of data collected from RBI, Handbook of Statistics on Indian Economy.
Export Destinations of India’s Selected Agricultural Commodities in 2011-12
Figure 6.5(a): Export Destinations of Tea
Germany5%
Iran6%
Iraq0%
Japan3%
Kazakhstan6%
Poland1%
Russia14%
U.A.E.9%
U.K.12%
U.S.A8%
Others37%
Tea
Source: Computed on the basis of data from RBI, Handbook of Statistics on Indian EconomyFigure 6.5(b): Export Destinations of Coffee
Belgium6%
Germany11%
Italy21%
Latvia1%
Netherlands1%
Russia10%
Spain3%
Switzerland1%
U.K.1%
U.S.A2%
Others42%
Coffee
Source: Computed on the basis of data from RBI, Handbook of Statistics on Indian Economy
Figure 6.5(c): Export Destinations of Rice
Bangladesh1%
France0%
Kuwait6%
Saudi Arabia15% Singapore
1%South Africa
2%
U.A.E.16%
U.K.3%U.S.A
2%Yemen
2%
Others51%
Rice
Source: Computed on the basis of data from RBI, Handbook of Statistics on Indian Economy
Figure 6.5(d): Export Destinations of Tobacco
Belgium16% Germany
4%Netherlands
5%
Russia4%
Saudi Arabia3%
Singapore2%
U.A.E.7%U.K.
4%U.S.A3%
Yemen2%
Others50%
Tobacco
Source: Computed on the basis of data from RBI, Handbook of Statistics on Indian Economy
Figure 6.5(e): Export Destinations of Spices
Bangladesh2%
Germany4% Japan
2% Saudi Arabia3%Singapore
4%Spain
1%Sri Lanka
3%U.A.E.
5%U.K.4%
U.S.A18%
Others53%
Spices
Source: Computed on the basis of data from RBI, Handbook of Statistics on Indian Economy
Figure 6.5 (f): Export Destinations of Cashew incl. CNSL
Canada1%
France2%
Israel1%
Italy1% Japan
5%
Netherlands8%
Saudi Arabia5%
U.A.E.14%
U.K.2%
U.S.A34%
Others27%
Cashew incl. CNSL
Source: Computed on the basis of data from RBI, Handbook of Statistics on Indian Economy
Figure 6.5(g): Export Destinations of Oil Meals
Bangladesh8%
Indonesia5%
Japan19%
Korea, Republic of5%
Pakistan8%
Singapore0%
Sri Lanka2%
Thailand8%
Vietnam14%
Others30%
Oil Meals
Source: Computed on the basis of data from RBI, Handbook of Statistics on Indian Economy
Figure 6.5(h): Export Destinations of Marine Products
China People's Republic of5% Chinese Taipei
2% Hong Kong3%
Italy3%
Japan13%
Spain5%
Thailand4%
U.A.E.3%
U.K.3%
U.S.A18%
Others42%
Marine Products
Source: Computed on the basis of data from RBI, Handbook of Statistics on Indian Economy
Inference from the Trend
The share of Indian agricultural exports in world agricultural exports has
increased in post WTO period from 1 per cent in 1995 to 2.06 per cent in 2011
and is among the top 15 leading exporters of agricultural products. Few
commodities like meat and meat preparations, vegetables and fruits, tobacco and
tobacco manufactures and sugar, sugar preparations and honey has registered
increased in their share in world agricultural exports, on the other hand coffee
and coffee substitutes, tea and mate registered declining share. Rice share also
increased in post WTO but in recent years, it has declined. Nevertheless,
commodities like rice, cotton, tea, coffee, and spices, have comparatively high
share in recent years in world agricultural exports as compared to other
commodities.
The annual export growth rate of most of the agricultural commodities was
negative and poor during 1996-2000 due to; decline in world trade, fall in
agricultural production, depreciation of some East Asian currencies during 1997
leading to fall in export in those countries, strict domestic supply of some
agricultural items especially rice and wheat, tariff and non-tariff barriers
imposed by major trading partners, restriction on agricultural export etc.
In year 2000-01 there was better growth in agricultural exports due to rupee
depreciation and WTO member countries commitment in further reduction of
tariffs.
The low agriculture exports in 2001-02 was due to; global economic slowdown,
lower agricultural prices of commodities in foreign markets, economic crisis of
South Asian Countries and Japan and decrease in exports to some of India’s
trading partners such as Indonesia and Bangladesh. The developed countries
continued to subsidise export of farm products in the interest of food security,
maintaining farm incomes and preserving the farming population thereby
distorting agricultural trade and making it unfavourable to the developing
countries.
Better performance in agricultural exports was registered during 2005-2008 due
to better economic condition of India’s major trading partners, growing regional
arrangements with Asian countries as a result agricultural trade with them
increased, domestic production also improved.
Again in 2008-09 to 2009-10 export of agricultural products declined basically
due to global economic slowdown especially in US and EU, major export market
for India. Soon after it with the recovery of world economy countries
agricultural export improved and registered remarkable annual growth rate of
54.58 per cent in 2011-12.
The share of agricultural exports in total exports has constantly declined in post
WTO period due to rise in share of manufactured export. In recent year
agriculture exports registered share of 12.28 per cent in 2011-12 that is increased
share from 9.9 per cent in 2010-11.
Commodities like spices, raw cotton, vegetables and fruits, meat and meat
preparations and sugar and molasses registered decent compound annual growth
rate in value as compared to others in post WTO period.
The average value of total agricultural exports has increased in the post WTO
period but however the percentage share has declined as compared to pre-WTO
period. The percentage share of tea, coffee, tobacco, cashew incl. CSNL and
marine products has declined significantly in recent triennium, however of rice,
meat and meat preparations has increased in post WTO. Few commodities like
spices, raw cotton and fruits and vegetables showed mixed trend.
The total agricultural exports diversified in particular triennium during post-
WTO period. The share of traditional agricultural export item like tea, coffee,
tobacco has declined while that of vegetables and fruits, dairy and fish products
has increased.
Among the selected agricultural commodities, almost all the products have
shown comparative advantage in the post WTO period except for meat and meat
preparations, fruits and vegetables and Oilseeds and oleaginous fruit. Spices, rice
and tea and mate have registered high comparative advantage in recent years.
The major export destinations for Indian agricultural export are EU, US, UAE
and Saudi Arab. Country wise export diversification shows that significant
diversification was achieved in case of tea, rice, oil meals and marine products,
while slight diversification was achieved in case of cashew incl. CSNL. Whereas
not much diversification was achieved in case of tobacco, spices and coffee in
recent years.
5. IMPACT OF WTO ON INDIAN AGRICULTURE
The formation of WTO has posed both challenges and opportunities to developing
countries like India. It was predicted that the implementation of Agreement on Agriculture
would lead to increase in international prices and would prove beneficial for Indian
agriculture but however it had led to fall in the international agriculture prices and more
instability in the prices has become a routine. This has turned out to be more favourable to
net importing countries and unfavourable to net exporters of agricultural products. The
share of Indian agriculture exports in total exports has declined in the post-WTO period,
which shows that liberalization under WTO has not brought much scope for Indian
agriculture. The WTO has no visible agenda for the resource-poor farming families.
Globalisation has proved to be inherently asymmetric in its impact. Countries most
dependent on export of primary commodities have not been able to derive benefit from a
“free trade” regime. Developed nations are not prepared to phase out trade distorting
subsidies and do not provide increased market access to predominantly agri-developing
countries. India expected greater market access for her agricultural products after the
reduction of subsidies by developed countries under WTO agreement. However, the
developed countries showed sluggish attitudes in speedily implementing the commitments
and have increased support under green and blue boxes of WTO agreement. This enables
the developed nations to enjoy artificial comparative advantage in agriculture trade. This
lead to excess production in developed nations and downward trend in international prices
of agriculture commodities. In this way, it hampers the competitiveness of agriculture sector
and so the welfare of people (as large portion of population is dependent on agriculture
sector) in developing countries. Besides these developed countries imposes tariff and non-
tariff measures on imports from India, which has definitely, limited its export potential.
The advanced countries want access to the poor countries’ resources, markets, and
labour forces at the lowest possible price, retain subsidies and resist opening their markets
to the poor countries. On the other hand, the developing countries determine to protect the
livelihood of their farmers, as this is critical and essential for social stability as well as
political survival. They argue that labour rights protection is as critical as intellectual
property rights protection for the rich. All issues were to be discussed in Doha in 2003 but
the Doha Round of Trade Talks (DRTT) collapsed due to unbridgeable differences between
the EU, the USA and the developing countries led by India, China, and Brazil. The EU
opened its markets to “everything but Arms with technical rules of origin” whereas the USA
opened its markets to “everything but what it produces”.
However in post-WTO period share of Indian agricultural exports in world
agriculture exports has increased which shows on an average India has gained through
liberalisation policy of WTO but that gain has been marginal, less than what expected under
WTO regime.
The performance of India’s agricultural exports has not only been affected by the
WTO Agreement on Agriculture but also to a marked extent by the domestic structure of
the country. There is need to pay attention towards enhancing the productivity, quality,
diversification, value addition and sustainability aspects of our agriculture. As a result, the
mismatch between production and post-harvest technologies persists and the infrastructure
for handling perishable commodities continues to be poor.
Under these situation, India must extend its support to develop new Technologies
and markets and shelter fledging firms from international speculations, increase
investments in training, infrastructure and research, provide labour rights protection and
ensure additional social safety nets to cushion the farmers against price and market
volatility for their products.
Overall, it is challenging and complicated to assess the potential impacts of
liberalization of trade in agricultural commodities in the wake of WTO negotiations on the
agriculture and would depend on the outcome of the negotiations currently on going. More
precisely, it would in large part depend upon the extent to which the developed countries
will further bring down their domestic support, export subsidies, tariffs, and non-tariff
barriers and let increase their market access for the developing and least developed
countries. While several proposals are currently on the table in respect of each of these
components, where role of WTO is significant.
Domestic Support to Agriculture Sector
The AOA, for the first time made a systematic effort to lay down rules for subsidies
on agricultural products. The domestic support or Aggregate Measurement of Support
(AMS) is the annual level of support in monetary terms extended to the agricultural sector.
The key aim of reducing domestic support is to correct trade distortions with a view to
promote efficient allocation and use of world resources. All domestic support measures,
except exempt measures, provided in favour of agricultural producer are to be measured as
the ‘Aggregate Measurement of Support’ (AMS). The subsidies provided to farmers
include:
(a) Non-Product Specific subsidies such as those provided for irrigation, electricity, credit,
fertilizers, seed etc.
(b) Product Specific subsidies, which are, calculated as domestic prices minus international
reference price.
The sum of these two is termed as Aggregate Measurement of Support (AMS) also
called Amber Box. The Amber Box subsidies are considered to be trade distorting and were
entitled to progressive reduction commitments, base year being 1986-88. The maximum
limit for the total AMS is fixed at 5 percent of the value of domestic agricultural output for
developed and 10 percent for developing countries. Under the Uruguay Round,
commitments, the domestic support exceeding the maximum limit in the base year 1986-88
was to be reduced by 13.3 percent for developing countries and 20 percent for developed
countries over an implementation period of six year for developed countries and ten years
for developing countries. However, all the direct or indirect government support provided to
encourage agricultural and rural development, investment subsidies and agricultural input
subsidies provided to low income farmers in developing countries are exempted from the
reduction commitments. Direct payments under production limiting programmes
(sometimes dubbed as Blue Box) are also exempted from reduction. There are some
subsidies, which are required in the long-term interest of maintaining natural resources,
environmental protection and improving the farmer’s income. These are not to be included
in the AMS and are grouped in ‘Green Box’ and ‘Blue Box’. However, these should meet
the fundamental requirement of having minimal trade distorting effects6. Despite the above
provisions on domestic support, the developed nations are providing huge domestic support
to their agriculture. Agricultural policies 2012 of OECD countries highlights following
points7:
Government support to agriculture in OECD countries fell to 19% of total farm receipts in 2011, a record low driven by developments in international commodity markets, rather than by explicit policy changes.
Support to producers stood at USD 252 billion (EUR 182 billion) in OECD countries in 2011, confirming a longstanding trend toward falling farm support. While this report points to a generalised move away from support directly linked to production, it finds that support which distorts production and trade still represents about half of the total.
Support levels still vary widely across OECD countries. Over the 2009-11 periods, New Zealand had the lowest level of support, at just 1% of farm income, followed by Australia (3%), and Chile (4%). The United States (9%), Mexico (12%), Israel (13%) and Canada (16%) were also below the OECD average (20%). The European Union has reduced its level of support to 20% of farm income. At the other end of the scale, support to farmers remains relatively high in Iceland (47%), Korea (50%), Japan (51%), Switzerland (56%) and Norway (60%).
United States of America enjoys an artificial comparative advantage in agriculture,
due to huge domestic support and export subsidy given by its government. On the other
hand, it imposes a high tariff and non-tariff barriers on agricultural products to protect its
farmers. Total domestic support as a percentage of total value of production varied between
40.08 and 27.58 percent during 1995 to 2007. The USA is providing huge product specific
support (See table 6.29). The green box subsidy accounted for the major share in total
support to agriculture sector. It is noteworthy that the domestic support measures are
considered to have no or minimal trade-distorting effects are categorized as green box (GB)
measures. However, the so-called 'decoupled' programmes under GB could distort trade as
it generate wealth and risk effects. Thus, the competitive advantage of U.S agricultural
products in global markets is based on high domestic support to agriculture sector.
Table 6.29: Trends in Domestic Support to Agriculture Sector in USA(Value in million US dollar)
1995 2000 2004 2007Green Box Subsidy 46033 50057 67425 76162Product Limiting Subsidy
7030 0 0 0
Product Specific AMS (with de mimimis)
6311 16906 12309 6497
Product Specific AMS (without de mimimis)
6214 16843 11629 6260
Non-Product (with de mimimis)
1543 7278 5778 2023
AMS non-Product (without de mimimis)
0 0 0 0
Total AMS 6214 16843 11629 6260Total Support 60918 74241 85512 84682Value of Total Product 190110 189520 235688 307041Source: WTO Notifications
Japan is providing domestic support through AMS, blue and green box (see table 6.30). The green box subsidy accounted for the major share in total support to agriculture sector.
Table 6.30: Domestic Support in Japan ((¥ billion)Subsidy Type/Year
1995 1999 2000 2005 2006
Green Box 3169 2686 2595 1916 1802Blue Box N.A. 93 93 65 70Current Total AMS
3508 748 709 593 571
Source: WTO Notifications
Trade barriers to Indian Agricultural exports under WTO (Tariff and Non-Tariff Measures)
The tariff and non-tariff barriers adopted by developed Nations had hampered
India’s agricultural exports. For specific products, the bound and applied rate is too high in
the selected developed nations. In USA and Japan, the applied tariff rate for some products
is more than the bound rate. The developed nations are protecting their agriculture sector
through tariff and non-tariff measures. These measures effectively reduced the market
access opportunities for the developing nations like India. To reap the benefits of free trade
in agriculture, the developing countries should demand for reduction in domestic support
and elimination of tariff and non-tariff barriers existing in developed nations.
The tariff barriers adopted by the developed nations are a major concern not only for
Indian exporters but for other developing countries as well. Give below are the tariff
imposed by selected developed countries and developing countries on the agricultural
imports. These countries form the major export destination for India’s agricultural exports.
The table 6.31 shows that the MFN applied rate in agriculture sector is more than the
bound rate in case of EU and US. The table 6.32 displays that in EU in case of Fruit,
vegetables, plants, Oilseeds, fats & oils, Sugars and confectionery and Fish & fish products
the applied rate is more than final bound rate. In US applied rate is more than bound rate in
case of dairy products, Fruit, vegetables, plants, Oilseeds, fats & oils and in Japan also
applied rate is more than final bound rate in case of Fruit, vegetables, plants, coffee, tea and
Fish & fish products.
Table 6.31: Tariff Rates Imposed by Selected Developed NationsSector Final bound MFN applied
EU USA Japan EU USA JapanTotal 5.0 3.5 4.9 5.1 3.5 4.4Agricultural 12.3 4.8 20.9 12.8 4.9 17.3Non- Agricultural 3.9 3.3 2.5 4.0 3.3 2.5Source: WTO, World Tariff Profile 2011
Table 6.32: Tariff Rate on Specific Commodities by Selected Developed NationsCommodities Final bound MFN applied
EU USA Japan EU USA JapanDairy products 50.5 19.8 118.1 48.3 20.3 93.3Fruit, vegetables, plants
10.0 4.8 10.2 11.1 4.9 10.6
Coffee, tea 6.5 3.5 14.3 6.5 3.2 15.3Cereals & preparations
16.5 3.6 69.7 14.3 3.5 42.0
Oilseeds, fats & oils 5.4 4.3 10.0 5.7 4.6 9.0Sugars and confectionery
21.0 12.1 44.7 21.6 10.3 27.2
Beverages & tobacco 20.1 16.3 16.4 20.0 15.6 14.6Cotton 0.0 4.9 0.0 0.0 4.1 0.0
BeveragesFish & fish products 3.8 1.0 4.9 4.1 1.0 5.5Source: WTO, World Tariff Profile 2011
The table 6.33 shows that the MFN applied rate is quite less than final bound rate in
selected developing countries, which are also major export destination for India’s
agricultural exports. The table 6.34 shows that applied tariff rates on specific commodities
is less than the final bound rates in UAE and Saudi Arab but not in China in case of cereals
and preparations.
Table 6.33: Tariff Rates Imposed by Selected developing NationsSector Final bound MFN applied
UAE Saudi Arab
China UAE Saudi Arab
China
Total 14.3 11.1 10.0 4.9 4.8 9.6Agricultural 25.1 15.4 15.7 6.6 5.6 15.6Non- Agricultural 12.6 10.5 9.2 4.7 4.7 8.7Source: WTO, World Tariff Profile 2011
Table 6.34: Tariff Rate on Specific Commodities in Selected developing NationsCommodities Final bound MFN applied
UAE Saudi Arab
China UAE Saudi Arab
China
Dairy products 15.0 10.9 12.2 5.0 5.0 12.0Fruit, vegetables, plants
15.0 12.2 14.9 3.3 3.3 14.8
Coffee, tea 15.0 9.3 14.9 3.1 3.1 14.7Cereals & preparations
15.0 12.8 23.7 3.5 3.5 24.3
Oilseeds, fats & oils 19.7 11.5 11.1 4.9 4.9 11.0Sugars and confectionery
15.0 12.4 27.4 3.8 3.8 27.4
Beverages & tobacco 117.3 77.2 23.2 43.3 39.6 22.3CottonBeverages
15.0 13.2 22.0 5.0 5.0 15.2
Fish & fish products 15.0 10.8 12.1 3.3 3.3 11.4Source: WTO, World Tariff Profile 2011
Thus we can see that applied tariff rate in most of developed countries is high than
the final bound tariff rate as compared to developing countries and For specific products,
the bound and applied rate is too high in the selected developed nations.
As tariffs have been subjected to reduction, it is observed that many countries are
resorting to non-tariff measures like SPS (Sanitary and phytosanitary) measures and TBT
(Technical Barriers to Trade) measures. The number of SPS notifications has increased
from 199 in 1995 to 1108 notifications in 2009. Similar trend has been observed in case of
TBT notifications from 375 in 1995 to 1914 in 2009. Indian agricultural export has faced
number of non-tariff barriers in past decade the details of few are given in table 6.35.
Table 6.35: Major NTMs that are maintained against Indian exports
Country Item Details of NTMUnited States Marine products Increased inspections under the Bio-Terrorism Act,
Customs Bond requirement, Mandatory labelling discriminating “farm raised” and “wild” with punitive
fines and non-recognition of EIC certification.United States Tobacco A TRQ regime restricts imports.United States Food products Detailed labelling requirements are stipulated with
extensive product and content description.Argentina Processed Marine Products,
Matches, Insecticides, Fungicides, Plastics, Rubber,
Leather, Wood & Paper Products, Textiles & Clothing, Headgear,
Footwear, Articles Of Iron & Steel, Mechanical &
Electrical Machinery, two wheelers, optical
instruments, furniture, toys, miscellaneous manufactured
articles
A new regulation (57 &58/2007 dated 24.08.2007) wherein minimum import price has been established for
specified product imports from India and some other countries. Under this the Argentine Customs authorities can ask for validation of Indian customs invoice with a
full set of original documents if they suspect that the invoiced value is less than the minimum import price
established.
Australia Mangoes Australia maintains ban on the pretext of the presence of fruit flies and stone weevils.
Bangladesh Poultry products Bangladesh continues to ban imports despite India gaining the avian influenza free status.
Chile Wheat, wheat flour and sugar
A complex price band system wherein a minimum import price (well above the international price and domestic
prices) is stipulated. On account of a WTO dispute decision, this band would be lowered by 2% every year
from 2008 to 2014 after which a Presidential review would be undertaken.
China Agricultural products Opacity of Sanitary and Phytosanitary (SPS) measures and delays in giving clearances
European Communities
Bovine meat Standards are more stringent than OIE (World Organization for Animal Health) Terrestrial Animal
Health Code, a ban is maintained on account of Foot and Mouth Disease (FMD) and prolonged delay in
upgradation of India’s status to GBR1 (No risk of BSE)
Table 6.35 (contd….)
European Communities
Marine products Rejection and subsequent destruction of consignments with chloramphenicol / nitrofuran residues, rejections in
Italy and France due to presence of Vibrio Parahaemolyticus without judging the virulence factors, rejection due to alleged presence of bacterial inhibitors/
anti-biotic residues without any confirmatory tests.Norway Marine products The pathogen analysis is carried out by the NMKL
method which is not accepted internationally.Russia Meat products Standards for bovine meat are more stringent than the
OIE Terrestrial Animal Health Code, EIC Conformity certificates are not recognized and Certification with
respect to swine fever and FMD are insisted upon for poultry exports which are not relevant..
Ukraine Bovine meat, coffee, tea, spices, pharmaceuticals,
cosmetics, plastics, leather products, textiles & clothing
A compulsory certification with the option of either (a) certificate of acceptance of foreign certification by Derzh
Standard or (b) Conformance certificate by Ukrainian Agency. Though ISO 9000 Standards are adopted by
Derzh Standard, foreign certification recognition exists only to the extent of international treaty obligations of
Ukraine.Uzbekistan All products Cumbersome procedure for registration and certification,
a custom processing fee @ 0.7% of value and lengthy procedure for conversion of hard currency as well as
profit repatriation.Source: www.dgft.nic.in
Overall, it is challenging and complicated to assess the potential impacts of
liberalization of trade in agricultural commodities in the wake of WTO negotiations on the
agriculture and would depend on the outcome of the negotiations currently on going. More
precisely, it would in large part depend upon the extent to which the developed countries
will further bring down their domestic support, export subsidies, tariffs, and non-tariff
barriers and let increase their market access for the developing and least developed
countries.
6. MAJOR PROBLEMS OF INDIAN AGRICULTURAL EXPORT SECTOR
1. Lack of a broad raw material base in terms of the kinds and varieties of fruits and
vegetables suitable in all respects for processing and their availability in commercial
quantities at prices economical to the processing industry. Invariably, the cost of the
raw material is high.
2. Low productivity and poor quality of the produce as compared to the very high
levels obtained in the advanced countries affect processing and none of the
processing units works to full capacity utilisation. Much of the produce taken up for
processing is devoid of the quality attributes or characteristics required for
processing.
3. Stiff competition in the international market from the countries producing similar
products.
4. Despite the WTO and the Agreement on Agriculture (which focuses primarily on
reduction of tariffs, increased market access, reduction in Aggregate Measure of
Support in the form of subsidies) subsidies continue to be high in developed
countries as a result of which the expected gains have eluded developing countries
like India.
5. Imposition of non-tariff barriers like sanitary and phytosanitary (SPS) conditions on
imports from developing countries. Lack of awareness and knowledge about the SPS
measures and quality standards required to be adopted by the processing industry
and exporters.
6. Most of agricultural products are generally constrained by poor price support, credit
support and delivery system, which affect processing.
7. The quality of packaging is poor. Importing countries demand specific packaging for
each produce and the use of biodegradable materials resulting in high cost of
packaging.
8. The emergence of trading blocs in Asia, Europe and North America has also
considerably affected India’s agri-export trade.
9. Due to poor infrastructure in handling, transport, marketing and processing,
horticulture, as an industry, has not grown in our country. Poor infrastructure,
particularly transportation, road networks, and freight and cargo facilities, cold
storage facilities, etc., coupled with inadequate post-harvest management affect the
produce and products.
10. Inadequate supply of power, water and research and development support add to the
constraints.
11. The freight rates in India are reported to be around 50 to 100 per cent higher than
those prevalent in some other countries which does very little to improve our
competitiveness.
12. It is the residual rather than the fresh produce that is often taken up for processing,
which has a bearing on quality.
13. Lack of a proper marketing strategy geared to meeting the raw material requirement
of processing units and ensuring a sustainable export market for the processed
products.
14. Poor and inconsistent quality of processed products and inadequate export
promotion are some of the constraints plaguing the processing industry.
Suggestions for Promoting Exports
There is lack of adequate infrastructure, particularly cold storage
facilities, agriculture research, electricity, roads, rural markets and
transportation so need to encourage public-private partnership in building
such facilities and ensuring their proper maintenance.
It is imperative to develop most suitable marketing strategy for major
items of agriculture export by countries and for the countries with greater
market opportunities especially in the European Union, African countries
and the CIS countries need to be given greater attention.
There is a need to provide continuous updating of data on market
information, market access, procedures and processed etc.
India has been recognised as one of the five top biotechnology leaders in
the Asia Pacific region. In terms of number of patents filing, India ranks
third in Asia. Biotechnology, leads to reduction in cost and improvement
in productivity. Given the low-cost but high calibre work force, there is a
need to optimal utilization of intellectual and biological resources with a
view to bringing cost-effectiveness in production.
Need for greater and speedy expansion of credit for agriculture.
The EXIM Bank, in consultation with APEDA and the Ministry of
Agriculture, may set up Farm Export Promotion Cells in each AEZ and
provide necessary technical support and guidance to the exporters. It can
also open offices in each state in order to promote agri-export and also
establish overseas branches in countries where Indian exports are
favourite destinations.
The procedure for obtaining export credit guarantee cover should be
streamlined and made exporter-friendly and in this respect, a
comprehensive insurance cover right from the stage of production to
export can also be considered.
Increased investment in agriculture
Diversification from cereals to high-value crops such as fruits and
vegetables, floriculture, spices, animal husbandry, fisheries, medicinal
and herbal crops etc
Organizing farmers into associations that would jointly produce and
process commodities for international markets at both the regional and
global levels including formation of, and motivation to, SHGs for
cultivation, processing, marketing, nurseries, seeds production etc and
linking such initiatives through contract farming and corporate farming
Increased investment on developing viable and cost-effective seeds
industry
Developing institutions and providing support to them for the vertical
integration of production, processing, packaging and marketing of
agricultural produce with public-private partnership.
Make India agriculture product more competitive in international market
by making it cost effective and highlighting its distinctive features and
quality.
Policy framework for the contract and corporate farming should be
streamlined
Improving sanitary and phytosanitary measures as wells as the adoption
of codex alimentary standards of food safety and simultaneously
evolving SPS standards for our domestic products as well as imports
including strengthening the capacity of the state government institutions
for educating the farmers with regard to SPS requirements.
More expansion of agro processing industries.
Spreading agricultural technical and training institutions in remote parts
of the country also so that local people gets more opportunities to learn
better techniques of agricultural production.
Better coordination between the governments at different level and
enhanced allocation of fund to backward region with greater scope for
enriched agricultural production so as to create more agricultural export
surplus.
Besides above there is need to be constant vigilant at negotiations at WTO
and be more alert to counter the cleverly crafted strategy of developed
countries. Need to develop more trading agreements with developed and
developing countries and to ensure greater access to the market of developed
countries so need to direct joint efforts for removal and reduction of tariff
and non-tariff measure.
Thus, the importance of agriculture sector is evident from the fact that it continues to
be the backbone of the Indian economy due to its significant contribution in country’s GDP.
In India, the share of agriculture sector is much higher in comparison to other nations. India
is the second most populous nation of the world with population of nearly 1.21 billion. The
share of rural population in total population in India is more than developed nations.
Largely, this section of population is dependent on agriculture sector for their livelihood.
This share of employment in agriculture sector is many times higher than the developed
nation.
Rice, cotton, spices, sugarcane, wheat, vegetables and fruits are the key production
items for India. The ranking of top export items changed between 1995 and 2010 due to
domestic demand & supply condition and other factors. However, agricultural trade is
directly affected by domestic support, tariff and nontariff barriers. Thus, the tariff reduction
commitments made under Doha Round negotiations in agriculture will have more impact on
Indian economy.
In case of domestic support, India has no obligation to reduce domestic support
under the Agreement on Agriculture sector. The product specific subsidy was negative for
all crops except sugarcane. However, the picture is very different in developed nation. USA,
Japan and Australia are providing support to agriculture sector through Amber box, whereas
in case of India, the AMS is below the de minims level. In these countries, the product
specific support is highly concentrated on few products. For instance, the USA is providing
huge product specific support to corn, cotton, dairy, peanuts, soybeans, wheat and rice. In
case of Japan, the product-specific subsidy is mainly concentrated on beef, meat of swine,
milk, soybeans, sugar, sugar and wheat. Across all the countries, the green box accounted
for the major share in the total domestic support to agriculture sector. High support given to
agriculture sector by developed nation creates distortion in international trade. Our eminent
agricultural scientist, Dr M S Swaminathan, has quoted “India should ensure that all boxes
in the WTO must be abolished, and trade distortion, and unfair practices must be spelt out
clearly and factors governing sustainable livelihood should be recognised so that resource-
poor, developing countries should be able to place restrictions on imports”.
Indian Agricultural products have been facing stiff competition from Asian countries
for quite some times. Due to globalisation and liberalised regime, this competition is likely
to increase further and new initiatives in agriculture development shall have to meet the
emerging challenges. The performance of agriculture after integration with the world
markets is linked to the success of exports. In its bid to increase overall exports, the
Government of India has decided to achieve this objective by giving a push to production
and export of agricultural commodities.
REFERENCES
1. Government of India (2000), Budget Speech-2000-01, Ministry of Finance, New
Delhi.
2. Bhandari, S. (1998), ‘WTO & Developing Countries’, Deep and Deep Publications,
New Delhi, pp. 49 to 53
3. World Trade Organization (WTO), (2001), Ministerial Declaration
WT/MIN(01)/DEC/120, Ministerial Conference, Fourth Session, Doha, Qatar, pp.9–
14
4. Government of India, Economic Survey, 2011-12.
5. Planning commission, Agricultural Production and Programmes p 109, Server-
3\3832AGRI\Final Report SIA-Press\Index.......
6. Ratna, Sudesh Rajan, Sharma, K. Sachin, Kallummal, Murali and Biswas, Anirban
(2010). Agriculture under WTO Regime: Cross Country Analysis of Select Issues,
Centre for WTO Studies, Indian Institute of Foreign Trade, New Delhi, pp 38-46.
7. http://www.oecd.org. Trade and Agriculture Directorate › Agricultural policies and
support › Agricultural Policy Monitoring and Evaluation 2012: OECD Countries.
CHAPTER VII
INDIA’S MANUFACTURED EXPORTS
1. ROLE OF MANUFACTURED SECTOR IN INDIAN ECONOMY
The manufactured sector has the high potential in augmenting growth and
development of the country as it plays major role in employment generation and export.
With growth in this sector, their share in GDP tends to increase and also supplements other
sectors of the economy. The study of transitional economy of many countries especially of
China has revealed that in growth process the share of the manufacturing sector in GDP
increased over time and this sector absorbed people migrating from agriculture for better
employment prospects. However, in the case of India, services sector growth had dominated
the manufacturing sector, which shows the development process appears to have skipped
the second stage of economic transition (industrial sector growth).
The figure 7.1 reveals that at the time of independence the share of manufacturing
sector in country’s GDP was very low but with growth and development of industrial units,
this sector has witnessed remarkable growth rates until 1980s, however, with the emergence
of service sector the share of India’s manufacturing sector in her GDP has remained
stagnant in recent years. As manufactured exports form a sizeable share of India’s total
exports, the sector is of key importance to the economy. However, the average performance of
the manufacturing sector (reflected by the considerably low share of its contribution to the
GDP) has for long, been a cause of concern.
The National Manufacturing Policy aimed at achieving desirable growth in GDP. This
would help country in augmenting her manufactured goods export potential too.
Figure 7.1
1950-5
1
1960-6
1
1970-7
1
1980-8
1
1990-9
1
1993-9
4
1995-9
6
1997-9
8
1999-0
0
2000-0
1
2001-0
2
2002-0
3
2003-0
4
2004-0
5
2005-0
6
2006-0
7
2007-0
8
2008-0
9
2009-1
0
2010-1
1
2011-1
20
5
10
15
20
25
30
Share of Manufacturing Sector in Country's GDP
in per cent
Source: Government of India, Central Statistical Organisation
Contribution of Manufacturing Sector to Employment in India
Manufacturing sector plays a fundamental role in absorbing surplus agriculture
labour (see table 7.1). The Indian manufacturing sector is critical for the economy’s growth
as it employs 12.0 per cent of the country’s labour force as well as provides a transitional
opportunity to the labour force in agriculture. In addition, the sector has a multiplier effect
for job creation in the services sector. According to National Manufacturing Policy 2011,
every job created in the manufacturing sector creates two-three additional jobs in related
activities.
Table 7.1: Sect oral shares of employment in India (UPS basis) (In per cent)
Year Agriculture Manufacturing Service1983 66.2 14.6 19.81993-94 61.7 15.7 22.61999-00 58.5 16.7 24.72004-05 54.2 19.4 26.42009-10 52 14 34Source: Planning Commission, GOI
Textiles and garments, leather and leather products, and food processing are among
the major employers in the manufacturing sector. As depicted in the figure 7.2, there is a
significant variation in terms of volume and requisite skill sets across various industries in
the manufacturing sector. For instance, the paper and wood products industry tends to be
more labour-intensive compared to the electrical machinery and transport equipment
industry.
Figure 7.2
The Micro, Small and Medium Enterprises (MSMEs) have witnessed the highest
growth rate in manufacturing sector employment in recent years. As per the Annual Report
– FY11 of the Ministry of MSME, Government of India, the sector is estimated to employ
about 73 million workers in over 31 million units throughout the country (fig. 7.3).
Figure 7.3
2. INDIA’S MANUFACTURED EXPORT PERFORMANCE
The WTO has freed global trade by lowering tariffs and reducing non-tariff barriers,
piloting in unprecedented prosperity and growth. The WTO necessitates members to reduce
import barriers, which affect exports as well. All the member countries of WTO negotiate to
gain access for their competitive and politically connected industries. One of the major
advantages of the GATT/WTO system is its dispute resolution mechanism, which permits
aggrieved countries to file costly and time-consuming litigation based on substantial
evidence that their products are not being accorded their rights under WTO law. The WTO
members normally have full ability to export to other members while phasing out domestic
protection. This allows new members to get the benefits of free trade, while still getting
used to the global trading system. This may mean a surge in imports and it may mean that
Competitive industries are both freed to pursue growth opportunities and obtain access to
new markets. Subramanian and Wei (2007, SW) argues that there are no “theoretical
reasons” for WTO membership to impact exports, but there are practical reasons to believe
it may influence exports. The establishment of WTO has definitely affected structure of the
global export trade by creating an opportunity for less developed countries1.
In 1991, India initiated an import liberalization policy pursuing market-oriented and
outward-looking policies. Further creation of WTO gave additional thrust to market
oriented approach in conducting international trade; India being member of the WTO is
adhering to the WTO rules in conducting their international trade. Trade reforms and
commitments including substantial tariff reductions and dismantling of most of non-tariff
barriers and an improved market access following WTO accession has been important for
India’s manufactured exports. Sustained implementation of WTO commitments in the past
has facilitated India’s on-going integration with the global economy and will generate
benefits for most partners’ countries. However, it may also pose some challenges and the
extensive safeguard provisions under the WTO agreement represent a downside risk that
could constrain India’s export growth in the future. In this chapter, we will study the
performance of India’s manufactured exports since the establishment of WTO.
Share of India’s Manufactured Exports in Total Merchandise Exports
In India, manufactured products have contributed maximum in total merchandise
exports. However, its share has varied a lot over time. In pre-WTO period share of
manufactured goods in total exports was low compared to post-WTO period as this sector
was not much developed, however with further growth and development of the country the
share of manufacturing products in total exports rose steadily from 50 per cent in 1985 to
almost 80 per cent in 1999-2000 (post-WTO). The economic reforms introduced in 1991
(following the balance of payments crisis) had a significant impact in improving the efficiency
of the sector.
The table 7.2 suggests that the year of year growth rate in India’s manufactured exports
has been cyclical in nature, in some years it has increased and in some years decreased. Highest
annual growth rate of 37.1 per cent was registered in 2010-11 after a negative growth rate 0f -
5.9 per cent in 2009-10, this was basically due to rise or recovery in world trade after recession
and also manufactured export promotional strategies of the Government of India. In 2004-05,
second highest growth rate of 25 per cent was observed. In the year 1998-99 and 2001-02,
negative growth rate of -2.8 and -1.6 per cent was registered basically due to East Asian crisis in
1997 and also terrorist attacks in U.S.A. in 2001 leading to fall in export of manufactured goods
to these major trading partners. The global recession of 2008-2009 led to fall in world demand
and hence in India’s manufactured exports in 2009-10. For rest of the years India’s
manufactured exports registered positive growth rate. In the post-WTO period (1995-96 to
2011-12) India’s manufactured exports has registered a compound annual growth rate of 13.7
per cent on the other hand total exports has registered CAGR of 15.1 per cent.
The past decade has shown a decline in the share of manufactured products in total
merchandise exports with the share of 80.7 per cent in 1999-00 coming down to 74 per cent
in 2004-05 and further to 68 per cent in 2006-07 and 61.3 per cent in 2011-12. This
declining trend has become a policy concern as this may reflect that the Indian
manufacturing sector may be losing its competitiveness in global markets. In spite of this
Indian manufacture still has a large share in India’s total exports where in engineering
products has emerged as the major contributor to India’s manufacturing export performance
followed by Gems and Jewellery and textiles products.
.Table7.2: Value and Share of India’s Manufactured Exports in Total Merchandise Exports
(Value in US$ million, Growth Rate and Share in per cent)
YEARMANUFACTURED PRODUCTS TOTAL EXPORT
VALUE % CHANGE % SHARE VALUE % CHANGE
1995-96 23747 16.4 74.7 31794 20.8
1996-97 24613 3.6 73.5 33469 5.2
1997-98 26546 7.8 75.8 35006 4.6
1998-99 25791 -2.8 77.6 33218 -5.1
1999-00 29714 15.2 80.7 36822 10.8
2000-01 34335 15.6 77.0 44560 21.0
2001-02 33792 -1.6 77.1 43827 -1.6
2002-03 40245 19.0 76.3 52719 20.3
2003-04 48492 20.4 75.9 63843 21.1
2004-05 60731 25.2 72.7 83536 30.8
2005-06 72563 19.6 70.3 103091 23.4
2006-07 84920 16.9 67.1 126414 22.6
2007-08 102979 21.8 63.2 162904 29.0
2008-09 123149 17.7 67.3 182799 13.6
2009-10 115181 -5.9 64.4 178751 -3.5
2010-11 157994 37.1 62.9 251136 40.5
2011-12 186784 18.2 61.3 304623 21.3
CAGR 13.7 15.1Source: Calculated from data taken from Government of India, Economic Survey (various issues)
Share of Indian Manufactured Exports in World (manufacturing) Exports
Although the manufacturing sector has great importance and share in India’s
merchandise exports but this sector’s exports has a minimal impact on the global scale, as seen
in table7.3. India’s share in world manufacturing exports has increased constantly in the post-
WTO period but at slow rate from 0.6 per cent in 1995 to 1.6 per cent in 2011. In past decade,
the share has increased almost by 1 percentage point that is, 0.72 per cent in 2001, 0.97 per cent
in 2005 and 1.63 per cent in 2011(fig.7.4). In value terms, India has made minor progress in
exporting manufactured goods between 1990 and 2004 and made a less visible impression on
the global scale. In 2011, a better performance with value of exports of US$ 187812 million as
compared to US$ 70864 million in 2005. In 2008 and 2009, manufactured exports remained
almost stagnant with value of US$ 113148 million and US$ 113303 million. The world-
manufactured exports grew at a compound annual growth rate of 7.31 per cent in post-WTO
period and India showed a comparative better growth with CAGR of 13.96 per cent for the
same period.
Table 7.3: Value and Percentage Share of Indian Manufactured Exports in World Manufactured Exports
(Value in US$ million)YEAR WORLD INDIA India’s share in world
Manufactured exports Pre-WTO1990 2391150 12523 0.521991 2470460 12828 0.521992 2668152 15148 0.561993 2668378 16303 0.61
1994 3097682 19985 0.64CAGR (1990-1994) 6.68 12.39Post-WTO1995 3718846 23205 0.621996 3852598 24127 0.621997 4031275 25732 0.641998 4122548 25209 0.611999 4260117 29024 0.682000 4692265 32923 0.702001 4511844 32794 0.722002 4753671 37535 0.792003 5502692 45352 0.822004 6619441 55678 0.842005 7291434 70864 0.972006 8241459 79731 0.962007 9496326 92973 0.982008 10429528 113148 1.082009 8357409 113303 1.352010 10001614 138005 1.382011 11510949 187812 1.63CAGR (1995-2011) 7.31 13.96Source: WTO, International Trade Statistics
Figure 7.4
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
20110
0.20.40.60.8
11.21.41.61.8
0.620000000000010.620000000000010.6400000000000120.6100000000000010.680.7000000000000010.720000000000001
0.790.8200000000000010.8400000000000010.9700000000000010.9600000000000010.98
1.08
1.35 1.38
1.63
Share of India's Manufactured Exports in World Manufactured Exports in Post-WTO
Period
% share
Leading Exporters of Manufactured Products
India is among top 15 leading exporters of manufactured products in the world. As
per the International Trade Statistics 2012, published by the World Trade Organization
(WTO), India’s manufactured exports amounted to US$ 188 billion with a 1.6 per cent
share in world export in manufacture in 2011. Until 2001 India was not among the top
fifteen countries leading in the world exports of manufactured products, however since
2001 with the forming of group European Union(consisting of European countries like
Germany, Italy, France, U.K. etc.) it falls amongst the category of leading exporters of
manufactured products. In years like 2001 and 2005 and 2008, it shared 14th rank and in past
year its rank has improved to reach 12th position, refer table 7.4. During the early years of
establishment of WTO the top two positions was occupied by European Union and United
States but since 2006, China occupies the second position in world export of manufactures.
Developing countries like Brazil, China, Mexico, Indonesia, Malaysia, Russia Federation
and Thailand enjoys a good share in the leading exporters of manufactured products along
with the developed countries.
With the emergence of World Trade Organization (WTO) in January 1995 to
promote multilateral trading among all member countries, the rank and share of many
countries in world manufacture exports has fluctuated in the past decades as we can
perceive from the table 7.4 given below and fig 7.5(a, b, c).
Table 7.4: Leading Exporters of Manufactured Goods in Post-WTO Period
(Value in US$ billions)
Countries/group
1999 Countries/ /group
2001 Countries/Group
2003 Countries/Group
2005 Countries/Group
2007 Countries/group
2009 Countries/Group
2011
United States 575.3 European Union (15)
1881.9 European Union (15)
2358.4 European Union (25)
3240.3 European Union (27)
4249.1 European Union (27)
3605 European Union (27)
4622
Germany 452.0 United States 602.4 United States 586.7 United States 732.5 China a 1134.8 China a 1125 China a 1772 Japan 392.7 Japan 373.7 Japan 438.7 China 700.3 United States 909.4 United States 800 United States 966 France 238.7 China a 235.8 China a 397.0 Japan 546.4 Japan 640.9 Japan 508 Japan 725 United Kingdom
225.0 Hong Kong China
182.0 Hong Kong China
215.5 Hong Kong China
279.9 Hong Kong China
331.2 Korea Republic of 323 Korea Republic of
473
Italy 202.1 Canada 161.0 Korea Republic of b
177.1 Korea Republic of
258.2 Korea Republic of
330.4 Hong Kong China 305 Hong Kong China
408
China a 172.1 Korea Rep. of 135.5 Canada 164.8 Canada 206.1 Singapore 227.1 Singapore 198 Singapore 280 Hong Kong China
164.7 Mexico a 134.8 Taipei Chinese
141.1 Singapore 185.2 Canada 224.5 Taipei Chinese 180 Taipei Chinese 271
Canada 159.0 Taipei Chinese 116.4 Mexico a 134.7 Taipei Chinese 171.7 Taipei Chinese 209.6 Mexico a 172 Mexico 247 Belgium 139.0 Singapore 102.6 Singapore 120.9 Mexico 164.4 Mexico 204.2 Canada 157 Canada 204 Korea Rep. of 128.7 Switzerland 75.8 Switzerland 92.5 Switzerland 117.9 Switzerland 155.5 Switzerland 155 Switzerland 202 Netherlands 118.5 Malaysia 70.4 Malaysia 77.3 Malaysia 104.9 Malaysia 125.0 Malaysia 109 India 188 Taipei Chinese 116.5 Thailand 48.3 Thailand b 60.1 Thailand 84.3 Thailand 116.5 Thailand 109 Thailand 159 Mexico 115.1 India 33.7 Czech
Republic 43.8 India 69.8 India 92.4 India 107 Malaysia 141
Singapore 98.5 Indonesia 31.5 Poland 43.4 Brazil 61.6 Turkey 85.4 United Arab Emirates
89 Turkey 104
Above 15 3154.1 Above 15 4022.6 Above 15 4851.0 Above 15 6508.6 Above 15 8716.9 Above 15 7644 Above 15 10361Source: WTO, International Trade Statistics
Figure 7.5 (a)
Euro
pean U
nion (1
5)
United St
ates
Japan
China a
Hong Kong C
hina
Canad
a
Korea R
ep. o
f
Mex
ico a
Taip
ei Chin
ese
Singa
pore
Switz
erlan
d
Mala
ysia
Thail
and
India
Indones
ia 05
1015202530354045 42
13.58.3
5.3 4 3.6 3 3 2.6 2.3 1.7 1.6 1.10.70000000000000
10.70000000000000
1
Leading Exporters of Manufactured Products in Year 2001
% Share
Figure 7.5 (b)
Euro
pean U
nion (2
5)
United St
ates
China
Japan
Hong Kong C
hina
Korea R
epublic
of
Canad
a
Singa
pore
Taip
ei Chin
ese
Mex
ico
Switz
erlan
d
Mala
ysia
Thail
and
India
Brazil
05
101520253035404550
44.3
10 9.6 7.53.6 3.5 2.8 2.5 2.3 2.2 1.6 1.4 1.2 1 0.8
Leading Exporters of Manufactured Products in Year 2005
% Share
Figure 7.5(c)
Euro
pean U
nion (27)
China a
United St
ates
Japan
Korea R
epublic
of
Hong Kong C
hina
Singa
pore
Taip
ei Chin
ese
Mex
ico
Canad
a
Switz
erlan
d
India
Thail
and
Mala
ysia
Turk
ey
05
1015202530354045
40.2
15.4
8.46.3
4.1 3 2.4 2.4 2.1 1.8 1.8 1.6 1.4 1.2 0.9
Leading Exporters of Manufactured Products in Year 2011
% Share
Share of Major Manufactured Export Items of India in World Exports
India had a global export share of around 1 per cent or more in 48 out of a total of
99 commodities at the two-digit harmonized system (HS) level. However, its share of 5 per
cent or more in 12 items in 2009 has declined to 10 items. In 2007, India had a global
export share of 1 per cent or more in 44 out of a total of 99 commodities at two digit HS
level, but a significant share of 5 per cent or more only in eight items (as in 2006).
The table 7.5 reveals that India’s share of many of the manufactured items in world
exports has improved in the post-WTO period, it was the result of improved production in
the country and the economic reforms of 1991 focussed on the policy of liberalisation and
deregulation of government controls which has led to the expansion of number of
production units within the country. Few of chemical and allied products has registered
constant increase and had crossed 1 per cent share in world exports. Like for organic
chemical, share was 0.3 per cent in 1990, which increased to 1.1 per cent in 2000, and 2.3
per cent in 2010. Dyeing, tanning and colouring materials had share of 2.4 per cent in 2010.
India enjoyed respectable place in pearls, precious and semi-precious stones exports in pre-
WTO period with its share in world exports around 9.8 per cent in 1990, and maintained
this position even in the post-WTO period with share of 17.7 per cent in 2010. In case of
leather and manufactures though the share in world export is high as compared to other
commodities, it has shown a declining trend in post-WTO period. However, in recent years
it has shown some improvement in share in world exports.
India also had a reasonable presence in the world exports market of textile products.
Its share has constantly increased in post-WTO period. The share of engineering products in
world exports has increased substantially. However, India has been unable to sustain these
increases. There are several products in whose exports India can hope to claim a significant
share in the near future. These include, electronic and electrical items, processed food items,
electro medical appliances, among others. The government must focus all its efforts to
ensure that potential items of the country become leaders in global markets. This would
require a change in the existing strategy practice of fixing aggregate targets, over which it
has no control, to fixing ‘market share targets’ for a small group of established winners.
Though India has been diversifying its exports, there is plenty of scope to diversify
into sectors where global demand is high and increasing. Countries closely integrated with
the global trading system have joined the process of exporting dynamic products by
continuously restructuring their production bases with efficiency, improved productivity
and constantly improving their global share in exports.
Table 7.5: Share of Major Manufactured Exports of India in World Exports (In per cent)
Product
1990
1995
1996
1997
1998
1999
2000
2002
2003
2004
2005
2006
2007
2008
2009
2010
Organic chemicals 0.3 0.7 0.8 0.9 0.9 0.9 1.1 1.3 1.4 1.4 2.1 2.0 1.9 2.1 2.2 2.3
Inorganic chemicals 0.2 0.3 0.2 0.4 0.4 0 0.3 0.3 0.3 0 0 0.3 0.2 0.3 0.9 1.0
Dyeing, tanning and colouring materials 1.2 1.1 1.3 1.4 1.3 1.2 1.4 1.4 1.6 1.3 1.7 1.8 1.9 2.2 2.1 2.4
Medicinal and pharmaceutical products 1.2 1.0 1.0 1.1 1.0 1.0 1.2 1.6 1.0 0.8 0.8 0.9 1.0 0.9 1.1 1.0
Essential oils and perfume materials soapcleansing etc. 1.1 0.5 0.5 0.5 0.4 0.3 0.5 0.4 0.6 0.4 0.6 0.7 0.7 0.8 0.9 0.9
Artificial resins, plastic materials, cellulose esters & ethers 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.2 0.7 0 0 0 0 0 0.6 0.7
Chemical materials and products n.e.s. 0.2 0.4 0.5 0.6 0.6 0.4 0.7 0.7 0.7 0.7 1.1 1.0 1.0 1.2 1.2 1.2
Leather, leather manufactures & dressed fur skins 6.3 3.3 2.5 2.8 2.8 3.5 3.3 3.4 3.1 2.8 3.1 3.1 3.1 3.3 3.2 3.3
Leather 4.8 2.5 1.8 1.9 2.0 2.2 2.3 3.0 3.0 2.8 3.1 3.2 3.1 3.5 3.3 3.4
Manufactures of leather or of composition leather 13.4 6.4 4.8 5.9 5.8 6.9 6.2 5.0 3.8 0 0 4.0 4.3 4.4 4.6 4.2
Fur skins,tanned or dressed etc. 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Textile yarn, fabrics, made-up articles 2.1 2.9 3.0 3.3 3.3 3.4 3.6 3.6 3.7 3.4 4.0 4.0 4.0 4.0 4.2 5.0
Woven cotton fabrics 3.7 4.4 4.4 4.3 4.3 4.9 4.9 4.1 3.6 3.0 3.0 3.1 3.2 3.6 3.6 3.7
Woven fabrics of man made fibres 0.7 1.3 1.0 1.2 1.6 1.5 1.6 2.7 3.2 3.1 3.1 3.1 3.4 4.4 6.0 5.5
Woven fabrics other than of cotton or man-made fibres 2.3 1.9 2.0 2.6 2.7 3.0 3.9 4.1 4.4 4.0 4.5 4.2 4.0 4.3 4.4 5.2
Pearls, precious and semi-precious stones 9.8 11.810.210.610.712.212.013.613.913.513.012.113.313.019.017.7
Iron and steel 0.3 0.7 0.7 0.9 0.8 0.7 1.0 1.6 1.7 1.8 4.6 1.9 1.8 1.9 2.0 2.6
Manufactures of metals n.e.s. 0.5 0.6 0.6 0.6 0.6 0.6 0.9 0.9 1.1 1.2 1.3 1.2 1.2 1.4 1.3 1.4
Power-generating machinery & equipment 0.2 0.1 0.2 0.2 0.2 0 0.1 0.1 0.2 0.3 0.4 0.5 0.5 0.7 0.8 0.7
Machinery specialized for particular industries 0.2 0.2 0.2 0.2 0.2 0.1 0.2 0.3 0.4 0.3 0.4 0.5 0.4 0.5 0.7 0.6
Metal-working machinery 0.2 0.2 0.1 0.2 0.2 0.1 0.3 0.4 0.5 0 0.4 0.4 0.4 0.5 0.6 0.5General industrial machinery & equipment & machine parts thereof 0.1 0.1 0.1 0.1 0.1 0 0 0 0.3 0.4 0.5 0.5 0.7 0.6 0.7 0.7
Office machinery and ADP equipment 0.1 0.1 0.1 0.1 0.1 0 0 0 0.1 0.1 0.1 0 0 0 0 0Telecommunication and sound recording and reproducing apparatus and equipment 0 0.1 0.1 0.1 0.0 0 0 0 0 0 0.0 0 0 0 0.8 0.4
Electrical machinery, apparatus and appliances 0.1 0.1 0.1 0.1 0.1 0 0 0 0.2 0.2 0.2 0.3 0.3 0.4 0.4 0.4Road vehicles (including air cushion vehicles) 0.1 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.2 0.3 0.3 0.4 0.3 0.5 0.7 0.8Other transport equipment 0 0 0 0.1 0.0 0 0 0.1 0 0 0.5 0.4 0.6 1.1 1.7 1.8Articles of apparel and clothing accessories 2.3 2.6 2.5 2.3 2.3 2.8 3.5 2.9 2.8 2.5 3.2 3.0 2.8 2.9 3.6 3.0
Note: A Zero in India’s share means negligible or no share at all.Source: Economic Survey (various issues)
Share of Selected Manufactured Goods in India’s Total Exports
The table 7.6 shows that the share of chemical products as a group has remained
almost unchanged in recent years and in the post-WTO period that is since 1995 till yet
mixed trend has been observed sometimes it’s share has improved like 14.1 per cent in
2002-03 from 10.7 per cent in 1995-96 and sometimes declined like to 12.2 per cent in
2011-12. The share of engineering products in total exports has increased substantially from
13.8 per cent in 1995-96 to 20.7 per cent in 2004-05 and 22 per cent in 2011-12. The share
of leather and leather manufactures declined from 5.2 per cent in 1995-96 to 2.3 per cent in
2002-03 and ultimately to 1.5 per cent in 2011-12. The gems and jewellery has been an
important export commodity throughout the period and its share in manufacturing exports has
registered a mixed trend declined from 16.6 per cent in 1995-96 to 12.6 per cent in 2006-07 and
then increased to 18.25 per cent in 2011-12. It is also seen that cotton, which was traditionally
an important export item from India, has shown decline in its share, from 8.1 per cent in 1995-
96 to 2.2 per cent in 2011-12. Overall, the figure depicts a structural shift in Indian
manufactured exports, away from cotton and textile oriented exports and more towards
technique and technology-based items falling under group of engineering goods such as
electronic products, transport equipment’s etc. There was an appreciable decline in share of
handicrafts in the post –WTO period from 1.3 per cent in 1995-96 to 0.4 per cent in 2003-
04 and to a negligible share of 0.07 per cent in 2011-12.
Table 7.6: Share of Selected Manufactured Goods in India’s Total Exports (In per cent)
COMMODITIES
1995
-96
1996
-97
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
2010
-11
2011
-12
II.MANUFACTURED GOODS 74.7 73.5 75.8 77.6 80.7 77.0 77.1 76.3 75.9 72.7 70.3 67.1 63.2 67.3 64.4 62.9 61.3
A. LEATHER AND MANUFACTURE 5.2 4.7 3.2 2.9 2.6 2.9 2.8 2.3 2.2 1.9 1.7 1.6 2.1 1.9 1.2 1.5 1.5
B.CHEMICAL AND RELATED PRODUCTS 10.7 9.6 12.5 12.0 12.7 13.2 13.8 14.1 14.7 14.8 14.3 13.7 13.0 12.4 12.8 11.5 12.2
C.ENGINEERING GOODS 13.8 14.7 15.2 13.4 13.9 15.3 15.8 17.1 19.4 20.7 21.0 23.3 22.9 25.8 21.4 23.1 22.0
1.Manufacture of metals 2.5 2.7 2.9 3.2 3.3 3.6 3.7 3.5 3.8 4.1 4.1 4.0 4.3 4.1 3.1 3.3 3.1
2.Machinery &instrument 2.6 3.1 3.4 3.4 3.2 3.7 4.0 3.8 4.3 4.5 4.7 5.3 5.6 5.9 5.4 4.7 4.7
3.Transport equipment 2.9 2.9 2.6 2.2 2.2 2.4 2.3 2.5 3.1 3.4 4.2 3.9 4.3 6.0 5.5 6.6 6.8
4.Electronic goods 2.1 2.3 2.2 1.5 1.8 2.4 2.7 2.4 2.7 2.2 2.1 2.3 2.1 3.9 3.1 3.2 2.9
D.TEXTILE AND TEXTILE PRODUCTS 25.2 25.8 25.8 26.7 26.6 25.3 23.2 22.0 20.0 16.2 15.9 13.7 11.9 10.9 11.1 9.6 9.2
1.Cotton Yarn ,Fabric 8.1 9.3 9.3 8.2 8.4 7.9 7.0 6.4 5.3 4.1 3.8 3.3 2.9 2.2 2.1 2.3 2.2
2.Readymade garments 11.5 11.2 11.1 13.2 12.9 12.5 11.4 10.9 9.8 7.9 8.3 7.0 5.9 5.9 6.0 4.6 4.5
3.Jute manufactures 0.5 0.5 0.5 0.4 0.3 0.3 0.3 0.3 0.3 0.3 0.2 0.2 0.2 0.1 0.1 0.1 0.1
E.GEMS & JEWELLERY 16.6 14.2 15.3 17.5 20.4 16.6 16.7 17.2 16.6 16.5 15.1 12.6 12.1 15.1 16.3 16.1 18.2
F.HANDICRAFT 1.3 1.4 1.4 1.9 1.4 1.2 1.4 0.8 0.4 0.4 0.3 0.3 0.3 0.2 0.1 0.1 0.07
Source: Calculated from data taken from government of India, Economic Survey and RBI Bulletin (various issues).
Export Growth Rate of Manufactured Goods as per Major Commodity Classification
In post-WTO period, manufactured goods registered compound annual growth rate
of 13.75 per cent and in past decade (2000-01 to 2011-12) CAGR of 16.64 per cent (see
table 7.7). However, five years preceding the establishment of WTO, it recorded CAGR of
11.9 per cent. Among the manufactured goods, engineering goods registered highest CAGR
of 18.57 per cent in post-WTO period and in past decade tops with CAGR of 23.10 per cent.
The second position in terms of CAGR performance was occupied by chemical and related
products with growth of 15.71 per cent and the third position by gems and jewellery with
CAGR of 14.63 per cent during 1995-96 to 2011-12. However, in past decade compound
annual growth rate of gems and jewellery (18.30 per cent) superimposed chemical and
related products (18.24 per cent) with a very negligible difference of 0.06 percentage points.
Textile and textile products showed average performance with CAGR of 8.11 per cent
during 1995-96 to 2011-12 and 8.61 per cent during 2000-01 to 2011-12. Leather and
manufactures was second lowest as compared to other manufactured goods with CAGR of
6.48 per cent (1995-96 to 2011-12), however in past decade it has shown marginal
improvement. The handicrafts have shown a poor performance with negative CAGR of -
3.79 per cent in the post-WTO period. This definitely needs government attention in this
direction.
Table 7.7: Compound Annual Growth Rate of Manufactured Products in Pre and Post-WTO Period
(In per cent)
Commodity / Year
Pre-WTO Period
1990-91 to 1994-95
Post-WTO Period
1995-96 to 2011-12 2000-01 to 2011-12II. Manufactured Goods
11.9 13.75 16.64
A. Leather and Manufactures
2.67 6.48 8.53
B. Chemicals and Related Products
10.6 15.71 18.24
C. Engineering Goods 11.7 18.57 23.10D. Textile and Textile Products
8.11 8.61
E. Gems and Jewellery 11.38 14.63 18.30F. Handicrafts (excluding Handmade Carpets)
11.58 -3.79 9.0
G. Other Manufactured Goods
- 15.24 19.73
Source: Calculation is based on the data collected from RBI, Handbook of Statistics on Indian Economy.
In the post-WTO period within manufacturing, the engineering goods have shown a
constant export growth in recent years except for year 2009-10, due to global recession.
Gems and jewellery, a major foreign exchange earner for India, suffered an absolute decline
in growth for the first time in year 1996-97 and 2001-02. Leather and manufacture has
witnessed a significant decline in its growth rates in recent years see table 7.8.
Basic chemicals (Drug, Permutes & Fine Chemicals and other basic chemicals
combined) are an area in which India is consistently doing well as far as exports are
concerned. However global recession has led to decelerated export growth in 2008-09 and
2009-10. In recent years, basic chemicals have replaced textile and textile products from the
third most important source of foreign exchange earner among manufactured products.
Traditionally, India had a comparative advantage in textiles. Textile, textile
products, is another other key industries showing signs of export deceleration. However, it
still continues to be the fourth largest foreign exchange earner for the country. Handicrafts
too have shown a very poor export growth in post-WTO period.
So it could be seen that that silver lining is provided by engineering goods whose
exports grew at 71.9 per cent in 2010-11, is the fastest among manufacturing.
Table 7.8: Growth of India’s manufactured goods by Principal Commodity
classification
(In per cent)
1995
-96
1996
-97
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
2010
-11
2011
-12
II.MANUFACTURED GOODS
15.17 3.64 7.8 -2.8 15.2 16.9 -3.9 21.0 20.0 24.9 19.6 16.9 21.8 17.7 -5.9 37.1 18.2
A. Leather And Manufacture
8.79 -8.3 5.0 -11.3 -9.2 33.5 -3.2 -3.1 15.7 9.4 7.4 8.1 16.1 1.5 -5.4 16.3 22.4
B.Chemical And Allied Products
20.63 8.78 12.35 -8.80 17.39 25.0 2.81 23.19 26.7 31.73 18.69 17.37 22.25 7.14 0.88 26.0 28.8
C.Engineering Goods 25.17 13.0 7.52 -16.34
15.41 32.34 2.04 29.82 37.3 39.84 25.19 36.13 26.37 26.54 -19.6 71.9 15.4
D.Textile And Textile Products
7.52 4.80 -2.03 10.78 14.89 -9.5 13.81 10.11 5.97 21.0 5.92 11.81 3.04 -0.81 22.0 15.5
E.Gems & Jewellery 17.2 -9.89 12.5 10.4 26.4 -1.5 -1.1 23.9 16.8 30.2 12.8 2.9 23.2 42.1 3.7 39.5 15.8
F.Handicraft 15.0 9.63 15.6 5.3 6.6 2.2 -18.6 30.0 -4.8 -7.0 30.2 -5.2 16.0 -40.8 -25.3 14.2 -8.9
G.Other Manufactured Goods
0.5 -12 -2.8 19.0 30.5 9.13 22.4 28.9 34.1 19.5 23.3 7.55 16.9 17.9 35.2 21.9
Source: Calculated from data taken from government of India, Economic Survey and RBI Bulletin (various issues)
3. EXPORT PERFORMANCE OF INDIA’S KEY MANUFACTURED PRODUCTS IN POST-WTO PERIOD
ENGINEERING GOODS
Trends and Performance in Export
The engineering sector has become the most important item group in country’s
exports and accounts for 3 per cent of India’s GDP. India’s exports of engineering goods
grew at 23.10 per cent (CAGR) during 2000-01 to 2011-12 and 18.57 per cent since 1995 to
2012. Among the engineering goods, transport equipment showed the highest CAGR in
post-WTO period i.e. 21.51 per cent, followed by machinery and instrument with CAGR of
19.50 per cent and electronic goods 17.5 per cent (table 7.9). Manufacture of metals and
iron and steel registered CAGR of 16.57 and 14.92 per cent in post-WTO period. In past
decade 2000-01 to 2011-12, transport equipment registered highest CAGR of 31.93 per
cent, followed by machinery and instrument CAGR of 22.22 per cent.
Table 7.9: Compound Annual Growth Rate of Selected Engineering Goods (In per cent)
Commodity / Year 1995-96 to 2011-12 2000-01 to 2011-12C. Engineering Goods 18.57 23.101. lron & Steel 14.92 18.162. Manufacture of Metals 16.57 17.85
3. Machinery and Instruments 19.50 22.224. Transport Equipment 21.51 31.93
5. Electronic Goods 17.5 21.426. Other Engineering Goods 18.68 25.01Source: Calculation is based on data collected from RBI, Handbook of Statistics on Indian Economy.
In post-WTO period the value of export of engineering goods has continuously show
an increasing trend and registered exports of US$ 4391 million in 1995-96, US$ 9033
million in 2002-03 and US$ 68784.1 million in 2010-11, with growth rate of 25.17, 29.82
and 79.42 per cent in the above given period (table 7.10). Throughout the period it has
registered positive growth rate except for period 1998-99 (-16.34 per cent), due to East
Asian crisis and again in year2009-10 (-19.6 per cent) due to global recession, with its share
in total exports falling to 18.2%. Engineering exports bounced back to high growth rate in
2010-11 presenting robust performance across various other sectors.
Among the engineering goods, value of exports was registered highest for transport
equipment and machinery and instrument in recent years with US$ 18447 million and US$
11851.7 million in 2010-11 and growth rate of 86.1 and 25.1 per cent. Manufacture of
metals and iron and steel is also very important export item under the category of
engineering goods. For manufacture of metals, value and year of year growth rate was US$
913.5 million (10.53 per cent) in 1996-97, US$ 24265.5 million (29.8 per cent) in 2003-04
and US$ 9470.4 million (70.3 per cent) in 2010-11. In case of iron & steel it was US$ 769.8
million (10.49 per cent) in 1996-97, US$ 1856 million (106.6 per cent) in 2002-03 and US$
6579.8 million (81.65 per cent) in 2010-11.
India is currently a relatively small player in the world Electronics market but in the
next few years, its market share is expected to increase. Electronics is the largest and fastest
growing manufacturing industry in the world, and is expected to reach USD 2.4 Trillion by
2020. India’s export of Electronics goods in 2010-11 was US$ 8903.7 million with growth
rate of 62.7 per cent. In 1996-97, it was US$ 783.7 million (16.95 per cent). As per report
published by Frost & Sullivan, the Indian Electronics Industry will cross US$ 350 billion by
the year 2020. The main segment expected to be contributing to this growth are Wireless,
Consumer Electronics, Aerospace and Defence, Medical Devices, Identification and
Security Solutions.
Table 7.10: Value and Growth Rate of selected Engineering Goods (Value in million dollars and Growth Rate in per cent)
Commodity / Year
1995
-96
1996
-97
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
2010
-11
C. Engineering Goods 4391.0 4962.7 5336.2 4463.9 5152.1 6818.6 6957.8 9033.012405.417348.321718.829567.237365.247285.638271.368784.1
Growth Rate 25.17 13.0 7.52 -16.3 15.41 32.34 2.04 29.82 37.3 39.84 25.19 36.13 26.37 26.54 -19.6 79.42
lron & Steel 696.7 769.8 874.7 579.1 833.0 1028.3 898.1 1856.0 2477.8 3921.0 3548.3 5238.6 5446.5 5822.7 3622.2 6579.8
Growth Rate - 10.49 13.62 -33.7 43.84 23.44 -12.6 106.6 33.50 58.2 -9.5 47.63 3.97 6.90 -37.8 81.65
Manufacture of Metals 826.4 913.5 1023.2 1040.0 1225.6 1577.7 1604.0 1847.6 2426.5 3401.5 4233.2 5081.2 7051.3 7548.2 5523.0 9470.4
Growth Rate - 10.53 12.0 5.7 17.8 31.3 -0.3 16.6 29.8 40.2 24.6 20.0 38.8 7.1 -26.8 70.3
Machinery and Instruments 829.8 1057.1 1195.7 1154.8 1183.2 1580.1 1734.1 2008.4 2776.3 3719.4 5077.5 6722.8 9128.1 10945.5 9539.0 11851.7
Growth Rate - 27.39 13.1 -4.3 2.4 37.7 6.5 16.1 37.9 34 30.6 32.4 35.8 19.9 -12.9 25.1
Transport Equipment 924.9 968.7 929.1 761.8 810.2 991.9 1020.9 1333.9 1956.0 2829.7 4323.0 4949.9 7024.7 11153.3 9824.3 18447.6
Growth Rate - 4.73 -4.1 -21.8 6.3 30.5 -3.4 31.0 46.2 44.7 52.8 14.5 41.9 58.8 -11.9 86.1
Electronic Goods 670.1 783.7 759.6 502.8 681.0 1051.5 1171.3 1252.7 1728.3 1831.8 2173.1 2854.0 3361.1 6805.6 5458.2 8903.7
Growth Rate - 16.95 -3.1 -34.2 35.4 57.5 11.2 7.2 37.6 6.0 18.5 31.3 19.1 104.2 -23.6 62.7
Other Engineering Goods 443.1 469.9 554.0 425.5 419.1 589.1 529.4 734.3 1040.5 1644.9 2363.7 4720.6 5353.4 5010.2 4304.5 13530.9
Growth Rate - 6.04 17.89 -23.2 -1.5 40.56 -10.1 38.70 41.70 58.08 43.69 99.71 13.40 -6.41 -14.08
Source: Calculation is based on data taken from Government of India, Economic Survey and RBI Bulletin (various issues)
The Table 7.11 depicts that the share of engineering goods in total
manufactured export has increased by significant margin in post-WTO period from
18.49 per cent in 1995-96 to 22.45 per cent in 2002-03 and 35.92 per cent in 2011-
12. This massive share illustrates the growing importance of engineering goods in
country’s export. Among the engineering goods, the share of transport equipment
and machinery and instrument was highest with 3.89 per cent and 3.49 per cent in
1995-96 and 11.19 per cent and 7.69 per cent in 2011-12. The share of iron & steel
in total manufactured exports has fluctuated and registered 2.93 per cent in 1995-96,
5.10 per cent in 2003-04 and then fall to 3.45 per cent in 2011-12. The share of
manufactured of metals has continuously rise in the post-WTO period from 3.48 per
cent in 1995-96 to 5.14 per cent in 2011-12, except during the period of global
recession. The same trend was observed in case of electronic goods and its share
was 1.36 per cent in 1995-96 and 3.67 per cent in 2011-12.
Table 7.11: Share of Selected Engineering Goods in India’s Total Manufactured Exports
(In per cent)
COMMODITIES
1995
-96
1996
-97
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
2010
-11
2011
-12
II.MANUFACTURED GOODSC.ENGINEERING
GOODS18.4920.1620.1017.3117.3419.8620.8522.4535.5828.5729.9334.8236.2838.39 33.22 36.79 35.92
1.Iron & steel 2.93 1.90 3.29 2.24 2.80 2.99 2.69 4.61 5.10 6.45 4.89 6.16 5.29 4.73 3.14 3.23 3.45
2.Manufacture of metals 3.48 3.71 3.85 4.03 4.12 4.59 4.80 4.59 5.00 5.60 5.83 5.98 6.84 6.13 4.79 5.35 5.14
3.Machinery &instrument 3.49 4.29 4.40 4.47 2.29 4.60 5.19 4.99 5.72 6.12 6.99 7.91 8.86 8.88 8.28 7.49 7.69
4.Transport equipment 3.89 3.66 3.50 2.95 3.98 2.88 3.05 3.31 4.03 4.65 5.95 5,82 6.82 9.05 8.52 10.15 11.19
5.Electronic goods 2.82 3.18 2.86 1.95 2.22 3.06 3.51 3.11 3.56 3.01 2.99 3.36 3.26 5.52 4.73 5.19 4.76
6.other Engineering goods 1.36 1.90 2.08 1.64 1.41 1.71 1.58 1.82 2.14 2.70 3.36 5.56 5.19 4.06 3.73 5.36 3.67
Source: Calculated from data taken from Government of India, Economic Survey and RBI Bulletin (various issues).
Indian Engineering Exports: Key Markets
In post-WTO period, USA, UAE, Singapore, UK, Germany, Saudi Arabia and Italy
continue to be the major markets for Indian engineering products, accounting for 43% of
Indian engineering exports (see table 7.12). The U.S.A. is the top most destinations for
Indian engineering goods with share of 13.73 per cent in 1995-96, 16.89 per cent in 2002-03
and 12.17 per cent in 2011-12. U.A.E. is another most important destination after
Singapore with share of 6.21 per cent in 1995-96 and 7.25 per cent in 2011-12. The
developed countries are the major market for export of Indian engineering goods. While in
2004, the country‘s engineering exports constituted 0.33% of total imports from the G-7
countries, the corresponding figure for 2008 was 0.47%. G-7 countries provide a market for
30% of India‘s total engineering exports. India’s major exports to developed countries
remain products of low technology (LT).
On the other hand, there has been continuous decline in share of developing
countries in country’s export destinations of engineering goods. The share of Bangladesh,
Hong Kong and Malaysia has declined from 4.66, 3.20 and 3.03 per cent in 1995-96 to 1.17,
0.81 and 1.66 per cent in 2011-12. The government must take initiative to capture the
market share of developing countries for export of Indian engineering goods.
Table 7.12: India’s Major Export Markets for Engineering Products in Post-WTO Period(Value in Million Dollars and share in %)
1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12
Bangladesh204.7(4.66)
207.2(4.17)
159.6(2.99)
125.7(2.81)
134.3(2.60)
202.4(2.97)
268.2(3.85)
232(2.57)
443.5(3.57)
326.8(1.88)
358.7(1.65)
328.2(1.11)
411(1.09)
546.7(1.15)
577.7(1.50)
595.3(1.02)
786.6(1.17)
Germany206.8(4.71)
175.5(3.53)
211.7(3.97)
224.8(5.03)
209.6(4.06)
283(4.15)
292.6(4.20)
382.9(4.24)
527(4.24)
725.9(4.18)
841.4(3.87)
1101.2(3.72)
1568.44.19)
2299.9(4.86)
1762.4(4.60)
2320.3(3.99)
2615.3(3.89)
Hong Kong140.5(3.20)
126.8(2.55)
133.5(2.50)
119.5(2.67)
175.5(3.40)
222.8(3.27)
118.8(1.70)
158.7(1.75)
176.3(1.42)
221.6(1.28)
318.7(1.47)
475.7(1.60)
431.5(1.15)
592.4(1.25)
482(1.26)
535.3(0.92)
545.9(0.81)
Italy75.3
(1.71)87.6
(1.76)164.8(3.08)
119.2(2.67)
149.4(2.90)
197.5(2.89)
172.8(2.48)
224.1(2.48)
365.1(2.94)
639.5(3.68)
653.7(3.00)
1280.5(4.33)
1341.2(3.59)
1353.1(2.86)
1242.8(3.24)
1646.7(2.83)
1707.1(2.54)
Malaysia133.2(3.03)
205.9(4.15)
193.2(3.62)
73.5(1.64)
155.8(3.02)
242.1(3.55)
275.7(3.96)
140.8(1.55)
234.3(1.88)
293.8(1.69)
371.4(1.71)
396(1.34)
799.2(2.13)
1826.6(3.86)
1068.5(2.79)
1730.8(2.97)
1114.3(1.66)
Singapore280.2(6.38)
261.9(5.28)
270.9(5.07)
168.7(3.78)
223.5(4.33)
313.8(4.60)
354.9(5.10)
374.2(4.14)
431.2(3.47)
771.5(4.45)
1173.4(5.40)
1414.7(4.78)
1839.9(4.92)
3122(6.60)
2529.1(6.60)
2323.3(3.99)
5089.2(7.58)
Sri Lanka147.3(3.35)
154.5(3.11)
167.2(3.13)
163.6(3.66)
166.7(3.23)
217.6(3.19)
160.2(2.30)
258.9(2.86)
379.6(3.06)
457.4(2.63)
663.1(3.05)
700.6(2.37)
732.9(1.96)
587.6(1.24)
597.1(1.56)
1389(2.39)
1940.8(2.89)
U.A.E.272.7(6.21)
329.4(6.63)
276.3(5.18)
313.2(7.01)
366(7.10)
444.7(6.52)
462.4(6.64)
600.2(6.64)
957.5(7.72)
1137(6.55)
1835.4(8.45)
2098.7(7.09)
2845.4(7.61)
3488.7(7.37)
2459.1(6.42)
3637.5(6.25)
4863.7(7.25)
U.K.321.1(7.31)
361.2(7.28)
341.6(6.40)
291.2(6.52)
336(6.52)
430.3(6.30)
363.9(5.23)
443(4.90)
725.9(5.85)
902.2(5.20)
1077.1(4.96)
1276.8(4.32)
1543.5(4.13)
2028(4.29)
1729.3(4.52)
1991.4(3.42)
2451(3.65)
U.S.A603
(13.73)919.7
(18.53)894.9
(16.77)771
(17.27)932
(18.08)1221.8(17.92)
1132(16.27)
1526.3(16.89)
1719(13.85)
2786.4(16.06)
3395.1(15.63)
4576.9(15.48)
5120.4(13.70)
6178.6(13.06)
4221.1(11.03)
6262(10.77)
8164.8(12.17)
Others2006.1(45.68)
2133(42.98)
2522.6(47.27)
2093.7(46.90)
2303.3(44.70)
3042.5(44.62)
3356.2(48.23)
4691.9(51.94)
6446(51.96)
9086.1(52.37)
11030.8(50.79)
15918(53.83)
20731.8(55.48)
25261.9(53.42)
21602.2(56.44)
35705.8(61.41)
37814.4(56.36)
Total 4391 4962.7 5336.2 4463.9 5152.1 6818.6 6957.8 9033 12405.4 17348.3 21718.8 29567.2 37365.2 47285.6 38271.3 58137.4 67093.1Note: Figure in bracket represents the share
Source: Calculation is based on data collected from RBI, Handbook of Statistics on Indian Economy.262
Competitiveness in Engineering Products
From the table 7.13 given below, we can highlight that among the selected
engineering goods except for iron & steel and manufacturers of metals, the other item
shares comparative disadvantage. The manufacturers of metals showed RCA only in past
decade. One does not see much increase in the RCA index of selected engineering goods.
Prior to post-WTO period, iron & steel item exhibited a comparative disadvantage but since
1995, it has revealed comparative advantage. Prior to 1991-92, the iron and steel industry in
India was under the shackles of government control. It is during the policy reforms of 1991-
92, that the industry was allowed to break away from the list of those reserved for the public
sector. It was also freed from the obligation of compulsory licensing under the Industries
Act 1951. In fact, in 1992, the industry was accorded the status of a ‘high priority industry’
for automatic approval for foreign equity investment up to 51%. Deregulation of price and
distribution of steel was also granted by the government of India. In addition to these
benefits, the import duty on imports of raw material for steel production was also reduced
leading to lower cost of production. The Export-Import (EXIM) Policy of 1997-2002, also
permitted free exports of all items of iron and steel. This change in policy stance enabled
the sector to gain advantage. Thus deregulation accompanied by India’s endowments of iron
ore and non-coking coal have assisted in the sector attaining comparative advantage. The
other transport equipment showed RCA in 2010 (1.27) which is a good signal for coming
years.
Thus it could be seen that India does not enjoys RCA in export of high technology
products which calls for greater attention on the part of government to make country
technically advance in production methods and strategy.
Table 7.13: Revealed Comparative Advantage of Selected Engineering Goods in Post-WTO Period
1995 1997 1999 2001 2003 2005 2007 2009 2010
ENGINEERING GOODS
Iron and steel 1.05 1.37 1.00 1.4 2.06 1.63 1.79 1.50 1.85
Manufactures of metals n.e.s. 0.90 0.99 0.87 1.4 1.28 1.32 1.19 0.94 1.00
Power-generating machinery & equipment 0.23 0.28 0.04 0.16 0.30 0.38 0.56 0.60 0.51
Machinery specialized for particular industries 0.25 0.31 0.19 0.34 0.43 0.44 0.44 0.49 0.44
Metal-working machinery 0.25 0.35 0.13 0.47 0.63 0.41 0.42 0.41 0.34
General industrial machinery & equipment & machine parts thereof
0.12 0.18 0.08 0.06 0.38 0.50 0.67 0.50 0.53
Table 7.13 (contd)
Office machinery and ADP equipment 0.15 0.15 0.70 0 0.13 0.10 - - -
Telecommunication and sound recording and reproducing apparatus and equipment
0.12 0.08 - 0 - - - - 0.28
Electrical machinery, apparatus and appliances 0.31 0.15 0.06 0 0.25 0.26 0.31 0.59 0.32
Road vehicles (including air cushion vehicles) 0.31 0.25 0.78 0.0 0.28 0.35 0.33 0.31 0.60
Other transport equipment 0.01 0.08 - 0.0 - 0.49 0.56 0.48 1.27
Source: Computed on the basis of data collected from Government of India, Economic Survey (various issues)
Global Scenario of Indian Engineering Exports in Post-WTO
The world export of engineering goods has increased significantly in the post-WTO
period owing to greater developments in the manufactured sector of many Asian developing
countries. Though the Developed countries are the major players in the export of
engineering goods and the share of EU is highest among which, Germany is still the top
engineering exporter with a share of 15% and is faced with strong competition from China,
which has become the second largest exporter in the world. India being the low-cost
manufacturing hub has aided the strong growth of engineering exports from the country.
From the table 7.14 given below global export performance of selected Indian engineering
goods in world exports in terms of share and value of exports could be analysed.
Table 7.14: Value and Share of Selected Indian Engineering Products in World market in Post-WTO Period
(Value in US$ Billion and share in %)2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Iron & SteelValue 1.2 - - 2.15 2.8 5.3 5.9 8.22 11.2 10.7 11 13Share 0.9 - - 1.5 1.6 1.7 1.6(12) 1.7(11) 1.9(11) 1.3(14) 2.5(9) 2.5(8)Office and Telecom EquipmentValue 0.4 0.6 0.5 0.8 0.8 0.9 1.3 1.3 3.9 3.7 3.7 6.3Share 0.04 0.07 0.06 0.08 0.07 0.07 0.09 0.09 0.2 0.2 0.2 0.4EDP and Office EquipmentValue 02. - 0.2 0.4 0.3 0.4 0.6 0.4 0.6 0.6 0.6 0.7Share 0.07 0.08 0.11 0.09 0.10 0.1 0.08 0.1 0.1 0.1 0.1Telecommunications Equipment Value 0.1 - 0.1 0.2 0.2 0.3 0.5 1.3 3.9 4 2.4 5Share 0.03 0.05 0.07 0.06 0.06 0.08 0.1 0.6 0.7(15) 0.4 0.8(14)Integrated CircuitsValue 0.08 - 0.1 0.1 0.2 0.1 0.2 0.3 0.6 0.5 0.6 0.4Share 0.02 - 0.06 0.07 0.06 0.05 0.5 0.07 0.16 0.14 0.1 0.09Automotive Products Value 0.6 0.5 0.7 1.3 1.8 2.7 3.2 3.5 4.9 5 8 9Share 0.1 0.10 0.11 0.18 0.2 0.3 0.3 0.3 0.4 0.6(14) 0.7(12) 0.7(12)Note: Figure in Bracket shows the Rank in World ExportSource: WTO, International Trade Statistics.
In the past few years, Indian engineering exports has performed better than
Australia, South Africa, Ukraine and Malaysia etc. and has become top 30th largest exporter
of engineering goods in the world. Among the developing countries, China is the top
engineering exporters and India too has the potential to be among the leading exporters of
engineering goods among developing countries and among top 20 in global market.
However, the share of Indian engineering exports in global market is not significant and
much lower compared to developed countries.
A key determinant of every country’s export performance is its export product
portfolio in terms of the technology used in its products, e.g., High Technology (HT),
Medium Technology (MT), Low Technology (LT) and Resource based (RB). India is
ranked below most India-like countries on the technology intensity of its engineering
exports, which indicates their low level of value addition as compared to such exports from
other India-like countries. However, the share of technology-intensive products1 (HT and
MT) in India’s engineering exports has increased from 50% in 2004 to more than 68% in
2012, indicating upward movement along the value chain.
Inference from the trend
1. Engineering goods have emerged as the most important export item among the other
manufactured goods in the past decade.
2. Transport equipment, machinery & instrument, electronic goods registered highest
CAGR in the post- WTO period.
3. The value of exports, year of year growth rate and share in the total manufactured
goods was registered highest for transport equipment, machinery & instrument and
manufacture of metals.
4. Top three destinations for the export of engineering goods were U.S.A., Singapore
and U.A.E. However, in recent years U.S.A. has registered a declining share in
India’s export destination. The share of U.K., Bangladesh and Hong Kong and
Malaysia has continuously declined in India’s export market.
5. The share of engineering products in world exports is less and does not fall among
the top 15 leading exporters due to low export-to-GDP ratio, low engineering-to-
export ratio and low technology intensity of engineering export.
6. It was only iron &steel that revealed comparative advantage throughout the post
WTO period. In past decade, manufacturers of metals have shown RCA and other
transport equipment registered RCA in 2010.
7. In recent years, India’s few engineering products like iron &steel,
telecommunication products and automotive products has shown better global
export performance and making country to become the leading exporter of these
products in world market.
Following factors have attributed to growth in engineering goods in the post-WTO period:
i) The high technological and industrial development has taken place in the country
in past decade.
ii) Development of infrastructure has provided significant support to engineering
sector.
iii) Most of the raw materials and other components required by engineering
industry are readily available within the country that provides cost advantage and
also timely and ensure supply of the products.
iv) India is being preferred by global manufacturing companies as an outsourcing
destination due to its lower labour cost and better designing capabilities.
v) The government had directed around 36 per cent of the total FDI towards
engineering industry through an automatic route, but subject to a limit of US$ 2
million of lump sum payments, which has further played catalyst role.
vi) The removal of tariff protection on capital goods and the reduction of custom
duties on various equipment’s have positively affected the engineering sector.
vii) Beside above, various export promotion policies has also expedited the export
growth of engineering goods, which are as follow:
• Providing Duty Neutralization to ensure India’s exports is zero-rated. Thus,
schemes like the DEPB Scheme, the Drawback Scheme have helped Indian
exporters to become price competitive vis-à-vis their competitors like the Chinese
manufacturers;
• Incentivizing Exports volume growth through schemes like Advance
Authorization, DFIA, etc.
• Promotion of technology up gradation and linking these to exports through
schemes like EPCG Scheme, SHIS, etc.
• Diversifying Indian goods into hitherto low or untapped foreign markets or
products through schemes like FMS, FPS and MLFPS.
• Lowering Cost of Credit through the system of both general and special interest
subvention.
• Promotion of exports through SEZs: the Special Economic Zones has contributed
immensely in giving a considerable push to not only engineering exports but of
Indian exports in general.
• Promotion of Indian Goods abroad through specific export promotion schemes like
MDA and the MAI Schemes.
Though the engineering goods have shown a tremendous rise in our export and has
emerged as an important item of country’s export, the world market in this item is
dominated by the developed countries of the world, which is due to low industrial base in
relation to advanced countries resulting into low technology intensity of engineering
exports. India accounts for a mere 0.8% share of world engineering exports (in 2008) and
ranks 30th below countries like China, Brazil, South Africa, Mexico, Poland, Czech
Republic, Hungary, Slovakia, South Korea.
The Reason for the low comparative performance is as follow:
Most of the Indian firms are unable to provide quality product due to technology
related problems.
Indian Engineering Exports have been facing stiff competition from other
countries. China, Mexico, Hungary, Czechoslovakia, Brazil and Korea have
emerged as the fastest growing Engineering export countries.
Infrastructural bottlenecks are the major problem hindering both domestic and
export production. The scarcity and quality of infrastructure (land, transport,
power, ports and roads) is poor, thus affecting competitive delivery schedule and
increasing operating costs. The delivery time of locally made Engineering goods
in many cases is 1.5 to 2 times longer than in industrialized countries.
Companies tend to lose orders on delivery schedule.
There is lack of skilled and trained personnel.
Due to dearth of required specialised industrial banks engineering industry face
shortage of credit and available credit cost is rather high which tends to add up
to the cost of the product.
The export transaction cost for Indian Engineering goods industry are among the
highest in the world. Heavy transaction costs not only increase the prices of the
final export products, but also result in inordinate delay in export fulfilments,
thus affecting export competitiveness. According to estimates by export
promotion bodies, total cost of transaction of engineering goods in India works
out to be around 10% of total export earnings.
Most of the raw material is not of international standards, which affect the
quality of final products. Besides, high cost of input adversely affects
competitiveness of the product thereby reducing it international demand.
A large number of trade barriers are being imposed on Indian engineering
products e.g. Anti-Dumping and Anti Subsidy measures, problems with regard
to technical certification in various countries, particularly, the Latin American
countries, certain policies by the countries like the USA, which has withheld the
extension of GSP for the current year so far and has also put sanctions on banks
and financial institutions for doing trade with Iran, which is a growing market
for Indian engineering goods, among others. India’s competitors like China have
FTAs with a number of emerging countries while India either does not have or at
best has a Preferential Trading Arrangement, which is insufficient for Indian
engineering goods to be competitive vis-à-vis say Chinese engineering good.
Major engineering sectors such as the Auto sector has also reported the problem
of Non-Tariff Barriers faced by them.
As per the zero rated export, Indirect taxes that are imposed on exports are
generally refunded back to exporters. The refund system very often does not
refund the full element of the taxation on the goods produced, the procedures are
complicated and in certain cases like the VAT refund system, either not refunded
back or are delayed to such an extent that it negates the very principle of such
refunds. Thus, the cascading impact of the indirect taxation at both the State and
Centre levels still continues to affect exports.
Though it is difficult for India to compete with well-established producers in the
international market but with better marketing strategy and better policy initiative by the
Government of India it can raise its share in world exports of engineering goods.
Strategy for Accelerating Exports of Engineering Goods.
Need to concentrate on developing products with greater export potential.
All the infrastructure bottlenecks in the way of engineering sector should be
removed speedily to ensure timely production and supply of product. For this
huge investment required and greater public-private partnership in future and
existing projects.
Basic metals, machinery and equipment are the important item of export for
India so need to strengthen this base of general engineering segment of
Indian engineering industry.
Focus on research and development activities is imperative for engineering
sector; it has been undertaken to but still is inadequate due to lack of huge
funds required for the purpose. In order to meet the international standards in
product characteristic R & D activity needs government initiative and role of
private producers to channelize fund, which can initiate the ‘discovery’
process to encourage and facilitate effective creation, development and
marketing of intellectual property/innovative technology in the engineering
sector.
Increased flow of FDI in high potential sector will promote the export
growth through greater managerial and technological support.
The engineering industry should try to acquire domain knowledge and also
try to move in vertical segments to take advantage of the expertise they have
already acquired.
To ensure readily and low cost availability of credit to the engineering sector
especially in MSME sector. Need to reduce the rate of interest on term loans
and also increase the repayment period to 12 or 14 years.
Government support through formation of suitable policies is also needed to
provide engineering raw materials like steel, pig iron and other non-ferrous
metals at international prices, so as to increase competitiveness of Indian
engineering goods.
Revision in existing quality policy from time to time is essential to fulfil
international market commitments.
With frequent modification in technology as per the needs of international
market, it becomes imperative to have skill up gradation. This requires
increased role of existing institutions to provide proper training to those
engaged in engineering industry. If required help of the expert from
advanced countries should be taken.
To create permanent demand in international market, there is need to
promote and strengthen brand image of Indian Engineering Goods.
To identify the trust product and trust market and the schemes like Focus
Market Scheme (FMS), Focus Product Scheme (FPS) and the Market Linked
Focus Product Scheme (MLFPS) will play important role in promoting
engineering exports from the country.
Tariff and non-tariff barriers faced by Indian engineering export can better
be handled by having a healthier negotiating with trading partners in WTO
forum or through other regional trade arrangements.
Further India’s foreign trade policies
CHEMICAL AND ALLIED PRODUCTS
The chemical and related products is an important export item with a share of
around 11 per cent in India’s total exports and among its various components, basic
chemicals (Drug, Pharmaceuticals & Fine Chemicals and other basic chemicals combined)
is an area in which India is consistently doing well as far as exports are concerned.
Indian Chemical sector including petrochemicals ranks 6th by volume in the world
production of chemicals and 3rd largest in Asia and accounts for good share in total
manufactured export. The Indian pharmaceutical industry has undergone radical change in
respond to the rules of World Trade Organisation and has gained importance in
international market. It is estimated that 70% of the patients belonging to 87 developing
countries received medicine procured from India by the United Nations Children’s Fund
(UNICEF), International Dispensary Association (IDA), the Global Fund and the Clinton
Foundation. The country has approx. 1,000 WHO Current Good Manufacturing Practices
(WHO CGMP) approved pharmaceutical plants. It has 153 European Directorate of Quality
Medicine (EDQM) approved manufacturing facilities among which 32 sites have Certificate
of suitability of Monographs of the European Pharmacopoeia (CEP) approvals (Sep. 2008).
The Indian plastic industry is engaged in the production and export of Polystyrene
PS), Polypropylene (PP); Polyethylene (PE); Polyvinyl Chloride (PVC) and Polyethylene
Terephthalate (PET). At the time of independence, the export turnover from Indian plastic
industry was of 16.5 million US Dollars in 1955-56, which has crossed the 4 billion US
Dollars in 2010-2011. There are about 15 polymer manufacturers in India meeting domestic
and external market demand and raw material requirement is either met out locally or
imported.
In the post WTO period, chemical and related products have registered CAGR of
15.71 per cent (1995-96 to 2011-12) and in past decade CAGR of 18.24 per cent (2000-01
to 2011-12). Among the components of chemical and related products, plastic and linoleum
products registered highest CAGR of 16.07 per cent in post WTO period and in the past
decade, basic chemicals, pharmaceuticals & cosmetics recorded second highest CAGR of
19.26 per cent. The CAGR for rubber, glass, paints, enamels and products and residual
chemicals and allied products was 13.23 and 14.35 per cent as given in the table 7.15.
Table 7.15: Compound Annual Growth Rate of selected Chemical and Related Products in Pre and Post-WTO Period
(In per cent)
Commodity / Year
Pre-WTO Period
1990-91 to 1994-95
Post-WTO Period
1995-96 to 2011-12 2000-01 to 2011-12B. Chemicals and Related Products
10.6 15.71 18.24
1. Basic Chemicals, Pharmaceuticals & Cosmetics
9.07 13.6 18.82
2. Plastic and Linoleum Products
44.0 16.07 19.26
3. Rubber, Glass, Paints, Enamels and Products
20.1 13.23 15.95
4. Residual Chemicals and Allied Products
- 14.35 14.38
Source: Calculation is based on data collected from RBI, Handbook of Statistics on Indian Economy.
In the post-WTO period, the value of exports of chemical and allied products has
shown significant increase from US$ 3597 million in 1995-96 to US$ 12443.7 million and
ultimately to US$ 37190.5 million in 2011-12 (table 7.16). The annual growth rate
registered was highest in year 2004-05(31.73 %), in most of the years this sector registered
high positive growth rate like in 2000-01 (25.05%), 2003-04 (26.7%) and 2011-12
(28.33%). However in few years, it registered negative and marginal growth rate like in
1998-99 (-8.80%), 2001-02 (2.81 per cent), 2008-09 (7.14%) and 2009-10 (0.88%).
Throughout the post WTO period, the value of exports was registered highest for basic
chemicals, pharmaceuticals & cosmetics, followed by plastic linoleum products. The annual
growth rate remained positive for Basic Chemicals, Pharmaceuticals & Cosmetics and
Rubber, Glass, Paints, Enamels and Products except in 1998-99 and 2009-10 in case of
later. Plastic and Linoleum Products and Residual Chemicals and Allied Products have
registered negative growth rate in few years
India’s Chemical and Related products: Key Markets
The major markets for India’s chemical and allied exports are U.S.A, EU, China,
Brazil, U.A.E., Hong Kong and Russia. The top three destinations are U.S.A., China
People’s Republic of and Germany with share of 18.18%, 3.98% and 3.56% in 2011-12, see
table 7.17. Throughout the post-WTO period, the share of U.S.A. and China People’s
Republic of has increased from 11.7 and 1.47 per cent in 1995-96, 13.80 and 3.88 per cent
in 2001-02 and 18.18 and 3.98 per cent in 2011-12. Brazil too registered increasing trend
from share of 1.03 per cent in 1995-96 to 2.58 per cent in 2011-12. However, the other
countries have recorded constant decline in the share of India’s chemical and related export.
The Share of Germany in 1995-96 was 7.99 per cent, which fall to 3.56 per cent in 2011-12,
Hong Kong, shared 4.01 per cent in 1995-96 but only marginal share of 0.23 per cent in
2011-12. Similarly, share of Russia and UK declined from 6.18 and 5.39 per cent in 1995-
96 to 1.81 and 3.09 per cent in 2011-12. The share of Italy, Netherlands and U.A.E. kept on
fluctuating.
Table 7.16: Value and Growth Rate of selected Chemical and Allied Products (Value in million dollars and growth in per cent)
Commodity / Year
1995
-96
1996
-97
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
2010
-11
2011
-12
B. Chemicals and Related Products 3597.0 3912.8 4396.3 4009.2 4706.5 5885.9 6051.8 7455.3 9445.9 12443.7 14769.5 17335.4 21193.8 22708.1 22908.8 28979.6 37190.5
20.63 8.78 12.35 -8.80 17.39 25.05 2.81 23.19 26.7 31.73 18.69 17.37 22.25 7.14 0.88 26.49 28.33
1. Basic Chemicals, Pharmaceuticals & Cosmetics 2169.2 2497.4 2821.8 2654.6 3088.2 3664.0 3697.0 4658.4 5845.6 7139.1 9127.1 10958.8 13952.4 15628.4 15767.5 19241.1 24439.9
15.13 12.99 -5.92 16.33 18.64 0.90 26.0 25.48 22.13 27.84 20.06 27.31 12.01 0.89 22.03 27.01
2. Plastic and Linoleum Products 585.4 539.4 514.3 471.7 603.8 915.2 987.4 1221.7 1752.7 3032.8 2819.3 3252.6 3418.6 3004.2 3354.1 4608.7 6356.2
-7.85 -4.65 -8.28 28.0 51.57 7.89 23.73 43.46 73.03 -7.04 15.37 51.03 -12.12 11.64 37.40 37.92
3. Rubber, Glass, Paints, Enamels and Products 652.6 683.1 712.0 631.3 693.7 936.5 984.5 1198.3 1488.0 1759.5 2105.2 2372.8 2886.3 2992.2 2752.5 3622.3 4771.0
4.67 4.23 -11.33 9.88 35.0 5.12 21.71 24.17 18.24 19.64 12.71 21.64 3.67 -8.01 31.60 31.71
4. Residual Chemicals and Allied Products 189.8 192.9 348.1 251.6 320.9 370.1 382.9 377.0 359.6 512.3 717.9 751.2 936.5 1083.4 1034.7 1507.6 1623.4
1.63 80.45 -27.72 27.54 15.33 3.46 -1.5 -4.61 42.46 40.13 4.64 24.67 15.68 -4.49 45.70 7.68
Source: Calculated from data taken from Government of India, Economic Survey and RBI Bulletin (various issues).273
Table 7.17: India’s major Export Markets for Chemical and Allied Products in Post-WTO Period (value in Million Dollars and share in %)
Country/Year
1995
-96
1996
-97
1997
-98
1998
-99
1999
-00
2000
-01
2001
-02
2002
-03
2003
-04
2004
-05
2005
-06
2006
-07
2007
-08
2008
-09
2009
-10
2010
-11
2011
-12
Brazil 24.4(1.03)
30.8(1.49)
44.8(1.41)
49.1(1.69)
70.7(2.07)
118.2(2.93)
112.7(2.76)
123.5(2.45)
147.6(2.37)
182.9(2.39)
236.1(1.59)
274.3(1.58)
389.8(2.41)
486.7(2.91)
461.1(2.74)
533.3(2.58)
672.5(2.58)
China people’s Republic of
34.8(1.47)
47.2(1.75)
68.2(2.15)
76.2(2.62)
99.3(2.91)
140.2(3.47)
158.3(3.88)
224.9(4.46)
291.1(4.69)
452.5(5.91)
567(3.83)
636.4(3.67)
790.4(5.30)
513.6(3.07)
655.1(3.89)
828.5(4.02)
1038.9(3.98)
Germany 188.6(7.99)
192.1(7.14)
233.1(7.35)
189.5(6.52)
184.1(5.40)
215.6(5.34)
209.7(5.14)
290.9(5.57)
374.1(6.02)
381.3(4.98)
456.5(3.09)
551.2(3.18)
697.1(4.68)
706.3(4.22)
608.4(3.62)
743.8(3.61)
928.9(3.56)
Hong Kong 94.6(4.01)
103.9(3.86)
119.2(3.76)
130.2(4.48)
128.1(3.75)
156.3(3.87)
100.5(2.46)
99.2(1.97)
107.3(1.73)
77.7(1.01)
80(0.54)
74.1(0.42)
69.4(0.46)
51.4(0.30)
56.7(0.33)
85.5(0.41)
60(0.23)
Italy 66.1(2.80)
73.1(2.71)
94.1(2.97)
88.5(3.04)
105.4(3.09)
119.4(2.96)
94.2(2.30)
123.1(2.44)
131(2.11)
143.3(1.87)
198.2(1.34)
254.9(1.47)
328.5(2.20)
355.9(2.12)
342.9(2.04)
368.7(1.79)
443.3(1.70)
Netherlands 100.5(4.26)
120.1(4.46)
142.6(4.49)
118.1(4.06)
155.1(4.55)
144.8(3.59)
117.2(2.87)
133.7(2.65)
163(2.62)
191.1(2.49)
269.1(1.82)
311.9(1.80)
406(2.72)
451.4(2.70)
444.7(2.64)
602.3(2.92)
800.1(3.06)
Russia 145.8(6.18)
137.7(5.12)
143.6(4.53)
69.6(2.39)
143.2(4.20)
124.5(3.08)
117.1(2.87)
119.3(2.37)
158(2.54)
189.3(2.47)
264.5(1.79)
318.81(1.84)
343.3(2.30)
369.8(2.21)
311.5(1.85)
500.3(2.42)
471.9(1.81)
U.A.E. 65.8(2.79)
65.2(2.42)
125.6(3.96)
114.6(3.94)
156.4(4.59)
165.8(4.11)
174.8(4.28)
153.7(3.05)
217.7(3.50)
199.9(2.61)
277.1(1.87)
328.1(1.89)
379(2.54)
446.9(2.67)
494(2.94)
567.4(2.75)
627.3(2.40)
U.K. 127.2(5.39)
141(5.24)
213.5(6.73)
118.2(4.07)
132.1(3.87)
148(3.67)
158.5(3.88)
197.9(3.93)
227.6(3.66)
269.9(3.52)
356.8(2.41)
409.8(2.36)
503(3.37)
519.3(3.10)
568.2(3.38)
663.9(3.22)
807.8(3.09)
U.S.A 276.8(11.7)
348.6(12.95)
363.9(11.48)
341(11.73)
339.9(9.97)
444.1(11.00)
563.4(13.80)
710.8(14.11)
761.3(12.26)
920.1(12.02)
1193.1(8.07)
1557.5(8.98)
2124.3(14.26)
2451.5(14.67)
2721.6(16.19)
3572.3(17.34)
4739.3(18.18)
Others 1234.4(52.33)
1430.5(53.17)
1621.1(51.14)
1611.2(55.44)
1894.8(5.56)
2257.1(55.95)
2273.4(55.72)
2858.4(56.76)
3626.5(58.44)
4643.2(60.68)
10871.(73.6)
12618(72.78)
8858.2(59.49)
10358(61.98)
10137(60.33)
12134(58.90)
15473(59.36)
Total 2359 2690.3 3169.9 2906.2 3409 4034.1 4079.9 5035.4 6205.2 7651.4 14769.5 17335.5 14888.9
16711.7
16802.1
20600.9
26063.3
Note: Figure in bracket shows the share
Source: Calculation is based on data collected from RBI, Handbook of Statistics on Indian Economy. 274
Competitiveness in Chemical and Related Products
The table 7.18 displays that in post-WTO period few chemical and related products
have revealed comparative advantage. The organic chemicals and Dyeing, tanning and
colouring materials have registered RCA greater than unity, which shows India enjoys
competitive strength in these products. Medicinal and pharmaceutical products and
explosives and polytechnic product and chemical materials and products n.e.s have shown
RCA greater than unity in few years but not in recent years which is an indication that the
government needs to pay attention towards these products so as to increase their RCA as
they have the potential as seen in the past performance. However, essential oils and perfume
materials soap cleansing etc. have not revealed comparative advantage throughout the post-
WTO period. Artificial resins, plastic materials, cellulose esters & ethers had revealed
comparative advantage only in 2010.
Table 7.18: Revealed Comparative Advantage of Selected Chemical and Related Products in Post-WTO Period
1995 1997 1999 2001 2003 2005 2007 2009 2010Organic chemicals 1.06 1.5 1.3 1.5 1.66 2.15 1.94 1.65 1.68Inorganic chemicals 0.55 5.85 - 0.5 0.41 - 0.23 0.65 0.73Dyeing, tanning and colouring materials 1.81 2.24 1.82 2.0 1.99 1.71 1.94 1.54 1.74
Medicinal and pharmaceutical products 1.61 1.80 1.43 1.55 1.22 0.86 0.98 0.78 0.68
Essential oils and perfume materials soap cleansing etc. 0.76 0.75 0.46 0.70 0.68 0.64 0.69 0.69 0.53
Explosives and Polytechnic product0. 0.53 1.15 0.77 0.93 - - - - 0.89
Artificial resins, plastic materials, cellulose esters & ethers
0.21 0.17 0.15 0.23 0.79 - - 0.45 2.36
Chemical materials and products n.e.s. 0.67 1.07 0.57 0.98 0.89 1.11 1.04 0.88 2.44
Source: Calculated from data taken from Government of India, Economic Survey (various issues).
WTO and Global Scene in Indian Chemical and Pharmaceutical Exports
With the formation of WTO, the imposition of uniform patenting practices all over
the globe is propagating a switch from process to product patent and protection of trade
related intellectual property rights (TRIPs). This throws a special challenge to the Chemical
sector where the processes were mostly adopted through reverse engineering and where
forward and backward linkages are not necessarily confined within the geographical
boundary of the nation. The post-WTO safety measures in terms of TBT (technical barriers
to trade) are also targeting this sector in terms of health and environmental safety standards
and norms of sustainability. In spite of all these barriers Indian Chemical industry is an
important player in the Indian manufacturing sector and especially in the post-WTO period
its presence in the global market has also become more visible at least in some specific
directions of commodity trade.
India being the member of WTO agreed to improve legislative protection to Trade
Related Aspects of Intellectual Properties (TRIPS) and being the developing country was
allowed a 10-year transition period to implement TRIPS by 2005. As per WTO
commitments, India amended its Patent Act, 1970 in 1999 and also through Patent
(Amendment) Act, 2002 and to introduce the product patent system the Patent
(Amendment) Bill, 2005 was passed. The third Indian Patent (Amendment) Act in March
2005 has fulfilled country’s commitment to WTO TRIPS agreement and product patent
regime introduced in chemical and pharmaceutical sector. Initially it was felt that patent
regime would shoot up drug prices as either it would be imported through the patent holder
or the R&D effort may have to be taken by pharmaceutical industry that would surge cost.
However Indian Pharmaceutical industry took it as an opportunity as they were capable to
produce cost effective and cheaper bulk drugs and formulations as compared with its
foreign counterparts. Dr. Reddy’s started initiating actions to face the challenges of product
patent regime for early 1990s by setting up a Drug Discovery Programme. Many other
companies also setup research facilities as per international standard and had exported bulk
drugs and have emerged as a major global player post WTO. The government of India
under auspices of the council of Scientific & Industrial Research (CSIR) through The
National Institute of Science Communication and Pharmaceuticals Corporations have set up
research facilities in India and have also made major mergers and acquisitions, thereby
making India the single largest pharma player in the world, post-TRIPS.
Through the table 7.19 and 7.20 given below, it could be seen that the country has
emerged as a leading manufacturer and exporter of low cost active pharmaceuticals
ingredients and generics of the world and amongst the leading exporters of chemical and
pharmaceutical products in post WTO. India owns around 2% of global chemical industry
and Indian pharmaceutical industry ranks 4th in volume and 13th in terms of value of
production and is the second largest producer of agrochemicals in Asia. The direction of
India’s Pharmaceutical exports have substantially changed course to the developed
countries such as EU and US in post-WTO era. Initially, forced by the TRIPS regime to
comply with global intellectual property practices and later finding advantages of such
practices to achieve greater success in the global markets, following voluntarily global IP
practices such as freedom to market analysis and operations, patent mapping/landscaping
and non-infringing process for filing DMF (Drug Master File) and ANDAs (Abbreviated
New Drug Applications) has been adopted that have greatly helped the Indian
Pharmaceutical industry to scale greater heights of market penetration and technological
progress.
Table 7.19: Major Exporters of Chemical Products in World (Share in per cent)
Country/group 2000 Country/group 2005 Country/group 2008 Country/group 2011European Union 54.1 European Union 55 European Union 53.4 European Union 48.7United States 14.1 United States 10.9 United States 10.5 United States 10.4Japan 6.0 Japan 4.8 China 4.7 China 5.7Switzerland 3.7 Switzerland 4 Japan 4.1 Japan 4.2Canada 2.5 China 3.2 Switzerland 4.0 Switzerland 4.2Korea, Republic of 2.4 Korea, Republic of 2.5 Korea, Republic of 2.5 Korea, Republic of 3China 2.1 Singapore 2.4 Canada 2.2 Singapore 2.6Hong Kong, China 1.8 Canada 2.4 Singapore 1.9 Taipei , Chinese 2Singapore 1.6 Taipei , Chinese 1.8 Taipei, Chinese 1.8 Saudi Arabia,
Kingdom of 2
Taipei, Chinese 1.6 Hong Kong 1.3 Russian Federation 1.6 Canada 2Russian Federation 1.2 Saudi Arabia, Kingdom
of 1.2 India 1.2 Russian Federation 1.6
India 0.7 Russian Federation 1.2 Hong Kong, China 0.1 India 1.6Saudi Arab 0.7 India 1.0 Saudi Arab 0.9 Thailand 1.1Israel 0.7 Thailand 0.8 Israel 0.9 Hong Kong, China 0.1Thailand 0.7 Mexico 0.7 Thailand 0.8 Israel 0.9
Source: WTO, International Trade Statistics.Figure: 7.6
Euro
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China
Japan
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Canada
Russia
n Fed
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India
Thai
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Hong
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hina
Isra
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10
20
30
40
50
60
48.7
10.45.7 4.2 4.2 3 2.6 2 2 2 1.6 1.6 1.1 0.1 0.9
Leading Exporters of Chemical Products in 2011
% Share
The EU, USA, China, Japan and Switzerland are shares the top five position among
the leading exporters of chemical products (see table 7.19 and fig. 7.6). In pharmaceutical
products exports, EU, USA and Switzerland shares top three ranks in world exports. India
amongst the developing countries is the leading exporter of pharmaceutical products after
China and shared 5th rank in world exports in 2011 (see fig 7.7).
Table 7.20: Major Exporters of Pharmaceuticals Products in World(Share in per cent)
Country/group
2000 Country/group
2005
Country/group
2008 Country/group
2011
European Union
65.1 European Union
70.2 European Union
68.7 European Union
65.6
United States 12.1 United States 9.5 Switzerland 10.4 Switzerland 11.6Switzerland 9.6 Switzerland 9.2 United States 9.0 United States 8.6Japan 2.5 China 1.4 China 1.9 China 2.4China 1.6 Canada 1.3 Canada 1.4 India 1.9Canada 1.1 Japan 1.2 India 1.4 Israel 1.4Australia 1.1 Singapore 1.1 Singapore 1.2 Singapore 1.4India 1.0 India 1.0 Israel 1.1 Canada 1.1Singapore 0.9 Australia 0.9 Japan 0.9 Panama 1Hong Kong, China
0.9 Israel 0.7 Australia 0.8 Japan 0.9
Mexico 0.8 Mexico 0.5 Hong Kong, China
0.3 Australia 0.7
Israel 0.4 Hong Kong, China
0.2 Mexico 0.3 Mexico 0.4
Korea, Republic of
0.3 Norway 0.2 Brazil 0.2 Hong Kong,China
0.3
Brazil 0.2 Brazil 0.2 Korea, Republic of
0.2 Brazil 0.3
Norway 0.2 Korea, Republic of
0.2 Norway Korea, Republic of
0.3
Source: WTO, International Trade Statistics.
Figure 7.7
Euro
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Swit
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and
Unit
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tate
s
China
India
Isra
el
Singap
ore
Canad
a
Panam
a
Japan
Austra
lia
Mex
ico
Hong
Kong,Chin
a
Brazi
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Korea,
Rep
ublic o
f0
10
20
30
40
50
60
70 65.6
11.68.6
2.4 1.9 1.4 1.4 1.1 1 0.90.7000000000000010.4 0.3 0.3 0.3
Leading Exporters of Pharmaceutical Products in 2011
% Share
The value and share of Indian chemical and pharmaceutical products in world
exports has shown constant increase in post-WTO period to reach US$ 31 billion (1.6 %)
and US$ 9 billion (1.9%) in 2011 (see table 7.21).
Table 7.21: Value and Share of Indian Chemical and Pharmaceutical Product Exports in World market in Post-WTO Period
(Value in US$ Billion and share in %)2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Chemical Value 4.36 4.78 5.88 7.37 11.08 14.8 16.3 20.3 18 24 31Share 0.8 0.7 0.8 0.9 0.9 1.0 1.2 1.1 1.2 1.3 1.4 1.6Pharmaceuticals Value - - - - 2.02 2.81 3.5 4.4 5.8 6 7 9Share - - - - 1.0 1.0 1.1 1.2 1.4 1.3 1.5 1.9Source: WTO, International Trade Statistics
Inference from the Trend
The chemical and related products registered compound annual growth rate of 15.71
% in post-WTO period. The basic, chemical, pharmaceuticals & cosmetic registered
highest value of exports and share in total chemical exports. The value of exports has constantly increased in post WTO period and the annual
growth rate in export remained positive throughout the period except in the year
1998-99 due to Asian crisis in 1997. It was noticed that the global recession of 2008
and 2009 had marginal impact on this sector and hence the growth rate remained
positive in 2008-09 and 2009-10 though increased only by marginal percentage of
7.14 and 0.88 per cent.
The major destinations for Indian chemical and related products were USA, China,
EU, Brazil and UAE.
India has Revealed comparative advantage in most of the selected chemical and
related products except in inorganic chemicals, essential oils and perfume materials
soap cleansing etc., in artificial resins, plastic materials, cellulose esters & ethers
RCA was registered only in 2010. However, in recent years there has been a decline
or no RCA in most of the commodities, which initially showed RCA.
India is among the leading exporters of chemical and pharmaceutical products in
world with share of 1.6 and 1.9 per cent and rank 12th and 5th in 2011.
Major Constraints faced by India’s Chemical and Related Exports
Most of the raw materials for Indian chemical industries are imported so many a
times they faces shortage of feed stocks like naphtha due to less availability in the
international market. In case of molasses, the same is being diverted to industrial
ethanol rather than chemical industry due to the better realization of value and
paucity of liquid natural gas at affordable price. Because of these factors, the
chemicals produced by Indian chemical sector are uncompetitive in international
market leading to adverse effect on demand.
There is low level of research and development activities as a result they use
traditional methods and techniques, which are below international standards. Most
of the machines and equipment are obsolete which adversely effects production and
these factors create difficulty in withstanding competition in international market.
There is also scarcity of skilled workers required in the industry and also low focus
on high value added items.
Indian Chemical Industry having majority of SME units in various parts of the
country have smaller installed capacities which not only increases cost but also
disenables them in seizing business involving high volume foreign demand.
Most of the chemical units face stringent pollution norms, which becomes difficult
to be achieved by SMEs as the resources are limited. To start new unit getting
environmental clearance is necessary and there is ban on increasing manufacturing
capacities in existing industrial areas such as Ankleshwar due to pollution issues.
Due to poor infrastructure industries faces undue disadvantage in terms of cost and
time compared to other countries. Poor transport condition, frequent power failure
and lack of adequate financial facilities leads to delay in fulfilment of business
commitments.
Exports of chemical and allied industry are increasingly being subjected to
compliance norms as per international standards such as REACH, GHS, and
SAICAM. Due to high compliance cost for discharging obligations under REACH,
the exports from SMEs are becoming uncompetitive. This needs financial
handholding. Also, India does not have her own chemical management programme
similar to international regulatory framework like REACH, GHS, and SAICAM.
Inadequate fiscal benefits to units engaged in this sector.
Most of the chemical and allied industry are mainly dominated by the SME sector
and lacks the financial strength/inclination to undertake market research/
intelligence for tapping potential export markets.
Indian plastic industry lack facilities to design and develop prototypes as per the
requirements of the OEMs at a fast pace to subsequently put them into production.
This is mainly because the huge investment is required and also there is a regular
requirement of investing in moulds and dyes that are costly for the industries.
Lack of resources for promotion of products and brands due to large number of
brands being owned by medium and small enterprises.
Most of the pharmaceutical industries face financial constraint which leads to poor
effort in undertaking innovation in production methods and product quality as a
result these industry does not enjoy a reputation of high quality output.
Heavy dependence on China for imports of bulk drugs is a major challenge, which
Indian pharmaceutical industry faces. 40% of our API requirements are imported
from China. Certain sectors like fermentation, which require cheap and abundant
power, have almost completely migrated to China.
Tariff and non-tariff barriers in major markets.
Strategies for increasing Chemical and related exports
In order to ensure sufficient availability of feed stock government should enter into
agreement with unexplored feedstock rich countries such as Middle East and
Russia. Incentives should be granted to the units undertaking initiative in increasing
domestic production of feedstock so as to reduce dependency on foreign suppliers
especially China. Indian manufacturing units should ensure no delay is done in
placing order for feedstock supply and also form cluster approach for common
purchase of feedstock
Technological advancement is essential to meet international standard in production
method and product quality and also for increasing export competitiveness. This
could be facilitated by encouraging domestic and foreign investment for
technological up gradation and technologies tie-ups with the global companies.
Removal of infrastructure bottlenecks with special focus on the region engaged in
production and export of chemical and allied products. Development of roads and
ports to have timely export consignment clearance.
The chemical plastic and pharmaceutical industry operating under SME sector faces
financial constraint in undertaking market research so the Export Promotion
Councils should conduct regular market research and also develop mechanisms to
maintain market intelligence. The government through its various agencies and
schemes should support marketing effort of these units.
More investment in research and development activities is required and also
chemical industry should get product and process patent as per the requirement of
WTO agreement.
Industries should develop skill development programme and NSDC and Export
Promotion Council should assist them. The pharmaceutical industries requires
highly skilled manpower so the excellence and capacity of existing universities,
technical and training institutes be advanced.
Manufacturing base of plastic processing industry be enlarged so as to add high
value to raw material and export them.
The government should provide financial assistance especially to SMEs for setting
up of common facility centres for design and prototyping of plastic items & mould
& dye design centres and tool rooms.
India needs to have its own inventory of chemicals to monitor production and
export of chemicals in all its totality. Need for domestic Chemical Management
Programme that will facilitate compliance of Reach/GHS/SAICAM. The burden of
Regulatory compliance will fall. GOI will be the owner of all the Chemical Safety
Data, and this will facilitate movement towards Clean Green India using
Environmental friendly chemicals. These programmes could be implemented with
financial help under MAI or any other scheme of Government of India.
To encourage setting up of plastic processing parks.
Understanding of global markets, IP issues, GMP & Compliance, legal contract
capabilities etc. that are limited to top companies. There is an urgent need for
starting training programmes in centres like NIPER with additional focus of
providing industrial support like advanced testing services, facilitating education
needs, promoting incubation centres to foster new ideas.
Product should be of international standard and quality so as to create strong brand
image that will facilitate expansion of buyers with permanent demand.
Ease of compliance with global regulatory requirements ensures quality in both
domestic markets and imports, enhances competition among domestic and foreign
generic cos. enables capturing business of regulated markets and establishes much
required confidence in Indian capabilities among foreign buyers. Strict
implementation of cGMP to include mandatory bio-equivalence tests.
TEXTILE AND TEXTILE PRODUCTS
The Indian Textiles and Clothing sector plays significant role in countries export and
thereby foreign exchange of the country. At national level, it contributes to 4% of GDP,
14% of industrial production and 20% of the workforce in the organized manufacturing
sector. Indian textile industry is mainly dominated by Labour intensive, small and medium
enterprises. The labour intensive garment sector contributes about 50% of India’s T&C
exports and needs to be the engine of growth for the entire sector. Indian textile and
clothing exports are predominantly cotton based with the fibre accounting for 57% of
exports during 2010 followed by Man-Made Fibre based textiles (14%) and other textiles
(13%), silk textiles (9%) and Wool textiles (7%)2 .
The table 7.23 shows the export value of textile and textile products has increased
from US$ 8031.6 million in 1995-96 to US$ 11617 million in 2002-03 and to US$ 27998
million in 2011-12. Among the components of Textile and textile products, the value of
export was registered highest in case of cotton yarn, fabrics, madeups, etc and readymade
garments. India is the second largest producer of cotton and the largest exporter of cotton
yarn. Readymade Garments are also the most significant item in the basket of goods
exported from the textile sector by India. Both theses commodities are the significant
contributors in India’s foreign exchange. The annual export growth rate registered for
textile and textile products remained positive throughout post WTO period except in 1998-
99 (-2.03%) and 2009-10 (-0.81 %). The CAGR registered in post-WTO was 8.11 per cent.
Among the given components of textile and textile products, manmade staple fibre and
manmade yarn, fabrics, madeups, etc. registered highest CAGR of 22.82 and 12.67 per cent
in the post-WTO period (table 7.22). Manmade yarn fabrics and made ups constitute the
12th largest commodity in India’s export basket. Indian manmade fibre textile industry has
a large production base. India offers the entire range of polyester, viscose, nylon, acrylic
and blended textile items with vertically integrated complete production chain starting with
production of raw material to exquisite fabrics and made ups. The cotton yarn, fabrics,
madeups, etc. and readymade garments and jute & jute manufactures registered CAGR of
6.25, 8.56 and 5.79 per cent.
The share of textile and textile products in total manufactured exports has registered
continuous declined in post-WTO period and has reached to 14.98 per cent in 2011-12 from
33.82 per cent in 1995-96 (table 7.23). The same trend was observed among its component
except for woollen yarn, fabrics, madeups, etc., where the share constantly increased and in
case of manmade yarn, fabrics, madeups, etc. the share fluctuated.
Table 7.22: Compound Annual Growth Rate of selected Textile and Textile Products in Pre and Post-WTO Period
(In per cent)
Commodity / Year
Pre-WTO Period
1990-91 to 1994-95
Post-WTO Period
1995-96 to 2011-12
2000-01 to 2011-12
D. Textile and Textile Products - 8.11 8.61
1. Cotton Yarn, Fabrics, Madeups, etc. 17.54 6.25 6.34
2. Natural Silk Yarn, Fabrics, Madeups, etc.incl. Silk Waste 0.97 2.83 -3.73
3. Manmade Yarn, Fabrics, Madeups, etc. - 12.67 15.29
4. Manmade Staple Fibre - 22.82 28.26
5. Woollen Yarn, Fabrics, Madeups, etc. - 5.68 8.39
6. Readymade Garments 10.06 8.56 8.51
7. Jute & Jute Manufactures -2.4 5.79 10.58
8. Coir & Coir Manufactures 19.68 7.92 14.44
9. Carpets - 2.56 3.45
(a) Carpet Handmade - 4.43 -5.92
(b) Carpet Mill made - - -
(c) Silk Carpets - -8.61 -15.12
Source: Calculation is based on data collected from RBI, Handbook of Statistics on Indian Economy.
Table 7.23: Value and Growth Rate of selected Textile and Textile Products (Value in million dollars and growth in per cent)
Commodity / Year 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12II. Manufactured Goods 23747.0 24613.4 26546.6 25791.5 29714.4 34335.2 33369.7 40244.5 48492.1 60730.7 72562.8 84920.4 102978.8 123148.9 115180.7 168098.1186784.2D. Textile and Textile Products 8031.6 8635.8 9050.4 8866.3 9822.1 11285.0 10206.5 11617.0 12791.5 13555.3 16402.1 17373.2 19425.7 20016.4 19853.0 23312.2 27998.0Growth Rate 12.8 7.52 4.80 -2.03 10.78 14.89 -9.5 13.81 10.11 5.97 21.0 5.92 11.81 3.04 -0.81 17.42 20.10% Share 33.82 35.09 34.09 34.38 33.06 32.87 30.59 28.87 26.38 22.32 22.60 20.46 18.86 16.25 17.23 13.86 14.981. Cotton Yarn, Fabrics, Madeups, etc. 2576.6 3121.7 3264.3 2771.9 3089.6 3460.7 3072.9 3351.0 3394.8 3450.1 3944.8 4218.7 4653.3 4115.7 3684.2 5431.0 6805.1Growth Rate 15.36 3.75 4.6 -15.0 11.5 13.6 -12.4 9.6 0.8 1.6 14.3 6.9 10.2 -11.5 -10.5 49.4 25.30% Share 10.85 12.68 12.29 10.74 10.39 10.07 9.20 8.32 7.00 5.68 5.43 4.96 4.51 3.34 3.19 3.23 3.642. Natural Silk Yarn, Fabrics, Madeups, etc.incl. Silk Waste 133.2 128.8 176.4 178.2 245.4 316.6 285.9 314.1 379.8 405.0 432.6 441.9 385.8 363.1 302.7 350.3 208.4
Growth Rate - -3.3 36.95 1.02 37.71 29.01 -9.61 9.86 20.91 6.63 6.81 2.14 -12.69 -5.88 -16.63 15.72 -40.51% Share 0.56 0.52 0.66 0.69 0.82 0.92 0.85 0.78 0.78 0.66 0.50 0.52 0.37 0.29 0.26 0.20 0.113. Manmade Yarn, Fabrics, Madeups, etc. 750.8 702.7 804.9 700.0 811.4 1058.5 1065.0 1371.9 1761.2 1962.7 1957.8 2204.4 2897.0 3026.3 3602.7 4196.6 5062.9
Growth Rate -6.40 14.54 -13.03 15.91 30.45 0.61 28.81 28.37 11.44 -2.49 14.43 30.93 4.46 19.04 16.48 20.64% Share 3.16 2.85 3.03 2.71 2.73 3.08 3.19 3.40 3.63 3.23 2.69 2.59 2.81 2.45 3.12 2.49 2.714. Manmade Staple Fibre 21.1 18.8 17.9 19.6 43.7 36.6 23.5 45.6 60.1 88.0 81.8 196.4 278.6 254.8 356.4 438.3 565.8Growth Rate - -10.90 -4.7 9.4 119.5 -16.2 -35.7 94.0 31.7 46.4 -7.0 121.1 41.8 -8.6 40.1 23.0 28.9% Share 0.08 0.07 0.06 0.07 0.14 0.10 0.07 0.11 0.12 0.14 0.11 0.23 0.27 0.20 0.30 0.26 0.305. Woollen Yarn, Fabrics, Madeups, etc. 62.5 103.7 109.7 74.6 50.0 62.4 52.2 50.9 58.3 69.8 85.3 85.2 92.8 99.3 89.6 104.5 151.5Growth Rate 65.9 5.7 -31.9 -32.9 24.8 -16.3 -2.4 14.5 19.7 22.2 -0.11 8.9 7.0 -0.7 16.6 44.9% Share 0.26 0.42 0.41 0.28 0.16 0.18 0.15 0.12 0.12 0.11 0.11 0.10 0.90 0.80 0.77 0.62 0.816. Readymade Garments 3675.6 3753.3 3876.2 4364.9 4765.1 5568.9 5006.6 5689.9 6231.4 6561.4 8617.7 8892.3 9687.1 10935.0 10705.6 11203.7 13688.7Growth Rate 12.0 2.1 3.3 14.4 9.2 17.0 -10.2 14.6 8.6 5.3 30.6 3.2 8.9 12.9 -2.1 4.6 22.13% Share 15.47 15.24 14.60 16.92 16.03 16.21 15.00 14.14 13.03 10.80 11.87 10.47 9.40 8.87 9.29 6.66 7.327. Jute & Jute Manufactures 185.7 155.4 186.8 138.2 125.7 151.2 128.3 187.6 242.4 276.3 296.3 260.4 327.7 299.1 217.8 453.9 457.2Growth Rate -16.3 20.2 -26.0 -9.0 20.2 -15.1 46.2 29.2 13.9 7.2 -12.1 25.8 -8.7 -27.1 108.4 0.72% Share 0.78 0.63 0.70 0.53 0.42 0.44 0.38 0.46 0.49 0.45 0.40 0.30 0.31 0.24 0.18 0.27 0.248. Coir & Coir Manufactures 62.9 61.0 68.6 75.2 46.1 48.3 61.8 73.4 77.8 105.6 133.3 145.9 160.2 148.0 160.1 151.2 213.0% Share 0.26 0.24 0.25 0.29 0.15 0.14 0.18 0.18 0.16 0.17 0.18 0.17 0.15 0.12 0.13 0.08 0.119. Carpets 563.4 590.5 545.6 543.5 645.1 581.7 510.2 532.6 585.7 636.4 852.6 928.0 943.3 775.1 734.0 982.8 845.5% Share 2.37 2.39 2.05 2.10 2.17 1.69 1.52 1.32 1.20 1.04 1.10 1.09 0.91 0.62 0.63 0.58 0.45
Source: Calculation is based on data collected from RBI, Handbook of Statistics on Indian Economy
285
Indian Textile and Textile Products: Key Markets
India is also one of the leading suppliers of garments to USA. In the EU, India is a
leading supplier after China and Turkey. However, Bangladesh has a higher level of exports
of garments than India in the EU market mainly on account of a duty free access. Apart
from US and EU other major markets are Australia, Canada, Japan, Russia Federation,
Bangladesh and Norway.
The export has also increased to non-quota countries like Bangladesh, Korea
Republic of, UAE and Hong Kong. From the table 7.24(i, ii) given below we can see the
direction of export of cotton yarn, fabrics, madeups etc. and readymade garments. In
cotton,fabrics, madeups etc. the share of US was highest in India’s export market followed
by Bangladesh. Both these market showed increasing trend in share but however with some
fluctuations. The share of Germany, Italy, Japan, Korea Republic of and UAE has also
increased with some fluctuations, however Hong Kong, UK and Mauritius has registered
declining share in recent years as compared to late 90s. For readymade garments US, UK,
UAE, Canada and France are the major markets. Throughout the post-WTO period, much of
export market diversification in this product was not observed except that UAE has
emerged as important destination for Indian export of textile products and that share of
Russia Federation, Japan and Netherlands has declined.
Table7.24 (i): India’s major Export Markets for Cotton Yarn, Fabric, Madeups etc. in Post-WTO Period
(Value in Million Dollars and share in %)Country 1995-
961996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
Bangladesh 277 336.9 273.3 123.4 157 175.7 165.8 138.3 174.5 208.2 244 226.8 373.4 323.1 281.2 653.6 687.6
Germany 162.8 170.7 158.4 136.6 128.9 142.4 117.7 136.6 144.5 144 145.9 150.3 161 173.7 131.6 213.2 255.8
Hong Kong 118.9 231.7 250.6 210.4 170 204.2 123.9 103.5 121.7 94.9 89.7 67 54.7 42.1 51.7 119.2 96
Italy 130.5 109.1 140.3 151.6 129.4 151.8 161.4 155 173.5 189.2 228.9 249.7 215.7 165.2 134 199.4 191.6
Japan 95.1 106.6 128.8 79.3 104.1 108.7 110.9 117 99.8 90.9 87.5 104.1 85.9 78.4 46.5 92.9 103.3
Korea, Republic of 93.2 115.9 119.6 84 189.8 130.9 131.7 178.9 214.6 174.6 217.1 210.8 172.9 137.9 227.2 312.9 223.1
Mauritius 79.2 87.1 100.3 86.8 91.2 99.5 76.5 67.3 78.6 64.8 49.8 59.6 54 32.8 26.1 43.4 44.3
U.A.E. 79.4 98.8 90.9 91.6 98.2 110.8 76.9 92.8 88.9 113.6 120.8 101.2 105.8 99.8 89.4 111.8 139.8
U.K. 234.9 232.3 236.9 193.2 194.2 195.6 171.2 155.6 162.1 154.9 147.3 154.1 151.9 134 84.9 140.7 172.6
U.S.A 321.9 441.8 402.6 383.9 447.8 531.7 491.1 623.7 552 608.9 833.3 864.4 904.5 866.1 630.8 1003.9 1264
Others 983.7 1190.7 1362.4 1231 1379.1 1609.5 1521.9 1582.4 1584.6 1606.2 1780.4 2030.7 2373.5 2062.6 1980.8 2894.6 3627
Total 2576.6 3121.7 3264.3 2771.9 3089.6 3460.7 3072.9 3351 3394.8 3450.1 3944.8 4218.7 4653.3 4115.7 3684.2 5785.6 6805.1
Source: Calculation is based on data collected from RBI, Handbook of Statistics on Indian Economy.
Table7.24 (ii): India’s major Export Markets for Readymade Garments in Post-WTO Period (Value in Million Dollars and share in %)
Country 1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
Canada 122.3 134.5 143.5 177.1 203.5 234.3 218.3 256.4 240.9 250.7 274.6 273 251.7 268.1 238.9 244.1 259.5
France 262.6 263.8 287 312.1 341.2 349.8 338.4 395.1 435.6 472.3 638.9 670.3 705.9 791.4 712.7 700.2 812.1
Germany 450.2 428.9 379.9 393.4 319.4 355.6 362.7 466 496.8 449.2 677.8 646.4 861 1120.8 1057.1 1080.2 1155.7
Italy 125.7 107.9 120.4 126.9 138.4 157.9 150.7 168.6 222.8 290.8 383.2 443.5 423.4 443.4 410.5 421.8 507.4
Japan 117.9 88 78.2 72.7 76.4 115.1 83.1 65.2 77 84.9 118.4 122.8 104.4 134.1 132 144.9 217.9
Netherlands 160.7 153.7 136.9 144 147.5 158.2 188.5 223.8 224.6 204.9 293.4 350 370.8 428.3 403.9 433.5 552.1Russia
Federation 95.1 83.7 101.6 139.4 245.6 310.4 332.6 264.6 202.3 104.3 21.1 70 60 32.4 24.1 17.1 45.4
U.A.E. 117.1 133.4 173.6 404.1 490.2 542.9 364.4 395.2 612.6 522.7 446.3 523.7 690.5 943 969.7 1100.7 1342.8
U.K. 362.1 357 310.7 291.8 346.9 405.2 422.3 510.6 537.1 656.9 944.2 945.5 1196.1 1290.6 1280.8 1314.8 1495.3
U.S.A 1140.1 1272.4 1296 1426.4 1478.6 1845.9 1459.6 1725.9 1617.4 1991.3 2852.5 2890.4 2832.6 2710.3 2655 2951.5 3184.5
Others 721.8 730 848.3 877 977.4 1093.5 1086 1218.5 1564.3 1533.5 1967.3 1956.7 2190.7 2772.6 2820.9 3193 4116
Total 3675.6 3753.3 3876.2 4364.9 4765.1 5568.9 5006.6 5689.9 6231.4 6561.4 8617.7 8892.3 9687.1 10935 10705.6 11601.8 13688.7
Source: calculation is based on data collected from RBI, Handbook of Statistics on Indian Economy.
WTO and Global Scenario in Textile & Clothing Export
Prior to the establishment of WTO, the Multi-Fibre Arrangement (MFA) has
administered global trade in textiles and clothing which severely restricted the growth of the
textile industry of developing countries for a period of three decades, since 1974.The MFA
facilitated developed nations, primarily the USA, European Union and Canada to contain
imports from emerging countries with the help of the system of quotas. . During the Uruguay
Round of multilateral trade negotiations (1986-93), the international community decided to
integrate the MFA into the new Agreement on Textiles and Clothing (ATC). The ATC provided
complete phasing-out the quota system within a ten-year period (starting on 1 January 1995).
The purpose of the ATC was to provide developing countries more access to markets of
developed countries. The countries like China, Korea and India (with a strong textiles
production base) remained at a disadvantage as they had the capacity to produce and export
more, but were restricted by the quotas. The phasing out of MFA on January 1, 2005, and the
gradual elimination of quantitative restrictions as per the Agreement on Textiles and
Clothing (ATC) under WTO has brought about significant change in the global textile &
clothing trade since 1994, the export of clothing has exceeded textiles exports.
It was expected that, post-MFA, the countries with better export potential will
inflate in the global trade of textile and apparel. It was felt that the developing countries
would be the actual gainer as the quotas provided a structure under which developed
countries restricted import of yarn, fabric, readymade garments etc. from developing
nations. The WTO Agreement on Textile and Clothing necessitating removal of quota
regime have posed both challenge and opportunities for the countries, it not only provides
tremendous scope for expanding textile exports but had also opened door for rigorous
global competition where every country has to struggle for its share.
Now with the opening of market since January 1, 2005, the textile & clothing
industry has been fully incorporated into the World Trade Organization (WTO). In this
scenario, the world T&C export has grown from US$ 272.43 billion in 1994 to US$ 706
billion in 2011, registering more than a two-fold rise. World trade in textiles and clothing,
which amounted to around US $ 612 billion in 2008 and declined to US $570 billion during
2009 due to global recession. However, 2010 showed signs of recovery in global trade of
textiles and clothing. Developing countries are the major exporters and account for 2/3rd of
these exports. China, a leading exporter of T&C, exported the textile and clothing in the
proportion of 35:65 during 1994 - 2011. After China, the EU is the world's second largest
exporter of textile products with 26% share (including intra-EU trade). Exports from India
account for 5% of world trade and are currently valued at US $ 15 billion (table 7.25). In
2011, world export of clothing was US$ 412 billion as against US$ 294 billion export of
textile.
Table7.25: Major Exporters of Textile in Post-WTO Period (Value in billion dollars and Share in %)1999 2001 2003 2005 2007 2009 2011
Country Value
Country Value Country Value Country Value Country Value Country Value Country Value
China 13.04(8.8)
EU( 50.54(34.4)
EU 59.94(34.8)
EU 67.9(33.5)
EU 80.6(33.9)
EU 62(29.5)
China 94(32.2)
Hong Kong, China
12.27China 16.83
(11.4)China 26.90
(15.9)China 41.0
(20.2)China 55.9
(23.5)China 60
(28.3)EU 77
(26.1)Germany
11.89(8.0)
Hong Kong, China 12.21
Hong Kong13.08
Hong Kong, China
13.8(6.8)
Hong Kong13.4(5.6)
Hong Kong, China
10(4.7)
India15
(5.1)
Italy 11.78(8.0)
Korea, Republic of
10.94(7.4)
United States
10.92(6.4)
United States
12.3(6.1)
United States
12.3(5.2)
United States
10(4.7)
United States
14(4.7)
Korea, Republic of
11.62(7.9)
United States 10.49(7.1)
Korea, Republic of
10.12(6.0)
Korea, Republic of
10.3(5.1)
Korea, Republic of
10.3(4.4)
Korea, Republic of
9(4.3)
Korea, Republic of
12(4.2)
Taipei, Chinese
10.99(7.4)
Taipei, Chinese
9.92(6.7)
Taipei, Chinese
9.32(5.5)
Taipei, Chinese
9.7(4.8)
Taipei, Chinese
9.7(4.1)
India9
(4.3)
Hong Kong, China
11(3.8)
United States 9.57(6.4)
Japan 6.19(4.2)
India 6.51(3.8)
India 7.8(3.9)
India 9.4(4.0)
Taipei, Chinese
8(3.7)
Taipei, Chinese
11(3.8)
France 7.03(4.8)
India 5.90(3.8)
Japan 6.43(3.8)
Pakistan 7.0(3.5)
Turkey 8.7(3.7)
Turkey 8(3.7)
Turkey 11(3.7)
Japan 6.59(4.5)
Pakistan 4.53(3.10
Pakistan 5.81(3.4)
Turkey 7.0(3.5)
Pakistan 7.3(3.1)
Pakistan 7(3.1)
Pakistan 9(3.1)
Belgium 6.59(4.5)
Turkey 3.91(2.7)
Turkey 5.24(3.1)
Japan 6.9(3.4)
Japan 7.1(3.0)
Japan 6(2.9)
Japan 8(2.7)
Pakistan 4.52(3.1)
Indonesia 3.20(2.2)
Indonesia 2.92(1.7)
Indonesia 3.4(1.7)
UAE 4.0(1.7)
UAE 5(2.3)
Indonesia 5(1.6)
India 4.56(3.0)
Canada 2.16(1.5)
Canada 2.27(1.3)
Thailand 2.7(1.4)
Indonesia 3.8(1.6)
Indonesia 3(1.5)
Thailand 4(1.4)
United Kingdom
4.48(3.0)
Mexico 2.09(1.4)
Thailand 2.16(1.3)
Canada 2.4(1.2)
Thailand 3.1(1.3)
Thailand 3(1.4)
Vietnam 4(1.3)
Netherlands 3.86(2.6)
Thailand 1.89(1.3)
Mexico 2.10(1.2)
Mexico 2.1(1.1)
Canada 2.3(1.0)
Vietnam 2(0.9)
Mexico 2(0.7)
Turkey 3.48(2.4)
Switzerland 1.44(1.0)
Czech Republic
1.65(1.0)
UAE 1.7(0.9)
Mexico 2.2(0.9)
Canada 2(0.8)
Malaysia 2(0.7)
Note: Figure in bracket represents share in world exportSource: WTO, International Trade Statistics
The table 7.26 shows that china is the top exporter of clothing followed by European
Union. Exports from India account for 3.5% of world exports and are currently valued at
US $ 14 billion in 2011. Most of the Asian countries like Malaysia, Bangladesh, Pakistan,
Sri Lanka etc. enjoys comparative advantage in the export of clothing and is among the
leading exporters of clothing products in world, see table 7.26.
Table 7.26: Major Exporters of Clothing in Post-WTO Period (Value in billion dollars and Share in per cent)
1999 2001 2003 2005 2007 2009 2011Country Value Country Value Country Value Country Value Country Value Country Value Country Value
China 30
(16.2)EU
47.0(24.1)
EU59.9
(26.5)EU
80.3(29.2)
China115
(33.4)China
107(34.0)
China154
(37.3)Hong Kong, China
22.3 China36.6
(18.8)China
52.0(23.0)
China74.1
(26.9)EU
103(29.9)
EU97
(30.7)EU
116(28.2)
Italy13.2(7.1)
Hong Kong, China
23.4 Hong Kong, China
23.1 Hong Kong, China
27.2(9.9)
Hong Kong, China
28.8(8.3)
Hong Kong, China
23(6.9)
Hong Kong, China
25(
United States8.27(4.4)
Mexico 8.01(4.1)
Turkey9.94(3.3)
Turkey11.8(4.3)
Turkey14
(4.1)Turkey
12(3.7)
Bangladesh20
(4.8)
Mexico7.8
(4.2)United States
7.0(3.6)
Mexico7.3
(3.2)India
8.2(3.0)
Bangladesh10
(2.9)India
11(3.6)
India14
(3.5)
Germany7.4
(4.0)Turkey
6.6(3.4)
India6.4
(2.9)Mexico
7.2(2.6)
India9.7
(2.8)Bangladesh
11(3.4)
Turkey14
(3.4)
Turkey6.5
(3.5)India
6.0(3.1)
United States5.5
(2.5)Bangladesh
6.4(2.3)
Vietnam7.2
(2.1)Vietnam
9(2.7)
Vietnam13
(3.2)
France5.6
(3.1)Bangladesh
5.1(2.6)
Bangladesh4.3
(1.9)Indonesia
5.1(1.9)
Indonesia5.9
(1.7)Indonesia
6(1.9)
Indonesia8
(2.0)Korea, Republic of
4.8(2.6)
Indonesia4.5
(2.3)Indonesia
4.1(1.8)
United States5.0
(1.8)Mexico
5.1(1.5)
United States4
(1.3)United States
5(1.3)
India4.7
(2.6)Korea, Republic of
4.3(2.2)
Romania4.0
(1.8)Vietnam
4.8(1.7)
United States4.3
(1.2)Mexico
4(1.3)
Mexico5
(1.1)
United kingdom4.4
(2.4)Thailand
3.5(1.8)
Thailand3.6
(1.6)Romania
4.6(1.7)
Thailand4.1
(1.2)Thailand
4(1.2)
Malaysia5
(1.1)
Indonesia3.8
(2.1)Romania
2.7(1.4)
Korea, Republic of
3.6(1.6)
Thailand4.1
(1.5)Pakistan
3.8(1.1)
Pakistan3
(1.1)Thailand
5(1.1)
Belgium3.8
(2.1)Dominican Republic
2.7(1.4)
Vietnam3.5
(1.6)Pakistan
3.6(1.3)
Morocco3.6
(1.0)Malaysia
3(1.0)
Pakistan5
(1.1)
Bangladesh3.7
(2.1)Tunisia
2.6(1.3)
Morocco2.8
(1.3)Tunisia
3.3(1.2)
Tunisia3.6
(1.0)Tunisia
3(1.0)
Sri Lanka4
(1.0)
Thailand3.4
(1.9)Taipei Chinese
2.4(1.3)
Pakistan2.7
(1.2)Sri Lanka
2.8(1.0)
Sri Lanka3.3
(1.0)Morocco
3(1.0)
Cambodia4
(1.0)
Note: Figure in bracket represents share in world exportSource: WTO, International Trade Statistics
With the abolition of quota regime, China has gained most among the developing
countries and in recent years, it had shared top position in global export of textile and
clothing. However, India could not gain that share due to growing competition from its
competitors i.e., China, Bangladesh, Vietnam etc. In India, though the labour cost is low but
shipping costs, power costs, road transportation costs and tax burden are high as compare to
its competitors, which raises product price and declines opportunity in raising its share in
global exports of textile and clothing.
With the formation of WTO and phasing out of quota regime in 2005, the share of
Indian textile and clothing in world market has not increased significantly and recorded
share of 4.3 per cent in 2006 from 3.0 per cent in 1999 and 5.1 per cent in 2011 in case of
textile and for clothing share of 2.6 per cent in 1999, 3.3 per cent in 2006 and 3.5 per cent in
2011. In the post-WTO period, though the value of textile and clothing exports has
increased constantly but the share kept on fluctuating between 2% and 4% in case of
clothing and 3% and 6% in textile as shown in the table 7.27.
Table 7.27: Value and Share of Indian Textile and Clothing Products in World market in Post-WTO Period
(Value in US$ Billion and share in %)1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
TextileValue 4.56 5.09 5.90 5.38 6.51 6.85 7.85 9.33 9.45 10.27 9 13 15Share 3.0 3.4 3.8 3.7 3.8 4.0 3.9 4.3 4.0 4.1 4.3 5.1 5.1ClothingValue 4.78 5.15 5.03 5.48 6.46 6.62 8.29 10.2 9.7 10.9 11 11 14Share 2.6 2.8 3.1 2.8 2.9 2.8 3.0 3.3 2.8 3.0 3.6 3.2 3.5Source: WTO, International Trade Statistics
Hence it can be concluded that the Indian textile industry has been benefitted from
the MFA phase out as brought about by WTO but not as much as expected and has also
opened the door for global competition creating threats from countries like China,
Bangladesh and Korea having capacity to give stiff competition to Indian textile firms.
However, the large-scale firms are in position to face and fight the fierce competition but
most of textile trade in India is operated in medium and small firms, which may find
susceptible in withstanding the hard-hitting competition. So combined effort of government
and the traders is required to face this challenge and through better strategies grab the
opportunities.
Competitiveness of Textile and Textile Products
The table 7.28 reveals that India textile and textile products enjoys comparative
advantage. However, there has been a downward trend in RCA since 1995, which could be due
to a possible negative impact of the ATC on India’s share of cotton exports in total exports.
Transaction cost in India is quite high as compared to most of its competitors. The RCA for
Indian cotton exports compared to China further suggests that Indian cotton exports have been
competitive in important markets like the US and the UK. India contributes 3.6% share in the
total world exports of apparel and it is one of the top ten export items of India. Through the
table 7.28 it is clear that though India has revealed comparative advantage in selected textile
and textile products but it has constantly declined so the government needs to focus on
various bottlenecks observed in smooth and economical flow of export so as to remove
them for enjoying higher competitiveness in global market.
Table 7.28: Revealed Comparative Advantage of Selected Textile and Textile Products in Post-WTO Period
1995 1997 1999 2001 2003 2005 2007 2009 2010TEXTILE AND TEXTILE PRODUCTSTextile yarn, fabrics, made-up articles (4.56) (5.26) (4.95) (4.56) (4.47) (4.07) (4.05) (3.09) (3.59)Woven cotton fabrics 7.06 6.88 7.23 5.03 4.33 3.07 3.31 2.68 2.68Woven fabrics of man-made fibres 2.05 1.94 2.16 2.89 3.90 3.14 3.51 4.45 3.97Woven fabrics other than of cotton or man-made fibres 3.02 4.18 4.39 4.78 5.36 4.60 4.05 3.28 3.79
Articles of apparel and clothing accessories 4.13 3.74 4.13 4.01 3.42 3.30 2.84 2.66 2.20
Source: Calculated from data taken from Government of India, Economic Survey (various issues).
Inference from trend
The value of textile and textile products has shown constant increase in the post-
WTO period except in year 1998-99, 2001-02 and 2009-10 (which registered
negative export growth) and has reached to US$ 27998 million in 2011-12 from
US$ 8031.6 million in 1995-96. The year of year export growth rate was registered
highest in year 2005-06 that is 21. 0 %, this may be due to phasing of quota under
MFA arrangement by 2005. For rest of the years export growth remained positive
except for the above mentioned years basically due to South-East Asian crisis in
1997, terrorist attack in US in 2001 and global recession in 2001 and in 2008-09.
The share of textile and textile products in total manufactured exports has constantly
declined to reach 14.98 per cent in 2011-12 from 33.82 per cent in 1995-96 due to
emergence of other potential items like engineering goods as important item of
country’s export.
Among textile products export, readymade garments and Cotton Yarn, Fabrics,
Madeups, etc. has shown the most remarkable performance and their share is also
highest among the other textile products. Much of diversification in composition of
textile products export was not achieved in the post-WTO period and above two
items remained crucial throughout the period.
US and EU continued to be largest market for Indian textile products, however few
Asian countries like UAE and Korea Republic of and others have emerged as
important destination for Indian textile export in post-WTO period.
Indian textile products has shown comparative advantage in post-WTO period
basically due to low cost production
Key Issues of the sector
The Indian textile Industry is concentrated in medium and small-scale industries,
which are afflicted, by obsolete and out-dated machines, labour problems, raw material
vagaries and lack of modernization including that of spindles. The level of weaving
technology is of lower order and knitting units do not possess capacity to perform dyeing,
processing and finishing to international standards. The above factor contributes in low
value addition and export of basic products causing lower price realization by exporters.
Huge investment is required in R&D activities and also in undertaking marketing of
the product which becomes challenging task for these industries.
Most of the product faced undue delays in deliveries due to infrastructure
bottlenecks especially poor roads and ports facilities. Besides, transaction costs is also high,
most of the products are not of international standard and quality and hence low brand
image of Indian textile is a common problem. All these factors adversely affect global
competitiveness of Indian textile and textile products. In spite of being second in global
production of cotton, the productivity of cotton as measured by yield/Hectare is lowest
compared to Brazil, Turkey, China, Pakistan and USA.
The high custom tariffs in the importing countries are an important limiting factor in
expanding our exports. The tariff ranges from 18 to 35 % in many of the important regions
of the world like Latin American MERCOSUR countries, Egypt and Morocco in WANA
region, Russia and Uzbekistan in CIS countries.
In addition to high tariff barriers, there are non-tariff barriers in some of the major
importing countries such as Turkey, Brazil and Peru etc. in the form of antidumping, anti-
subsidy or safeguard measures, which hamper export growth. Child Labour related issues
raised by the US Department of Labour and Foreign Manufacturers Legal Accountability
Act (FMLAA) introduced by the United States’ Senate on February 24, 2010 have also
affected this sector and needs to be resolved with the US Govt. REACH (Registration,
Evaluation, Authorization and Restriction of Chemicals) brought into effect by the
European Union will make it difficult to export to that country without registration with the
European Chemical Agency (ECHA) 3.
Strategy for Increasing Textile and Textile Products Exports
Need to increase domestic production of the product and also to focus on value
addition of the product.
Need to adopt strong Product promotional and marketing strategy especially in
potential market.
Up-gradation of technology, investment in modernization, increase participation of
foreign direct investment in this sector.
Brand promotion is another important step this requires special attention on the
quality of the product and product design and production should be as per
international standard and demand.
Need to create additional capacities and, scaling up of operations in the value chain;
Financial requirements of this sector should be met with priority.
Production of Textile products in India are mainly dominated by medium and small-
scale industries which face severe hitches in production and export which requires
government prior attention.
Due to infrastructure bottlenecks Indian textile products becomes less competitive in
international market, so this should be removed on target basis.
To remove tariff barriers against export government should enter into agreements
with the prospect countries and should also strengthen up its negotiation at WTO. To
avoid non-tariff barriers producer should ensure production is according to social,
environmental and safety standards as laid down by WTO member countries.
Export Procedure be simplified and rationalized and in transaction costs be reduced
and also to provide full refund of all indirect taxes and levies.
Much of export market diversification is not obtained so need to explore new
markets to have enhanced market access across the world.
Existing institution should mend their working and the government should take all
policy measures to improve textile export of the country.
GEMS AND JEWELLERY
The Gems and Jewellery is one of the most significant product groups in India in
terms of contribution in the foreign exchange and employment generation. The sector
comprises of cut and polished diamonds, gold jewellery and coloured gemstones and other
items. The diamond segment contributes a major share of nearly 70 per cent of the total
gems and jewellery) export. The cut and polished diamond has made significant
contribution in export. However in recent years it shares has declined due to global
recession, which reduced demand from major trading partners of India. In 2009-10, the
share of these three segments in the total gems and jewellery exports were 60.5%, 24.1%
and 15.4%, respectively1. India has a comparative advantage in labour-intensive activities
like gem cutting and polishing so is the largest cutting and polishing centre in the world.
Diamond processing units in the country are mainly located in Surat, Ahmedabad –
Palampur belt and Bhavnagar-Rajkot belt of Gujarat.
Throughout the post-WTO period, India’s export of gems and jewellery goods has
shown tremendous performance both in terms of value of exports and growth rate. In 1995-
96, the value of exports was US$ 5274.8 million with growth of 17.2 per cent and share in
total manufactured as 22.21 per cent. In next year, there was fall in value of exports and
registered negative growth rate of -9.89 per cent but it recovered in the next year. In 2002-
03, exported value of this commodity was US$ 9029.9 million in accounting for 22.43 per
cent of her total manufactured exports and growth rate of 23.9 per cent. In 2008-09, the
value of exports was US$ 27955.2million with remarkable growth rate of 42.1 and share of
22.70 per cent in total manufactured exports. In 2010-11, gems and jewellery exported
valued at US$ 40790.7 million with rise of 40.67 per cent over previous year and share of
24.26 per cent in total manufactured exports, which increased to 25.10 per cent in 2011-12
with value of US$ 46900.8 million. Export performance during the post-WTO period is
given in Table 7.29.
Table 7.29: Value, Growth Rate and Share in Total Manufactured Goods of Gems and Jewellery
(Value in million dollars and growth rate and share in per cent)Year Value Growth Rate Share in Total
Manufactured Exports1995-96 5274.8 17.2 22.211996-97 4752.7 -9.89 19.301997-98 5345.5 12.5 20.131998-99 5929.3 10.4 22.991999-00 7502.3 26.4 25.242000-01 7384 -1.5 21.502001-02 7306.3 -1.1 21.892002-03 9029.9 23.9 22.432003-04 10573.3 16.8 21.802004-05 13761.8 30.2 22.662005-06 15529.1 12.8 21.402006-07 15977 2.9 18.812007-08 19678.7 23.2 19.102008-09 27955.2 42.1 22.702009-10 28996.3 3.7 25.172010-11 40790.7 40.67 24.262011-12 46900.8 14.98 25.10
Source: Calculation is based on data collected from RBI, Handbook of Statistics on Indian Economy.
Gems and Jewellery: Key Markets
India’s major trading partners for export of gems and jewellery goods are U.S.A.,
Belgium, Hong Kong and U.A.E (see table 7.30). The US has been the largest importer of
diamonds for a long time but since 2008-09, U.A.E. has become the top market destination
for Indian gems and jewellery. Therefore, it has now become a key trading partner for India
in this sector. The US has a two-tier market for diamond jewellery, which consists of a
potentially growing market for (low value) diamond jewellery and the older market for
large-diamond Jewellery. Large-sized diamonds (or solitaires) are considerably expensive
and thus this segment of diamond jewellery is highly priced. India is the second most
important exporter of diamonds for the US, however in the post-WTO period the share of
US market has initially increased in 1990s that is from 31.06 per cent in 1995-96 to 36.95
per cent in 2000-01 and then steadily declined in past decade to 28.15 per cent in 2005-06,
16.41 per cent in 2008-09 and ultimately to 14.43 per cent in 2011-12. U.A.E. has emerged
as important destination for India’s gems and jewellery in recent years with share of 38.47
per cent in 2008-09 and 38.65 per cent in 2011-12 as compared to share of 1.77 per cent in
1995-96, 5.95 per cent in 2000-01 and 16.33 per cent in 2005-06.
The Table 7.30 reveals that India is clearly the key partner for Hong Kong’s
diamonds imports and has become second most important destination for country’s gems
and jewellery after U.A.E. in recent years. The share in 1995-96 was 23.96 per cent, which
declined marginally to 23.63 per cent in 2000-01, further declined to 21.44 per cent in 2005-
06 and 18.82 per cent in 2008-09 and then increased to 24.21 per cent in 2011-12. India is
also the leading exporter to EU countries, though EU imports of gems and jewellery from
India have fluctuated over the years. From Belgium huge amount of rough diamonds are
imported and huge quantity of polished and cut diamonds, precious and semi-precious
stones are exported. However, in the post-WTO period, the value of exports to this country
has constantly declined from 13.65 per cent in 1995-96 to 9.60 per cent in 2005-06 and to
8.36 per cent in 2011-12. Besides Belgium, other markets are U.K. with share of 1.07 per
cent in 2011-12 and Switzerland, France and Germany etc. Among Asian countries apart
from Hong Kong, Israel, Japan, Singapore and Thailand is also an important destination
with share of 3.10, 0.79, 1.33 and 1.28 per cent in 2011-12.
Table 7.30: India’s major Export Markets for Gems and Jewellery in Post-WTO Period (Value in Million Dollars and share in %)
Commodity / Country
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
Belgium 720.4
(13.65)681.2
(14.33)739.8
(13.83)827.8
(13.96)855.5
(11.40)908.9
(12.30)861.8
(11.79)1024.8
(11.34)1054
(9.96)1349.4
(9.80)1490.8
(9.60)1469.2
(9.19)1963.3
(9.97)1875.9
(6.71)1641.5
(5.66)2391.7
(5.90)3925.4
(8.36)
Hong Kong 1264
(23.96)1082.2
(22.77)1182.1
(22.11)1235.8
(20.84)1814.8
(24.19)1745
(23.63)1683.6
(23.04)1878.3
(20.80)2334.6
(22.08)2735.3
(19.87)3330.1
(21.44)3463
(21.67)5098.3
(25.90)5263.2
(18.82)6231.9
(21.49)8663.7
(21.40)11357.1
(24.21)
Israel 137.1
(2.60)123.4
(2.59)197.4
(3.69)216.6
(3.65)342.3
(4.56)273.7
(3.70)257.7
(3.52)412.5
(4.56)477
(4.51)697.7
(5.06)813.7
(5.23)875.6
(5.48)1037.7
(5.27)793
(2.83)750.4
(2.58)961.6
(2.37)1456.2
(3.10)
Japan 742.2
(14.07)463.4
(8.66)332.2
(6.21)344.1
(5.80)449.4
(5.99)385.7
(5.22)381
(5.21)417.5
(4.62)355.4
(3.36)499.9
(3.63)485.5
(3.12)430.5
(2.69)450.1
(2.28)371.4
(1.32)256
(0.88)280.4
(0.69)372.5
(0.79)
Singapore 95.7
(1.81)109.4
(2.30)85.5
(1.59)56.9
(0.96)117.9
(1.57)119.6
(1.62)121.5
(1.66)257.5
(2.85)180.2
(1.70)563
(4.09)1241.1
(7.99)151.6
(0.94)217.3
(1.10)547.7
(1.95)598.6
(2.06)474.8
(1.17)624.2
(1.33)
Switzerland 65.5
(1.24)80.7
(1.69)85.2
(1.59)104.8
(1.76)131.9
(1.75)143.1
(1.93)120.9
(1.65)115.9
(1.28)149.3
(1.41)170.1
(1.23)143.5
(0.92)117.6
(0.73)211.9
(1.07)207
(0.74)106.7
(0.36)180.1
(0.44)385
(0.82)
Thailand 229.2
(4.34)170.6
(3.58)94.5
(1.76)122.7
(2.06)171.5
(2.28)190.5
(2.58)237.5
(3.25)232.1
(2.57)202
(1.91)293.3
(2.13)329.5
(2.12)340.1
(2.12)390.5
(1.98)321.5
(1.15)309
(1.06)383.9
(0.94)603.3
(1.28)
U.A.E. 93.7
(1.77)103.3
(2.17)211.7
(3.96)246.6
(4.15)259
(3.45)440
(5.95)542.1
(7.41)661.9
(7.33)1373.5
(12.99)2537.4
(18.43)2488
(16.33)3299.9
(20.65)4039
(20.52)10756.3
(38.47)12369.1
(42.65)16616.4
(41.05)18131.1
(38.65)
U.K. 83.8
(1.58)83
(1.74)168.4
(3.15)146.2
(2.46)133.5
(1.78)144.5
(1.95)170
(2.32)203
(2.24)221.1
(2.09)221.8
(1.61)226
(1.45)278.1
(1.74)285.2
(1.44)563.4
(2.01)348.8
(1.20)349.5
(0.86)506.1
(1.07)
U.S.A 1638.4
(31.06)1637.9
(34.46)1980.2
(37.0)2292.2
(38.65)2923
(38.96)2728.9
(36.95)2628.7
(35.97)3345.8
(37.05)3699.5
(34.98)4046.6
(29.40)4371.6
(28.15)4755.3
(29.76)4972.3
(25.26)4588.4
(16.41)4718
(16.27)5270.5
(13.02)6771.8
(14.43)
Others 205 217.7 268.4 335.6 303.6 304.2 471.2 480.7 526.7 647.4 609.3 796.1 1013.1 2667.4 1666.3 4903.5 2768
(3.88) (4.58) (5.02) (5.66) (4.04) (4.11) (6.44) (5.32) (4.98) (4.70) (3.92) (4.98) (5.14) (9.54) (5.74) (12.11) (5.90)
Total 5274.84752.75345.55929.37502.3 7384 7306.39029.910573.313761.815529.11597719678.727955.228996.340476.146900.8
Note: Figure in bracket shows share in %.Source: Calculation is based on data collected from RBI, Handbook of Statistics on Indian Economy.India’s share in the world exports of Gems and Jewellery
The share Indian of gems and jewellery in world exports has grown consistently and
persistently in the post-WTO period as seen in Figure 7.8. The figure reveals that India had
share of 11.4 per cent in 1995, which rose to 12.2 per cent in 1999, and 14.1 per cent in
2003. Indian exports performed predominantly well in 2009 and India became a leading
exporter of gems and jewellery, with a market share exceeding 23 per cent. India’s diamond
exports, which forms the major share of aggregate (sector) exports, too have an important
share in the world market (diamond exports), which has grown from 13.4 per cent in 2000,
to 20.1 per cent in 2009.
Figure 7.8: India’s Share in World Exports of Gems and Jewellery
1995 1997 1999 2001 2003 2005 2007 20090
5
10
15
20
25
% Share
Source: Calculated from United Nations (UN) Comtrade Database
Competitiveness of Gems and Jewellery Exports
Indian gems and jewellery enjoys great competitive strength and the RCA registered
has remained substantially above unity indicating it as an important export item for India,
see table 7.31. This is basically because country enjoys cost advantage in labour intensive
activities and also due to growing exports of large-sized diamonds to markets such as the
US and U.A.E. Additionally, introduction of the Diamond Dollar Account and Green card
for exporters of polished diamonds have facilitated trade competitiveness4.
Table 7.31: Revealed Comparative Advantage of Selected Gems and Jewellery in Post-WTO Period
1995 1997 1999 2001 2003 2005 2007 2009 2010GEMS AND JEWELLERY
Pearls, precious and semi-precious stones
18.99 16.90 17.83 13.21 16.88 13.35 13.58 14.05 12.84
Source: Calculated from data taken from Government of India, Economic Survey (various issues).
Inference from the trend Gems and jewellery has shown tremendous export performance in the post-WTO
period both in terms of value and year of year growth rate, forming chief
manufactured item subsidizing in foreign exchange reserve of the country with value
of export rising from US$ 5274.8 million in 1995-96 to US$ 46900.8 million in
2011-12 and CAGR of 14.63 per cent (1995-96 to 2011-12).
In the year 1996-97, this item registered negative growth rate due to East Asian
crisis and economic slowdown. This resulted into demand contraction in major
Asian trading partners like Japan, Thailand, Hong Kong, Israel and others.
Negative growth rate in 1996-97, was soon recovered in 1999-00 with decent
positive growth rate of 26.4 per cent; this was due to revival of world trade on the
heels of the East Asian recovery and a modest recovery in international prices of the
product.
Again in the year 2000-01 and 2001-02, the gems and jewellery registered negative
growth rate of -1.5 and -1.1 per cent due to contraction of demand in developed
countries owing to global recession and then terrorist attack on US on September 11,
2001, one of the important export destination for the country, which resulted into
decline in demand of cut and polished diamonds. However export of gold jewellery
showed growth in this period.
After registering tremendous growth rate of 42.1 per cent in 2008-09, the growth
rate declined to 3.7 per cent in 2009-10 due to global economic slowdown and
recession, which resulted into loss of market, and fall in demand. Constant increase
in price of gold and silver resulted into fall in its demand.
U.A.E., U.S.A., Hong Kong and Belgium are the leading export destinations for
export of gems and jewellery. Initially, U.S.A. shared the top destination for export
but in recent years it has been replaced by U.A.E. and Hong Kong due to gradual
changes in USA over time owing to factors like terrorist attack of 2001, economic
slowdown in few years and recession in 2008-09 etc., all this led to contraction in
demand.
India’s exports of cut and polished diamonds have been to all major markets in the
world. India is also a major exporter of articles of jewellery and parts, and the
exports have been to all the major importers in the world. However, some of the
markets are not well explored by Indian gems and jewellery exporters. For example,
India may endeavour to concentrate on markets like: Germany, UK, Japan,
Switzerland France, and Italy.
The revealed comparative advantage for gems and jewellery remained above unity
showing country enjoys high comparative advantage in the product.
The growth in this sector has been possible due to country being rich in availability
of various forms of gems due to natural factors, more skilled in labour intensive
activities, more dynamic in work of art and various support under the Foreign
Trade Policy and other initiatives: A number of incentives was introduced including
abolition of Licensing regime for rough diamonds and abolition of import duty on
rough as well as cut and polished diamonds, reduction of customs duties on coral;
polished cubic zirconia, benign assessment scheme; reduction in transaction costs,
drawback duty on gold and silver jewellery; import of gold through nominated
agencies and Star Trading Houses etc. In addition, liberal financial assistance was
made available to the sector under the Market Assess Initiative (MAI), Market
Development Assistance (MDA) scheme of the Department of Commerce to
participate in international exhibitions and export related activities.
Major Constraints in Export Growth of the Gems and Jewellery
This sector needs support of some basic facilities like Convention Centre, Common
Facility Centres, Technological Development / Design Studio etc. that are currently
not available in sufficient measure.
It has been observed that high and sophisticated technology absorption is relatively
low in Indian gems and jewellery industry, due to the small size, and unorganized
nature of majority of the players in this industry. Not only this with the updating of
technology, it becomes necessary to develop skill to handle it, and training becomes
essential but there are very few training centres in India and total capacity of these
centres is limited and inadequate.
India’s Gems and Jewellery industry use raw material from different sources that
has increased it costs.
In recent years, this sector has faced poor demand due to global recession, which has
adversely affected the export. The growing price of gold and silver has further
affected the consumer-buying pattern, with growing demand for single-line
jewellery, low-carat jewellery, and gems-studded jewellery.
Emergence of rival especially china and other countries like Africa, like Botswana,
Namibia and South Africa, may pose a threat for the large-scale processing of
diamonds in India in near future.
Strategy for Promoting Gems and Jewellery Exports
to secure constant and regular availability of raw material from countries rich in its
supply like Russia, Canada, Botswana, Angola, Namibia, South Africa, Australia,
Democratic Republic of Congo (DRC) and Zimbabwe The major coloured
gemstones producing countries, which need to be engaged are Tanzania, Zambia,
Myanmar, Thailand, Sri Lanka, Namibia, Colombia and Brazil. For better supply
the government is required to adopt special policy measure and other strategy and
trade agreements with above countries.
Technology up gradation is important to increase scale of operation and reduce cost.
Beside, skill development is another area, which needs attention. For this, the
industry itself should take initiative in introducing need based training programmes.
Secondly the Government may consider providing incentives to big corporate in the
sector for on the job training programmes, in the form of tax relief, preferential and
enhanced availability of raw materials, duty concessions etc. the Gem &Jewellery
export promotion council and National Skill Development Corporation India
(NSDC) should play major role and should give full support to industry engaged in
export sector.
Infrastructure development is very important in promoting smooth flow of trade.
The government should take initiative in development of a world class Convention
Centre in Mumbai. To promote manufacturing activities in the gems and jewellery
sector, there is a need to set up manufacturing parks /clusters across the country on
the lines of software sector.
In order to create customer loyalty brand promotion is very important which would
also help our exports move up the value chain. Need to focus on the cost, quality
and design of the product, a special fund to be created for the purpose and
government bodies should step forward to facilitate deliberate campaign of branded
gems and jewellery.
The major existing markets for gems and jewellery export are USA, Hong Kong,
UAE, Belgium and Israel. There are a large number of untapped potential markets,
which need be explored to increase our exports. In the field of cut and polished
diamonds, potential markets are available in EU, Singapore, Malaysia, Turkey,
Lebanon and Russia. For precious metal jewellery, EU, Australia, Latin America
and Russia can be explored. In coloured gemstones, EU, China and Switzerland
have potential for increasing exports.
With changing buying behaviour of the customer worldwide, it is necessary for
Indian gems and jewellery industry to diversify their line of production according to
taste and preference. The product should also apt the budget of assorted people
across the world, lesser-priced jewellery, such as imitation, fashion or costume
jewellery along with high priced jewellery be made with blend of both modern and
traditional element.
Constant participation in international exhibitions would help Indian gems and
jewellery industry to better understand the existing culture in this sector, explore
new markets for the product, and understand marketing strategies of its rival and
thereby fascinating and activating the major buyers of gems and jewellery in
international market.
Government of India should provide product specific incentives and benefits under
foreign trade policy
LEATHER AND MANUFACTURE
The Leather and manufacture generates high employment and high export earnings
and is among the top ten foreign exchange earners for the country. The basic components
of leather exports includes leather footwear , leather goods, saddler and harness ,leather
garments, leather footwear components and finished leather. Initially the industry which
was a mere exporter of raw material in the sixties but with continuous growth in this sector
with government effort, it has now become one of the major exporters of the value added
finished products. However, in the post-WTO period, this sector has not observed much
surge in the value of exports and also the share in total merchandise and manufactured
exports has declined.
The value of exports of leather and manufacture was registered as US$1752.2
million in 1995-96 with growth rate of 8.79 per cent and share of 7.37 per cent in total
manufactured export. Throughout the post-WTO period, the value of exports showed
increasing trend except in few years and exports have grown from a value of US$ 1944
million in 2000-01 to USD 2697.7 million in 2005-06 to USD 4788.5 million in 2011-12
(Table 7.32). The growth rate registered was highest in 2000-01 with 33.5 per cent, and in
few years it registered negative growth rate like 1996-97(-8.35), 1998-99 (-11.3), 2001-02 (-
3.2) and 2002-03 (-3.1).Though exports declined in 2009-10 on account of the global
economic slowdown, they have shown 12.73 and 26.36 per cent growth during 2010-11 and
2011-12.
The share in total manufactured goods has constantly declined from 6.52 per cent in
1996-97 to 5.66 per cent in 2000-01, 3.71 per cent in 2005-06 and to 2.56 per cent in 2011-
12.
Table 7.32: Value, Growth Rate and Share of Leather and Manufacture in Total Manufactured Goods (Value in million dollars and growth rate and share in per cent)
Year Value Growth rateShare in total
manufactured exports1995-96 1752.2 8.79 7.371996-97 1605.8 -8.35 6.521997-98 1656.7 5.0 6.241998-99 1660.7 -11.3 6.431999-00 1590.2 -9.2 5.352000-01 1944.4 33.5 5.662001-02 1910.1 -3.2 5.722002-03 1848.3 -3.1 4.592003-04 2163 15.7 4.462004-05 2421.6 9.4 3.982005-06 2697.7 7.4 3.712006-07 3016.7 8.1 3.552007-08 3502.5 16.1 3.402008-09 3556 1.5 2.882009-10 3361.1 -5.4 2.912010-11 3789.3 12.73 2.252011-12 4788.5 26.36 2.56
Source: Calculation is based on data collected from RBI, Handbook of Statistics on Indian Economy.
Main Components of Leather Exports
The relative shares of the components and value of exports have changed in the
post-WTO period. The value of exports has been registered highest in case of footwear
followed by finished leather. However the leather garments has not shown decent
performance in the entire period. The share of leather footwear has increased over the years
from 33.29% in 1995-96 to 45.04% in 2010-11 and even the share of saddlery and harness
has registered a small increase over the years from 1.20% in 1995-96 to 2.44% in 2010-11.
The shares of leather garments have registered a steep decline over the years from 23.60%
in 1995-96 to 10.42 % in 2010-11 and the share of finished leather and leather goods has
shown mixed trend that is it has both increased and decreased in post-WTO period (Table
7.33).
Table 7.33: Composition of India’s Leather Exports in Post-WTO Period(Value in US $ Million)
Product Categories
1995-96 2000-01 2003-04 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
Leather goods 363.14 441.09 539.58 649.04 690.66 800.46 873.44 757.02 814.91Share % 20.69 22.65 24.92 24.72 23.16 22.55 24.26 22.23 21.19Footwear 584.25 620.47 714.8 965.66 1163.55 1489.35 1534.32 1507.59 1732.04Share % 33.29 31.85 33.02 36.78 39.02 41.97 42.62 44.28 45.04Finished leather
371.85 382.11 556.09 605.97 688.35 807.19 673.37 627.95 810.92
Share % 21.18 19.61 25.69 23.08 23.09 22.74 18.70 18.44 21.09Leather garments
414.21 461.21 301.29 328.39 306.98 345.34 426.17 428.62 400.83
Share % 23.60 23.68 13.91 12.50 10.30 9.73 11.83 12.58 10.42Saddlery and Harness
21.38 42.73 52.75 76.39 81.85 106.18 92.15 83.39 86.15
Share % 1.20 2.19 2.43 2.19 2.43 2.99 2.56 2.44 2.24Total leather products
1754.84 1947.61 2164.51 2625.46 2981.79 3548.52 3599.46 3404.57 3844.85
Source: Foreign Trade and Balance of Payments, CMIE (various issues), Annual Report DIPP, Ministry of Commerce &Industry (various issues)
Leather and Manufactures: Key Markets
The major trading partners of India for this commodity are Spain, France, Germany,
Hong Kong, Italy, Netherlands, UK and the USA. Throughout the post-WTO period, their
share jointly accounted for 80% to 70% of our total export in leather & leather
manufactures. This shows India has not much diversified in export market of leather and
manufacture. The top three destinations for India’s export of this commodity are shared by
Germany, UK and Italy. However, the share of Germany had constantly declined from
22.82 per cent in 1995-96 to 15.21 per cent in 2011-12, on the other hand Italy and UK
represented mix trend with share of 12.59 and 11.27 per cent in 1995-96, 13.56 ad 11.79 per
cent in 2006-07 and 10.95 and 11.24 per cent in 2011-12 (Table 7.34).
US.A is also an important market; however, it shares too declined in the post-WTO
period from 16.81 per cent in 1995-96 to 9.13 per cent in 2011-12. France, Hong Kong,
Spain and Netherlands has constantly registered increase in the share with 5.04, 3.39, 2.89
and 2.19 per cent in 1995-96 and 6.32, 7.48, 6.16 and 4.10 per cent in 2011-12. Denmark,
Switzerland and Canada are among latest export destinations.
Table 7.34: India’s major Export Markets for Leather and Leather Manufactures in Post-WTO Period
(Value in Million Dollars and share in %)
1995-96
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
France 88.4
(5.04)
71.9
(4.47)
75.7
(4.56)
77.4
(4.66)
82.6
(5.19)
88.5
(4.55)
88.5
(4.63)
86.6
(4.68)
107.6
(4.97)
135.9
(5.61)
140.8
(5.21)
171.8
(5.69)
196.5
(5.61)
219.2
(6.16)
253.4
(7.53)
278.8
(7.12)
303
(6.32)
Germany 400
(22.82)
362
(22.5)
363.1
(21.9)
369.2
(22.23)
293
(18.42)
305.5
(15.71)
302.8
(15.85)
270.6
(14.64)
322
(14.88)
343.1
(14.16)
357.2
(13.24)
404.4
(13.40)
491.3
(14.02)
505.5
(14.21)
488.5
(14.53)
572.9
(14.64)
728.8
(15.21)
Hong Kong 59.4
(3.39)
59
(3.67)
53.9
(3.25)
54
(3.25)
54.5
(3.42)
98.2
(5.05)
121.2
(6.34)
165.7
(8.96)
226.9
(10.49)
247.6
(10.22)
251.5
(9.32)
279.7
(9.27)
280.9
(8.01)
237.4
(6.67)
251.2
(7.47)
324.9
(8.30)
358.5
(7.48)
Italy 220.7
(12.59)
182.7
(11.37)
221.2
(13.35)
199.6
(12.01)
165.1
(10.38)
238.5
(12.26)
258.5
(13.53)
250.1
(13.53)
277
(12.80)
249.8
(10.31)
308.7
(11.44)
409.2
(13.56)
487.2
(13.91)
458.2
(12.88)
396.3
(11.79)
452.3
(11.56)
524.8
(10.95)
Netherlands 38.4
(2.19)
38.3
(2.38)
43.4
(2.61)
50.2
(3.02)
44.1
(2.77)
55.4
(2.84)
60.2
(3.15)
50.6
(2.73)
57
(2.63)
64.7
(2.67)
82
(3.03)
99.5
(3.29)
134.4
(3.83)
148.2
(4.16)
136.7
(4.06)
154.5
(3.95)
196.8
(4.10)
Portugal 23.7
(1.35)
20.1
(1.25)
31.9
(1.92)
29.8
(1.79)
24.4
(1.53)
37.2
(1.91)
36.7
(1.92)
34.5
(1.86)
33.3
(1.5)
36.3
(1.49)
41.2
(1.52)
48.6
(1.61)
55.5
(1.58)
47.9
(1.34)
39.3
(1.16)
39.3
(1.00)
46.3
(0.96)
Russia 46.6
(2.65)
30.1
(1.87)
50.2
(3.03)
24.4
(1.46)
26.7
(1.67)
31.5
(1.62)
15.8
(0.82)
11.1
(0.60)
11.3
(0.52)
7.9
(0.32)
11.4
(0.42)
17
(0.56)
15.6
(0.44)
12
(0.33)
6.7
(0.19)
18.6
(0.47)
32.7
(0.68)
Spain 50.7
(2.89)
46.9
(2.92)
54.9
(3.31)
70.1
(4.22)
66.5
(4.18)
100.2
(5.15)
100.8
(5.27)
109.9
(5.94)
158.3
(7.31)
173.3
(7.15)
198.6
(7.36)
184.8
(6.12)
214.3
(6.11)
216.9
(6.09)
218.1
(6.48)
247.3
(6.32)
295.3
(6.16)
U.K. 197.6
(11.27)
201.2
(12.52)
215.8
(13.02)
235.5
(14.18)
262.9
(16.53)
265.4
(13.64)
244.9
(12.82)
236.5
(12.79)
237.9
(10.99)
297.7
(12.29)
335.7
(12.44)
355.8
(11.79)
410.7
(11.72)
407.4
(11.45)
451.8
(13.44)
500
(12.78)
538.5
(11.24)
U.S.A 294.6
(16.81)
297.1
(18.50)
250.5
(15.12)
255.9
(15.40)
258
(16.22)
342.3
(17.60)
284.8
(14.91)
242.4
(13.11)
245.1
(11.33)
277.8
(11.47)
310.4
(11.50)
312.3
(10.35)
308.7
(8.81)
358.3
(10.07)
294.5
(8.76)
345.7
(8.84)
437.4
(9.13)
Others 332.1
(18.95)
296.4
(18.45)
296.1
(17.87)
294.7
(17.74)
312.5
(19.65)
381.7
(19.63)
396
(20.73)
390.4
(21.12)
486.7
(22.50)
587.4
(24.25)
660.3
(24.47)
733.7
(24.32)
907.4
(25.90)
945
(26.57)
824.6
(24.53)
976.3
(24.96)
1326.4
(27.69)
Total 1752.2 1605.8 1656.7 1660.7 1590.2 1944.4 1910.1 1848.3 2163 2421.6 2697.7 3016.7 3502.5 3556 3361.1 3910.6 4788.5
Note: Figure in bracket shows share in %Source: calculation is based on data collected from RBI, Handbook of Statistics on Indian Economy.
Competitiveness of Leather Exports
The RCA registered for selected leather and manufacture has remained above unity,
see table 7.35, indicating this sector enjoys competitive strength. This is due to abundance
availability of raw material, cheap labour supply, increase in labour productivity and most
of the items of manufacture in the leather sector have been de-licensed. In addition, the
Government has de-reserved the manufacture of various types of leather including semi-
finished leather, harness leather, leather shoes etc. from small-scale sector.
Table 7.35: Revealed Comparative Advantage of Selected Leather and manufacture in Post-WTO Period
Commodity 1995 1997 1999 2003 2005 2007 2009 2010Leather, leather manufactures & dressed fur skins (5.2) (4.51) (5.14) (3.71) (3.14) (3.21) (2.39) (2.36)
Leather 3.94 3.07 3.24 3.60 3.20 3.27 2.42 2.44
Manufactures of leather or of composition leather 10.16 9.43 10.20 4.61 - 4.38 3.42 3.0
Source: Calculated from data taken from Government of India, Economic Survey (various issues).
The major production centers for leather and leather products in India are located in
Tamil Nadu - Chennai, Ambur, Ranipet, Vaniyambadi, Trichy, Dindigul; West Bengal –
Kolkata; Uttar Pradesh – Kanpur, Agra & Noida ; Maharashtra – Mumbai; Punjab –
Jalandhar; Karnataka – Bangalore ; Andhra Pradesh - Hyderabad ; Haryana - Ambala,
Gurgaon, Panchkula and Karnal; Delhi.
India’s share in the world exports of Leather Products in post WTO period
From the table 7.36 given below it could be observed that share of Indian leather
products in world exports has fluctuated between 2% and 3% in post-WTO period. Though
India is the second largest producer of footwear and leather garments in the world, but the
share is small compared to its competitors. The share registered in 1995 was 2.47 per cent,
which fall in five successive years, then increased to 2.58 per cent in 2000, declined to 2.46
per cent in 2006, and in past years recorded share of around 2.5 per cent. After the global
recession, Indian leather export has shown a better performance, but at the World level, it is
yet to extract the industry’s full potential. Indian leather is yet to establish a brand
reputation in the international market so as to increase the relative share in the World
leather export.
Table 7.36: India’s Share in the World Exports of Leather Products in Post-WTO periodYear 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
% share 2.47 2.16 2.15 2.33 2.33 2.58 2.40 2.27 2.38 2.48 2.46 2.46 2.46 2.49 2.5 2.51
Source: WITS database COMTRADE at HS 2-digit level.
Inference from the trend
The exports of leather and manufacture registered negative growth rate in 1996-97
and 1998-99 due to East Asian crisis, fall of Soviet Union and massive change in
the political order of the Eastern Europe which has caused our leather export lose
some of its strong markets. Again, in 2001-02 and 2002-03 export declined due to
demand shrinkage in developed countries ensuing from global recession.
In year 2009-10, India’s leather and manufacture export registered negative growth
rate of -5.4 per cent due to slowdown in global trade caused by dismal economic and
financial conditions in the US and euro zone economies. Both EU and US are major
markets for Indian leather where demand plunge due to global recession.
Except during the period of global recession, India has registered moderate growth
in export of leather in past few years due to the abolition of quota regime in January
2005 brought about by WTO.
The share of leather exports in India’s total exports and also in world exports has
declined in the post WTO-period because most the industries engaged are SMEs
which use out-dated machines and equipment in processing which results into poor
quality of product leading to fall in demand. This unit also fails to adopt strong
marketing strategy like that of their competitor resulting into decline in their market
share.
Germany, USA, UK, Italy and Hong Kong are the major destinations of India’s
exports of leather and leather based products in the post-WTO period. Germany
remains the major importer of leather and leather based products however its share
in India’s total exports is decreasing, correspondingly the shares of USA and
Australia have decreased whereas the share of UK, Italy, Hong Kong, Spain, France,
Netherlands and UAE have increased over time.
India has a less than 3% share in world export of leather compared to its many
competitors, which signifies on the global competitiveness front Indian leather
sector is much behind that of its competitors.
Selected leather and leather manufactures have revealed comparative advantage
throughout post WTO but in declining trend.
Major Constraints in Export Growth of Leather and Manufacture
A quality product automatically creates it demand but in India, there continues to be
acute shortage of good quality finished leather so many a times it depends on import
from other countries, which results into cost disadvantage. Even the technologies
used are out-dated, which hinders them from producing good quality leather in spite
of access to quality raw materials.
India is facing firm competition from the non-OECD countries like Argentina,
Bangladesh, Brazil, Vietnam and a few African countries. However, in the footwear,
business India has registered competitive advantages in the global scenario but there
also Vietnam has emerged as strong competitor.
Indian leather products are facing tariff and non-tariff barriers in most of the major
markets even after liberalization and multi-lateral trading arrangements in the post
WTO era. In EU the bound rate for all industrial products was 3.9% on an average
and that for leather, Footwear etc. was 4.2% in 2010 (confer World Tariff Profile
2010). For all lines of production, though the maximum tariff rate has been lowered
significantly but the number of product lines facing intervention has gone up. In case
of the USA, most of these lines are concentrated around HS64. For non-tariff
barriers, the EU is more sensitive with respect to environmental damages. The
intensity of the barriers are on the rise following TBT Agreements and some
member countries of European Union like Germany and Netherlands are erecting
even more stringent barriers to trade in dirty products like leather. Here also severity
of intervention in terms of the number of lines is rising continuously indicating a
growing awareness at all quarters regarding the health and safety dimensions of
product use.
Most of the leather products production in India's is concentrated in the unorganized
and small scale sector which results into poor availability of capital/institutional
finance for leather units.
Some of the regulations imposed by the Department of Animal Husbandry, Dairying
and Fishery (DAHD&F) have created procedural bottlenecks in the import of raw
material. According to the industry, the new regulations imposed by DAHD & F in
March 2008 on import of hides / skins / leathers into India, citing health hazards has
created difficulties in import of hides, skins and leathers.
Inadequate infrastructure, lack of skilled labour, strict environmental regulations
involved in setting-up of tanning facilities and fluctuation in international price of
the commodity acts as obstacle in export growth of leather.
Strategy for Increasing Exports of Leather and Manufacture
In order to ensure regular supply of raw material to leather industry engaged in
export, government should enter into agreement for supply of raw material with
countries where raw material for Leather is available in abundance, namely in
following countries; Algeria. Angola, Burkina Faso, Cameroon, Chad, Cote d Ivorie,
Ethiopia, Guinea, Kenya, Madagascar, New Zealand, Egypt, CIS countries,
Morocco, Niger, Nigeria, Senegal, Somalia, Tanzania, Tunisia, Uganda, Zambia,
Zimbabwe , Mongolia , Argentina , Australia and Brazil.
Upgrading product quality is very essential to create demand so efforts should be
made by leather and leather products manufacturers to strength their product design
and quality by undertaking continuous research in this activity. Government,
through its various agencies should also offer sufficient support for identifying and
establishing quality standards for the leather industry.
In order to introduce modernization, capacity enhancement and technological
advancement in leather units, availability of adequate finance is essential.
government should ensure that the finance requirements are met out of these units
on priority basis as they not only contributes in foreign exchange but also absorb
workforce of around 2.5 million both directly and indirectly. Role of RBI, SIDBI,
EXIM bank and other financial institutions is crucial here.
Leather and leather products sector especially the tanneries are facing a lot of
problems in terms of Environmental norms, there is an urgent need for modernizing
the existing ones and also setting up new common effluent treatment plants at
various leather industry clusters as per international standards. Up-gradation of
Common Effluent Treatment Plants (CETPs) with Zero Liquid Discharge (ZLD)
technology is an eco-friendly technology wherein not even a drop of tannery waste
is discharged into the environment. Ministry of Environment & Forests can act as a
facilitator along with State Pollution Control Boards and Industry associations can
provide the guidelines and assistance for setting up common effluent Treatment
plants at major Leather clusters.
Branding of leather product is crucial to expand its export growth in foreign market,
especially of large numbers of SME units producing quality leather products but are
unable to realize the advantage due to lack of branding. The industry should create a
special fund for brand promotion and government should provide special incentive
and financial assistance for this purpose.
Some of the raw materials of leather industries are imported from other countries,
which involve many procedural and legal formalities making it uneconomical for
leather industry so the government should ensure procedural simplification.
Timely knowledge of international trends and designs are very essential for growth
of the leather sector, for this constant study of trends in international market is
required, market surveys should be conducted, participation in fair and exhibition is
important, designers/consultants should be hired. For this government provide
financial assistance under various schemes.
Skill development is another important activity that needs attention to fill gap in
availability of a significantly larger skilled work force. Training capacity of existing
institutes should be increased. The industry should itself take initiative in designing
need based training programmes to improve the skills of its workers. The Council
for Leather Exports and Footwear Design and Development Institute can play a
useful role in imparting training.
integrated leather based product manufacturing clusters with Special Economic
Zone facilities should be established, at major producing centers such as Ambur in
Vellore district in Tamil Nadu, Agra and Kanpur in UP and Kolkata in West Bengal.
Govt. may set up manufacturing clusters for leather and leather products on the
times of SEZs which would foster benefit in form of low cost of raw material as well
as proper implementation of detailed policy package.
Major export destinations for Indian leather products are Germany, UK, Italy, Hong
Kong, France, Spain, Netherlands, Belgium, UAE and Australia. These 11 countries
together account for nearly 75% of India’s leather exports. Many of the Asian
markets and The US market has not been fully tapped so there is need to adopt
special package to explore potential market by participation in fairs, inviting
designers / technician to India, establishing show rooms / warehouses, organizing
leather shows, undertaking market studies and entering into trade agreement with
them.
Removal of infrastructure bottleneck on priority basis especially in cities with
leather manufacturing units.
FDI in leather sector should be encouraged.
Foreign trade policy of India, which involves time-to-time assessment of strength
and weaknesses of the sector, should include appropriate detailed policy package.
The post-WTO period has not shown fast increase in the export of leather and leather
manufacture but the formation of WTO has definitely created opportunities for the Indian
leather industry in recent years. Among the developing countries China has gained the most
and India too stands to gain a bigger share of global market as many developing and
developed countries like US and Europe are looking forward at India as an important source
of leather and leather products. Indian leather products enjoys cost advantages in terms of
labour and raw materials compared to many developed countries which has created interest
of many importers around the world and this will benefit India in gaining higher share in
global export of leather and leather products. Currently India has a share of nearly 2.5 per
cent i.e. 2 billion in the global trade of leather and leather products of nearly US $ 88
billion. With better marketing and promotional strategies, this share could be increase in
coming years as global players in the leather business, are already centring on Indian leather
products, which has observed numerous development in recent years. Hence, looking at the
global trade scenario it may be concluded that there are tremendous prospects for further
increasing Indian leather exports.
HANDICRAFTS EXPORT
Indian handicrafts exports registered impressive growth during the post reform
period (post 1991) but in recent years, its performance has declined. The handicraft industry
is highly dispersed in India with each state contributing towards it through one or more
crafts and the production is predominantly carried out in the unorganized household sector
where generally family members work which has effected its output.
The value of exports registered in 1995-96 was US$ 434 million, which increased to
US$ 785 million in 2002-03, but thereafter it registered constant decline in most of the years
like US$ 499 million in 2003-04, US$ 301 million in 2008-09 and US$ 233 million in
2011-12 (see table 7.37). The share of handicrafts in India’s total manufactured exports has
constantly declined in post-WTO period from 1.8 per cent in 1995-96 to 0.6 per cent in
2004-05 and 0.12 per cent in 2011-12. India’s share in world handicraft exports is still
around 1%, which indicates not much growth has been achieved in this sector and also the
market at the international level is still largely unexplored. They have shown sensitivity to
economic conditions in major markets and recorded drastic dip during the global economic
slowdown, reducing by around 40% during the year 2008-09. India can do much better, and
the aim must be to double its share of the world market in the next five years.
Table 7.37: Value, Growth Rate and Share of India’s Handicrafts (Value in US$ million, Growth Rate and Share in Per cent)
Year Value Of Export Growth RateShare in Total Manufactured
Exports1995-96 434 1.81996-97 475 9.63 1.91997-98 526 15.6 1.91998-99 633 5.3 2.41999-00 668 6.6 2.22000-01 661 2.2 1.92001-02 549 -18.6 1.62002-03 785 30.0 1.92003-04 499 -4.8 1.02004-05 377 -7.0 0.62005-06 462 30.2 0.62006-07 438 -5.2 0.52007-08 508 16.0 0.52008-09 301 -40.8 0.22009-10 224 -25.3 0.192010-11 257 46.8 0.162011-12 233 -8.9 0.12
Source: RBI, Handbook of Statistics on Indian Economy
Handicrafts Exports: Key Markets
Two thirds of handicrafts exports are to the traditional markets of USA, Canada,
France, Germany, Italy, Japan, Netherlands, UAE, Switzerland and UK. However, the
following high potential market segments like; LAC (Latin American Countries including
South America & MERCOSUR Region), Middle East (Gulf), Far-East (Including China),
CIS (Including erstwhile USSR & East Europe), African Region, have not been fully tapped
due to focus on traditional markets by the exporters:
There is need to adopt better export strategy for handicrafts products. The
government should not only continue with existing schemes and assistance to handicraft
exporters but also introduce new incentives and schemes to further its export. Domestic
Infrastructure development should also be undertaken and brand promotion abroad is the
most important issues.
4. WTO AND TRADE BARRIERS TO INDIAN MANUFACTURED EXPORTS: TARIFF AND NON-TARIFF MEASURES
The formation of WTO has opened up market of many developed countries for
Indian manufactured goods by bringing down the tariff barriers. Various rounds of
negotiations under WTO forum have reduced the role of tariffs as a barrier in movement of
goods in international trade. Binding a tariff in the WTO, establishes the maximum tariff
which can be applied on imports from other WTO members. This binding reduces
uncertainty in the tariff regime, even in cases where the applied tariff is below the bound
tariff and there is room for tariff increment.
In manufacturing, average tariff protection is generally low, but tariff peaks and
escalation in sensitive products (textiles and clothing, agriculture, food products, wood
products, and pulp and paper) disproportionately affect the products exported by developing
countries like India. This biases incentives for developing country exporters, and
particularly those of LDCs, towards products with lower value added and inhibits the
diversification of exports.
At the same time, developing countries maintain much higher average tariffs in
manufacturing (by a factor of three or four) than industrial countries. More advanced
developing country markets are among the fastest growing markets for manufactured
exports, and the fact that they are relatively more protected further disadvantages
developing country and LDC exports.
Though the tariff measures has declined substantially both in developed and
developing countries over the past decades but it remains significant in case of product
where India enjoys comparative advantage. The table 7.38 and 7.39 given below shows the
tariff and duties faced by Indian products in its major markets.
Table 7.38: Tariff Rates Imposed by Selected Developed NationsSector Final bound MFN applied
EU USA Japan EU USA JapanTotal 5.0 3.5 4.9 5.1 3.5 4.4Agricultural 12.3 4.8 20.9 12.8 4.9 17.3Non- Agricultural 3.9 3.3 2.5 4.0 3.3 2.5Source: WTO, World Tariff Profile 2011
Table 7.39: Tariff Rate on Specific Commodities by Selected Developed NationsCommodities Final bound MFN applied
EU USA Japan EU USA JapanMinerals & Metals 2.0 1.7 1.0 2.0 1.7 1.0Chemicals 4.6 2.8 2.3 4.6 2.8 2.2Wood, Paper etc. 0.9 0.4 1.0 0.9 0.5 0.8Textile 6.5 7.9 5.6 6.6 7.9 5.5Clothing 11.5 11.4 9.2 11.5 11.7 9.2Leather, Footwear etc. 4.2 4.3 8.8 4.2 3.9 9.0Non-Electrical Machinery
1.7 1.2 0.0 1.9 1.2 0.0
Electrical Machinery 2.4 1.7 0.2 2.8 1.7 0.2Transport Equipment 4.1 3.1 0.0 4.3 3.0 0.0Manufactures n.e.s. 2.5 2.1 1.2 2.7 2.4 1.2Source: WTO, World Tariff Profile 2011
The table 7.38 and 7.39 shows that the developed countries applied tariff rates is
more than the bound rates in case of some of the given manufactured goods. However the
developing countries applied tariff rates is low than final bound tariff rates as could be seen
in table 7.40 and 7.41.
Table 7.40: Tariff Rates Imposed by Selected developing NationsSector Final bound MFN applied
*UAE China Hong Kong, China
UAE China Hong Kong, China
Total 14.3 10.0 0.0 4.9 9.6 0.0Agricultural 25.1 15.7 0.0 6.6 15.6 0.0Non- Agricultural 12.6 9.2 0.0 4.7 8.7 0.0Source: WTO, World Tariff Profile 2011
Table 7.41: Tariff Rate on Specific Commodities in Selected developing NationsCommodities Final bound MFN applied
UAE China Hong Kong, China
UAE China Hong Kong, China
Minerals & Metals
14.8 8.0 0.0 4.9 7.4 0.0
Chemicals 7.1 6.9 0.0 4.4 6.6 0.0Wood, Paper etc. 12.0 5.0 0.0 4.7 4.4 0.0Textile 14.9 9.8 0.0 5.0 9.6 0.0Clothing 15.0 16.1 0.0 5.0 16.0 0.0Leather, Footwear etc.
15.0 13.7 0.0 5.0 13.2 0.0
Non-Electrical Machinery
13.1 8.5 0.0 4.8 8.0 0.0
Electrical Machinery
11.3 9.0 0.0 4.0 8.3 0.0
Transport Equipment
13.8 11.4 0.0 4.0 11.5 0.0
Manufactures n.e.s.
12.9 12.2 0.0 4.7 11.9 0.0
Source: WTO, World Tariff Profile 2011
As per the commitment under the WTO agreement, the developed countries have
lowered the tariffs against import from the developing countries but then they and many
other developing countries have adopted non-tariff measures as a new way of restricting
imports from the countries. These non- tariff barriers are in the form of SPS (Sanitary &
Phyto-sanitary) and TBT Technical Barriers to Trade) measures which is allowed by WTO
in order to ensure product is of international standard and quality and a safe product to be
consumed and also to ensure environment and social sustainability. This flexibility in the
WTO rules, have adversely effected the export of developing countries as most of the
NTBs are especially targeted on products where the developing countries have a
comparative advantage - food products, chemicals, pharmaceuticals, textiles, leather,
engineering products etc.
As per the data and records collected by the Ministry of Commerce, Government of
India, we can see table 7.42 that India is subject to NTBs, especially those concerning
standards, labelling and testing/certification/licensing requirements, in nearly all its priority
markets.
Table 7.42: Major NTMs that are maintained against Indian Manufactured Exports
Country Item Details of NTMUnited States Paper products Non-scientific quarantine restrictions, customs surcharges, eco
labelling stipulations and food safety/ health standards exist on paper products exports.
Argentina Matches, Insecticides, Fungicides, Plastics, Rubber, Leather, Wood &
Paper Products, Textiles & Clothing, Headgear, Footwear,
Articles Of Iron & Steel, Mechanical & Electrical
Machinery, two wheelers, optical instruments, furniture, toys, miscellaneous manufactured
articles
A new regulation (57 &58/2007 dated 24.08.2007) wherein minimum import price has been established for specified product
imports from India and some other countries. Under this the Argentine Customs authorities can ask for validation of Indian
customs invoice with a full set of original documents if they suspect that the invoiced value is less than the minimum import price
established.
Argentina Pharmaceuticals There is delay in registration leading to non-viability of exports.Brazil Pharmaceuticals Procedural delays occur in the clearances, inspections and
registration by the Brazilian Health Surveillance Agency (ANVISA)Canada Paper products Non scientific quarantine restrictions, customs surcharges, eco
labelling stipulations and food safety/ health standards exist on paper product exports.
Colombia Pharmaceuticals The registration by Colombian Drugs Control and Certification takes 11 to 12 months, inspections are undertaken for environmental
compliance and a 10% price preference is granted for French pharmaceutical companies under a bilateral agreement.
European Communities
Chemicals The Registration, Evaluation and Authorisation of Chemicals (REACH) legislation increases cost of compliance by € 85,000 to €
325,000 per chemical.European
CommunitiesEngineering and Electronics The stipulation of CE (originally known by the French term
Conformité Européenne) marking to indicate conformity with the essential health and safety requirements increases cost for small and
medium enterprises.
Table: 7.42 (contd.)
Japan Footwear The tariff rate quota (TRQ) restricts imports to the quantum of the quota.
Korea Chemicals, pharmaceuticals, computer and medical equipment
Certification requirements (including prior approval) add on to the cost of exports.
New Zealand Paper products Non scientific quarantine restrictions, customs surcharges, eco labeling stipulations and food safety/ health standards exist on paper
products exports.Ukraine Pharmaceuticals, cosmetics,
plastics, leather products, textiles & clothing
A compulsory certification with the option of either (a) certificate of acceptance of foreign certification by Derzh Standard or (b)
Conformance certificate by Ukrainian Agency. Though ISO 9000 Standards are adopted by Derzh Standard, foreign certification
recognition exists only to the extent of international treaty obligations of Ukraine.
Uzbekistan All products Cumbersome procedure for registration and certification, a custom processing fee @ 0.7% of value and lengthy procedure for conversion of hard currency as well as profit repatriation.
These non-tariff measures have become important barriers to market access to
Indian manufactured exports and hence effort should be made to negotiate for the removal
of such NTBs especially in those products in which barriers are high leading to less than full
potential export. Chemicals, pharmaceuticals and engineering goods are few of our
emerging strengths that have huge export potential, which is however inadequately tapped
due to various non-tariff barriers. However, the Department of Commerce has adopted
suitable plan and strategy to deal with issues relating to NTMs. In pursuance of the decision
in the Committee of Secretaries meeting held on 31 October 2008, the Department of
Commerce constituted an Inter-Ministerial Committee (IMC) to coordinate the plan and
strategy for dealing with issues related to NTMs and to increase India’s market access
abroad. A Technical Committee (TC) was also constituted to provide technical support and
generate scientific data to deal with specific technical and scientific issues concerning
NTMs. So far, six meetings of the IMC and two meetings of TC have been held by the
Department of Commerce. Various Departments/Ministries/Organizations identifies clearly
the NTMs faced by the exporters so that they may be taken up at the appropriate level in the
SPS/TBT Committee Meetings at the WTO or bilaterally with the concerned countries in
the FTA negotiations. The Department of Commerce raises 3-4 four issues in every regular
SPS/TBT Committee Meetings at the WTO to get suitable redressal of our export concerns,
where NTBs are faced by Indian markets so as to have favourable negotiation in the WTO.
Inference from the Trend in Manufactured Exports in post –WTO period
As compared to pre-WTO, the Indian Manufacture exports has registered
tremendous growth rate and share in total merchandise exports in post-WTO period
reflecting high technological growth and industrial development in the country.
However, in recent years it has shown reduced performance.
Among the manufactured goods, the products like; engineering goods, gems and
jewellery, chemical and related products and readymade garments has shown steady
growth throughout the period except in few years.
The slowdown in exports of manufactured goods was registered in 1996-97, due to
decline in export of gems and jewellery, leather and leather manufactures, electronic
goods, readymade garments and handicraft owing to various factors like fall in
world trade growth in 1996 by 3 percentage points, appreciation of Indian rupees
vis-à-vis the currencies of India’s major trading partners and competitors,
international price of some manufactured goods fall, South East Asian countries
crisis etc.
Again in the year 1998-99, manufactured exports declined to register negative
growth rate of -2.8 per cent this poor performance was due to decline in world trade
and international prices, the massive depreciation of currencies of the East Asian
countries impacted price competitiveness of our export in sectors like manmade
yarn, finished leather, textile, automotive parts, chemical, iron ore, machinery and
electronic goods and also the trade barriers initiated by major trading partners.
In 1999-00, the previous year negative growth in manufacture export was soon
recovered due to revival of world trade mainly with recovery of East Asian crisis
and modest recovery in some global commodity prices.
In 2001-02, major components of manufactured goods registered negative growth
because of slowdown in global economy resulting into decline in demand. The
terrorists attack in US in 2001 severely affected India’s manufacture export as it
being the most important destination for Indian goods. Further recession in Japan
lead to negative export growth.
From 2002-03 to 2006-07, better performance was registered due to factors like i)
WTO member countries commitment in further trade liberalisation, reduction of
tariff ii) more openness’s to foreign direct investment in export-oriented industries
iii) growth in economy of India’s emerging trading partners iv) export of items like
gems and jewellery, engineering goods, readymade garments and chemical and
related products registering strong growth v) recovery in Euro area and vi) growing
integration with emerging economies through regional trade agreements which are
the potential market for Indian manufactured goods.
In 2006-07, an RBI report suggested that fluctuation in the value of the rupee
affected Indian industries asymmetrically. While labour-intensive sectors such as
cotton and leather experienced a fall in export growth (due to an appreciated rupee
between 2006 and 2007), high import-intensive sectors like engineering and gems
and jewellery performed better during the same period, due to lower import costs.
In 2009-10, most of the sector registered negative growth rate due to fall in global
demand as a result of world recession which was more acute in US and European
countries, major trading partner of India.
In post-WTO period, India achieved export basket diversification.
The major export destinations for Indian manufactured exports in post WTO period
are European Union, United States, United Arab Emirates, China and Hong Kong,
China.
India enjoys comparative advantage in most of the selected commodities in major
categories of manufactured goods like gems and jewellery, leather and
manufactures, textile and textile products and chemical and related products.
However, in case of selected engineering goods marginal RCA has been registered.
The share of manufactured exports has declined in India’s total merchandise exports
in recent years and even the global share of Indian manufactured remained almost
stagnant or change by marginal percentage since 1995 and it was in 2008 it crossed
1 per cent share to reach 1.08 in 2008 and 1.63 per cent in 2011. This share is very
insignificant as compared to that of many developing countries especially china,
which has represented tremendous export growth rate in past decade. The following
factors contributed to this i) the country has failed to achieve comparative
advantage and export competitiveness in many products especially in engineering
goods due high domestic production cost, use of out-dated techniques, low quality
output and infrastructure bottlenecks. The Indian manufactured product categories at
the four-digit level hardly have a greater than 10 per cent share in global trade flows
except for few items. In contrast, China has a 10 per cent share in products like
textiles, garments, footwear, machinery and transport equipment, and office and
telecom. Ii) The second main reason for the weak performance has been that India’s
manufactured exports have languished in the ‘low value added’ categories and are
often ‘concentrated’ in ‘sunset’ segments. Iii) India’s share in export of advanced
technology product is extremely small. In India, high technology sectors like
hardware and electronics faced several constraints like distorted tariff structure,
reduced access to foreign exchange, inadequate infrastructure, inadequate spending
on R&D, etc., which have severely restricted the growth of this sector to
international standards.
It is thus concluded that Indian manufacturing sector is imperative in country’s
economy; it has contributed significantly to India’s GDP and generated large-scale
employment for low and medium skilled workers. In country’s total merchandise export,
this sector has a significant share. The creation of WTO has resulted into faster growth in
world export and has helped India too in expanding her manufactured exports.
In the post- WTO period, among the total manufactured goods exports, engineering
goods has registered the sturdiest growth rate in export in past decade, however in the
global market its presence was not significantly felt as compared to many other developing
Asian countries especially like China, iron & steel is the only product where India has not
only revealed comparative advantage but also shown substantial share in global export
markets. Indian gems and jewellery is the another important export item of the country that
constitute a significant share of the country’s aggregate exports and have also performed
well worldwide, thereby making India a key player in this market. Textile and cotton
exports, which are a traditional export item for India, have shown declined performance
with a falling contribution to Indian exports as well as to the global market leather and
manufactures and handicrafts too has registered declining growth and share in post WTO
period. Lastly, the chemical and allied product is a major sector which has shown
cumulative performance throughout the period and has strong potential to contribute to
India’s exports in the near future.
The reduction and subsequent removal of export and import barriers under WTO
regime have resulted into better exports performance. Beside it, government manufactured
export policies, global economic conditions, costs, market structure, and WTO agreement
has also been an important factor in India’s better export performance. However in spite of
these it has been observed that there exists lack of consistency in expansion of India’s
manufactured export and is below its potential. The share of India’s manufactured export in
world export is still lower as compared to many developed countries especially China.
India’s export performance has been affected by huge number of internal and external
factors such as domestic infrastructure bottlenecks, procedural bottlenecks, inflation, world
demand (or GDP), tariff and non-tariff barriers and also exchange rates.
In manufacturing, the persistence of protectionist attitude in India’s major markets
like tariff peaks and escalation had affected disproportionately the exports of country
especially in areas where India has a comparative advantage. In addition, some less
transparent barriers are becoming more prevalent, especially antidumping and requirements
related to technical and health standards. The growing number of regional trading
arrangements and preference schemes has also led to increasing discrimination in
international trade, complex rules of origin, and other administrative procedures that can
hamper trade. All the above factors have unfavourably affected India’s manufactured
exports as a result country’s share of manufactured exports in total merchandise exports
showed substantial decline.
These aspects of India’s manufactured export performance under post-WTO period
reveals that India need to focus on boosting its manufactured exports and has to take
advantage of the WTO liberalised system by strengthening its negotiation under the WTO
for removal and reduction of trade distortion and market access barriers that exists in major
markets of developed countries by especially focussing on the issue of tariff peaks and tariff
escalation and non-tariff barriers. The improved dispute settlement system under WTO is
rule based that ensures member countries that their issues would not be ignored and be
given due consideration. Besides considering through the impact of WTO, India should
concurrently improve the internal disorder of the country; it should strengthen its export
competitiveness by improving and developing infrastructural facilities and through removal
and reduction of complex domestic procedures and state interventions.
REFERENCES
1. Subramanian, Arvind and Shang-Jin Wei, “The WTO Promotes Trade,
Strongly But Unevenly,” Journal of International Economics 72 (2007)pp
151–75.
2. Report of the Working Group on ‘Boosting India’s Manufacturing Exports’
Twelfth Five Year Plan (2012-17), Ministry of Commerce & Industry,
Department of Commerce. p 84
3. Report of the Working Group on ‘Boosting India’s Manufacturing Exports’
Twelfth Five Year Plan (2012-17), Ministry of Commerce & Industry,
Department of Commerce. p 93
4. Mukerjee, Shameek and Mukerjee, Shahana (2012). Overview of India’
Export Performance: Trends and Drivers, working paper no 363, Indian
Institute of Management, Bangalore.
CHAPTER VIII
INDIA’S SERVICES EXPORT PERFORMANCE
1. IMPORTANCE OF SERVICE SECTOR
With the growth of country’s economy, the role of service sector too increases in
various economic indicators of growth and development. Services though are invisible and
intangible but imperative for any countries economy. In past decade services has emerged
as a most dynamic sectors in the world economy. In the economic transition period and
development stage it may come in the last stage after the development of primary
sector( agriculture) and secondary sector (industries) but it tends to dominate the country’s
economy, and leads the economic growth and development process to an advance stage. As
Hoekman and Kostecki emphasize, services are vital to the functioning of any economy
because they have an effect on competitiveness and play an intermediation function in the
production process1.
In the past, few economists had made an effort to elucidate the concept and significance
of services. Baumol (1967) made valuable contributions to the study of services. His ‘Cost
Disease Theory’ discusses the rising costs associated with service industries. Hill’s (1977)
concept of services was similar to the classical economists. He stated that services cannot be
accumulated and thus need provider and user to be in close proximity. Services are defined as
diverse group of activities that includes the following characteristic; intangibility,
insubstantiality, perishability, inseparability, simultaneity and variability. Services are
complex and diverse and cannot be stored. It requires simultaneous production and
consumption. Services are defined according to the International Monetary Fund’s Balance
of Payments Manual as, “economic output of intangible commodities that may be produced,
transferred and consumed at the same time. However, services cover a heterogeneous range
of intangible products and activities that are difficult to capture within a single definition
and are sometimes hard to separate from goods. Services are outputs produced to order, and
they typically include changes in the condition of the consumers realized through the
activities of the producers at the demand of customers. Ownership rights over services
cannot be established. By the time, production of a service is completed, it must have been
provided to a consumer. Examples of services are wholesale, hotel, catering, transport,
insurance, education, property rental, telecommunications, marketing, health, and cultural
and recreational services.”
Service sector contributes both directly and indirectly in the country’s output,
income and employment. By undertaking provision of various financial, transportation,
communication and other business services it provides direct employment to large number
of persons and by complementing other important sectors i.e. agriculture and industries it
contributes indirectly as both of the above sectors are good source of income, output and
employment.
In past years various studies has been under taken to explain the cause of fast growth
in the share of service sector in the economy. The studies of Kravis (1982), Francois and
Reinhart (1996), Bhagwati ( 1994) showed that on the supply side, the output share of
services boosted by a switch to a more services-input intensive method of organizing
production. Such a change in production methods arise as a result of increasing
specialization as the economy matures. For example, over time, industrial firms may make
greater use of specialist sub-contractors to provide services that were previously provided
by the firms themselves. Legal, accounting, and security services are obvious candidates to
be contracted out. Share of services has also increased as it enjoys high income elasticity of
demand which also results into a rise in the prices of services, as well as a shift of resources
into the production of services. Technological advancement too has stimulated service
activity and progression of liberalization in international trade in service provides a further
boost to service sector growth.
ROLE OF SERVICES IN AN ECONOMY
Services are soul of any countries economy directly or indirectly it leads to
prosperity and growth of a country.
ROLE IN COUNTRIES GROWTH, DEVELOPMENT AND PROSPERITY
DIRECT
Contribution in countries GDP. Contribution in employment. Contribution in earning foreign
exchange. Compliments other two sectors
primary and secondary. Builds up strong infrastructure.
INDIRECT
Leads to higher living standard of people.
Helps in removing poverty. Smoothens the life. Leads to social development
through provision of health and education services.
According to the World Trade Organization (WTO), services represent the fastest
growing sector of the global economy, which accounts for about 70 per cent of world gross
domestic product (GDP), one third of global employment and nearly 20 per cent of global
trade2. Services are inputs in the production of goods and other services and, through these;
they contribute to economic growth and the development of countries. According to Ghani
and Homi, there is a relationship between high growth in services and high overall
economic growth, albeit the causality relationship cannot be established3. In the past few
decades emerging role of services in international trade has been a source of fortune for
many developing economies. Services are the fastest growing sector in global trade. The
share of developing countries in world service exports increased from 14% in 1990 to 27%
in 2008 and around 31% in 2011.
ROLE OF SERVICES IN INDIAN ECONOMY
At the time of independence, Indian economy was stagnant and hence dominated by
agriculture sector, with further growth and development role of manufacturing sector
increased but in recent decade service sector constitutes a major share in Indian economy
both in terms of employment opportunity and contribution in national income. The World
Bank (2004) attributes the immense growth in India’s economy in the decade of the 1990s to the
thriving services sector. It is interesting to note that in Indian economy the contribution of the
services sector has climbed higher even before the country can truly be called a developed one.
The service sector has not only made waves in the domestic economy, but has also managed to
make its presence felt in the external trade of the country. A major produce of service sector is
traded abroad thereby contributing in nations foreign exchange reserves and also balances
deficit in balance of trade by creating surplus in balance of invisibles. In terms of
international trade in services India enjoys distinctive position as compared to other
developing countries as it ranks among top 10 leading exporters of services in the world.
Hence the Growing share in national and states’ GDP, FDI, employment, and exports
indicate the importance of the services sector for the Indian economy. There is no doubt that
India’s growth in the last decade has been service led and the 2005 UNCTAD Trade and
Development report has included South Asia along with East Asia as the new growth pole
due to the economic dynamism of India in South Asia & China in East Asia.
GDP
The share of services in country’s GDP has constantly increased since independence
as a result of advancement in technology and development of human skills. During the
beginning of first five year plan share of services in GDP was 27.52 per cent in 1950-51
which soon reached to 40.59 per cent in 1990-91 and then to 50.3 per cent in 2000-01 and
recently to 59 per cent in 2011-12. The table 8.1; shows the growth in share was not
significant during 1950’s, 60’s and 70’s but in last two decades share of service sector was
significantly high. The sect oral composition of real GDP since 2006-07 shows a decline in
the share of agriculture, a marginal decline in the share of industry and an increase in the
share of services. The agriculture sectors share in country’s GDP declined from high share
of 59.19 per cent in 1950-51 to 34.92 per cent in 1990-91 and then to 14 per cent in 2011-
12. The share of manufacturing sector in GDP has initially increased at a low rate i.e. from
13.29 per cent in 1950-51 to 24.49 per cent in 1990-91 and then declined from 26.7 per cent
in 2006-07 to 25.7 per cent in 2008-9, which again raised to 27 per cent in 2011-12
Table 8.1: Sect oral shares in country’s GDP. (Share In per cent)
YEAR AGRICULTURE MANUFACTURING SERVICES1950-51 59.19 13.29 27.521960-61 54.74 16.61 28.651970-71 48.12 19.91 31.971980-81 41.82 21.59 36.591990-91 34.92 24.49 40.591993-94 33.54 23.69 42.771995-96 30.58 25.47 43.951997-98 29.03 25.20 45.771999-00 27.49 24.63 47.882000-01 23.9 25.8 50.32001-02 24 25 512002-03 21.4 25.8 52.72003-04 21.74 25.6 52.72004-05 20.2 26.2 53.62005-06 19.5 26.4 54.12006-07 18.5 26.7 54.92007-08 17.8 26.5 55.72008-09 17 25.7 57.32009-10 14.2 28 57.82011-12 14 27 59Agriculture includes forestry and logging, fishing, mining and quarrying;Industry includes construction, electricity, gas and water supply;Services include (a) transport, communication and trade; (b) Banking and insurance, real estate, dwellings and business services; and (c) Public administration and defence and other services.Source: RBI, Handbook of Statistics on Indian Economy.
The table 8.2; given below shows the decomposing of GDP growth into the growth
of the three sectors of the economy. We find that in 2008–09 the Indian economy recorded a
growth rate of 6.7%, of which 5.9 percentage points were contributed by the services sector.
The manufacturing sector contributed 0.5 percentage points, while the agriculture sector
contributed 0.3 percentage points. The contribution of services to GDP growth over the
years clearly shows that the main momentum for the growth of real GDP has come from the
services sector, especially during global economic crisis.
Table 8.2: Sect oral Decomposition of GDP Growth (In per cent)
Year Growth of GDP at factor cost
Agriculture Industry Services
1991–92 1.4 (0.6) (0.1) 2.1 1992–93 5.4 2.0 0.6 2.7 1993–94 5.7 1.0 1.4 3.2 1994–95 6.4 1.4 2.0 3.0 1995–96 7.3 (0.2) 2.6 4.8 1996–97 8.0 2.7 1.7 3.6 1997–98 4.3 (0.7) 0.4 4.6 1998–99 6.7 1.6 0.7 4.3 1999–00 6.4 0.7 0.7 5.0 2000–01 4.4 (0.1) 1.3 3.2 2001–02 5.8 1.5 0.5 3.8 2002–03 3.8 (1.7) 1.3 4.3 2003–04 8.5 2.1 1.2 5.2 2004–05 7.5 0.0 1.7 5.8 2005–06 9.5 1.2 1.6 6.7 2006–07 9.7 0.8 2.1 6.9 2007–08 9.0 0.9 1.4 6.7 2008–09 6.7 0.3 0.5 5.9 Source: Calculated from RBI, Handbook of Statistics on Indian Economy
Employment
Service sector not only play’s important part in country’s national income and
output but also have the high intensity to absorb labour force both skilled and unskilled
thereby generating employment more than what is created in manufacturing sector. Various
studies in the past have shown that the employment elasticity in the tertiary sector as a
whole in the post-reform period has been 50 per cent higher than in manufacturing sector. In
the decades of eighties and nineties, the fall in the share of agriculture sector in employment
has been increasingly absorbed by the tertiary sector. India’s share of employment growth
in the service has been higher than in manufacturing sector on Usual Principal Status (UPS)
basis (see table 8.3). Like other countries of South East Asia, like Malaysia, Thailand and
Indonesia, in India also a larger share of employment has been created in the tertiary
sectors, in the eighties and nineties.
Table 8.3: Sect oral shares of employment in India (UPS basis) (In per cent)
YEAR AGRICULTUE MANUFACTURING SERVICE1983 66.2 14.6 19.81993-94 61.7 15.7 22.61999-00 58.5 16.7 24.72004-05 54.2 19.4 26.42009-10 52 14 34Source: Planning Commission, GOI
Flow of FDI in Service Sector
FDI in India mainly flowed into service sector (with an average share of 41 per cent
in the past five years) followed by manufacturing (around 23 per cent). However, the share
of services in FDI declined over the years from almost 57 per cent in 2006-07 to about 30
per cent in 2010-11, while the shares of manufacturing, and ‘others’ largely comprising
‘electricity and other power generation’ increased over the same period. Sectoral
information on the recent trends in FDI flows to India show that the moderation in gross
equity FDI flows during 2010-11 has been mainly driven by sectors such as ‘construction,
real estate and mining’ and services such as ‘business and financial services’.
Table 8.4: Equity FDI Inflows to India
(Per Cent)Sectors 2006-07 2007-08 2008-09 2009-10 2010-11
Sectoral shares (Percent)Manufactures 17.6 19.2 21.0 22.9 32.1Services 56.9 41.2 45.1 32.8 30.1Construction, Real estate and mining 15.5 22.4 18.6 26.6 17.6Others 9.9 17.2 15.2 17.7 20.1Total 100.0 100.0 100.0 100.0 100.0
Equity Inflows (US$ billion)Manufactures 1.6 3.7 4.8 5.1 4.8Services 5.3 8.0 10.2 7.4 4.5Construction, Real estate and mining 1.4 4.3 4.2 6.0 2.6Others 0.9 3.3 3.4 4.0 3.0Total Equity FDI 9.3 19.4 22.7 22.5 14.9
Source: RBI, Handbook of Statistics on Indian Economy.
Export of Services
The trend of globalization, reinforced by liberalization policies and the removal of
regulatory obstacles has fuelled steady growth of India’s trade in services. India’s services
sector’s growth has mainly been attributed to its exports. The table 8.5 shows how the share
of export of services in GDP increased from 1.6 per cent in 1990-91 to 7.2 per cent in 2010-
11 and share in the total services output increased from 3.2 per cent in 1990-91 to 15.1 per
cent in 2008-09. In the next part, we will see the trends in India’s services export.
Table 8.5: Share of Services Exports in Services Output and GDP (in per cent)
Year Share of Export of Services in Total Services Output
Share of Export of Services in GDP
1990–91 3.2 1.61991–92 4.2 2.11992–93 4.0 2.01993–94 4.2 2.11994–95 4.2 2.11995–96 4.5 2.31996–97 4.2 2.11997–98 4.8 2.51998–99 6.4 3.41999–00 6.9 3.82000–01 6.9 3.92001–02 6.8 3.92002–03 7.6 4.42003–04 8.2 4.92004–05 11.2 6.72005–06 12.9 7.82008–09 15.1 9.42009-10 - 6.92010-11 - 7.2
Source: Computed from RBI, Handbook of Statistics on Indian Economy
Indian services shares a huge market abroad thereby enabling country to earn
foreign exchange so we now analyse in detail the India’s services export position in
international market and service export performance in pre and post WTO establishment in
the next section of this chapter.
2. INDIA’S EXPORT OF SERVICES IN WTO ERA
Services are not only playing role within the domestic boundaries of the country but
also in the world economy through trade in services. World trade in service has emerged as
the powerful booster of world economy. Rapid technological advancement and
liberalisation has made almost all services tradable abroad. However, the trade barriers
adopted by many countries has made many diverse and beneficial services of some of the
countries limited to their domestic boundaries, so in order to overcome this problem WTO
has laid down general rules regarding trade in services under General Agreement on Trade
in Services (GATS) where the services are traded in the form of four supply modes. Trade
in services in India has been growing rapidly since beginning of the last decade and after
recognising the role of the service sector for the Indian economy, India’s stance towards the
GATS changed radically. It was the result of GATS that various diverse and competitive
services were brought under the purview of trade negotiations. Before analysing the trend in
India’s service export it is important to have understanding on the WTO Agreement on
Trade in Services, which has to be followed by all the member countries of WTO.
WTO Rules Regarding Service Trade
Enforcement of General Agreement on Trade in Services4
With the realisation of growing share of services in country’s GDP and employment,
a need was felt to make service trade the part of multilateral trading system in the Uruguay
Round of negotiations held in the year 1986 and concluded in 1994 ultimately replacing
GATT with WTO. Trade in goods was always at the core of GATT subject and service
trade had less scope earlier due to various kinds of domestic restrictions and regulations.
But in the era of globalisation and liberalisation the growing importance of service trade
could not be discarded and thus a need was felt to develop multilateral system of rules and
principles that would govern trade in services. This led to inclusion of General Agreement
on Trade in Services under the agreement of WTO.
The General Agreement on Trade in Services came into force on Jan 1, 1995. The
main objective of GATS was to promote trade in services by making trade rules more
liberal and transparent. With this objective GATS lays down certain obligations on the part
of member countries. GATS includes all the services which could be internationally traded
except the two services one provided to the public in the exercise of governmental authority
and other in the air transport sector, traffic rights and all services directly related to the
exercise of traffic rights. Except the above two following services are included under
GATS;
1. Business services(including professional and computer services)2. Communication services.3. Construction and Engineering services.4. Distribution services.5. Education services.6. Environmental services.7. Finance services (including banking and insurance)8. Health services.9. Tourism and Travel services.10. Recreation, Cultural and Sporting services.11. Transportation services.12. Other services.
All the member countries are open to decide the services in which they undertake
schedule commitments. As per Article XXI, members can expand and modify their existing
commitments as and when required.
The commitments apply in following four modes of supply of services.
1. Mode 1, Cross- Border supply of services-where services flow from one member
country to another. (telecommunication)
2. Mode 2, Consumption abroad-where consumer obtains service by moving into the
territory of other member country. (tourism)
3. Mode 3, Commercial presence-services are provided by one member country
through the territorial presence in another member country. (joint venture, banking)
4. Mode 4, Movement of natural person –services are provided by movement of
individuals of one member country into region of another member country.
(consultants, doctors)
I. GATS contain general obligation and discipline that applies to all services and members
and these are as follow;
1. MFN Treatment- Article II of GATS lays down MFN treatment to be provided to all
member countries. Any scope or opportunity to be provided by a member country to
another member country in service trade will automatically be applicable to all
members of WTO. MFN is meant for all services with few temporary exemptions,
which would be renewed by the Council of Trade if such exemptions granted for
period of more than 5 years.
2. Transparency – Article III of GATS lays down that all the member countries have to
publish all that policies and practices followed by them, which may affect the
operation of this agreement. Besides, they must publish international agreement in
service trade. Each member shall also establish one or more equity points to provide
specific information to other members; however, confidential matter is not
disclosed. They must also notify WTO about any variations in regulations that apply
to the services that come under specific commitments.
3. Domestic Regulation- Article VI of GATS lays down that all the member countries
should administer measures and methods affecting trade in service in reasonable,
objective and impartial manner. All the domestic rules, procedures and regulation
should be meant to promote smooth trade.
4. Technical Barriers- GATS requires members to formulate and follow certain
disciplines so that barriers relating to qualifications requirements, technical
standards and licensing requirements do not hinder trade flow.
5. Restrictive Trade Practice- Article IX deals to eliminate all such business practice
adopted by member country that may restrain competition and thereby restrict trade
in services through consultation when requested for such elimination by other
member country.
II. Specific Commitments under GATS
It represents the commitments of countries to open markets in specific sectors. The
‘schedules’ of commitments are prepared that shows the sector that is being opened, the
extent of market access being given on those sectors and any limitations on national
treatment. As per Article XXI, Specific commitment can be modified after negotiations with
affected countries, which would probably lead to compensation.
1. Market Access: Article XVI lists prohibited measures in market access these are;
Limitations on the number of service suppliers
Limitations on the total value of services transactions or assets
Limitations on the total number of service operations
Limitations on the number of persons that may be employed in a
particular sector or by a particular supplier
Measures that restrict or require supply of the services through specific
types of legal entity or joint venture and
Percentage limitations on the participation of foreign capital, or
limitations on the total value of foreign investment.
2. National Treatment-Article XVII lays down that each member country in the
sectors covered by its scheduled, and subject to any conditions and qualifications
set out in the schedule, shall give same treatment to foreign services and service
suppliers as it gives to the domestic services and suppliers; however here GATS
allows few limits on national treatment. It is not applicable in those sectors
where no commitment has been made.
SERVICES EXPORT PERFORMANCE- A Cross Country Analysis
In the past decade, international trade in services has grown at a higher rate than
trade in goods. The growth of services sector has overtaken the growth in real GDP in a
number of countries. The services are now dominating the world economy. While
developed countries still account for a major share of services in world GDP and trade,
developing countries are catching up in terms of increasing their share in global trade in
services. In India, traditional services relating to trade in goods, such as transportation and
financing were the major constituents, the rapid developments in telecommunications and
information technology has facilitated the emergence of business and computer services as
the main drivers of the service export growth (RBI, 2010)5.
In past decade, India’s service sector has not only made influences in the domestic
economy, but has also managed to make its presence felt in the world export of services. In less
than two decades, India has become one of the top five exporters of services amongst the
developing countries, and it has surpassed some of the other Asian countries that dominated the
services trade in the 1990s. India has been deemed a major exporter of services in the world
with a market share of 3.23% in 2011 as opposed to 0.6% in 1995. India’s services sector has
matured considerably in the last few years and has been globally recognized for its high growth.
A comparative study of services export performance of India and world consisting of
few developed and developing nations during pre and post WTO has been made. Here the
services export performance of selected developed countries and India’s is studied separately
with selected developing countries and India. For analysis leading exporters of services among
the developed and developing countries has been selected, like; United States, U.K., Germany,
France, Italy, Japan along with Australia and Canada forming developed countries and in case
of developing countries; China, Indonesia, Brazil, Mexico, South Africa, Russia Federation,
Turkey has been included.
Developed Countries and India
The Pre-WTO Period; 1990-94
A cross country analysis is made of India’ services export performance and of
selected developed countries in pre- WTO period, which revealed that the developed
countries had huge share in world export of services. US topped with the share of 17.81 per
cent in 1990 which rose to 18.50 per cent in 1994. The value of world export of services
was US$ 830236 million in 1990 and US$ 1083168 million in 1994. The share of France,
Germany and U.K. in world export of services was also high with 8.16, 7.52 and 6.80 per
cent in 1990 and 6.97, 6.04 and 6.46 per cent in 1994 and was among the top five exporters
of the services. The share of Italy and Japan in world service export was also perceptible
and was among top 10 exporters of the services. As compared to these developed countries,
India’s share was negligible at 0.56 per cent in 1990 and 1994. The table 8.6 shows that in
terms of value, growth rate and share, India’s services export performance was far from
comparable with the services export performance of the developed countries. Hence, in pre-
WTO period, India’s export of services was not remarkable and not close to the
performance of leading exporters of the services. It was due to domestic regulation and
restrictions on trade in service. However comparing the compound annual growth rate in
exports (1990-94) of given developed countries and India (refer fig.8.1) showed that CAGR
for world was 6.87 per cent and for India it was 6.89 per cent. At the top was Australia with
9.19 per cent followed by Japan and US with 8.96 and 7.9 per cent. For rest of the given
developed countries it was below that of India’s. So this indicates that there is potential for
growth in India’s services export in future.
Table 8.6: Value, Share and Growth Rate of Export of Total Services of Developed Countries and India in Pre-WTO Period.
(Value in US$ million, Share and Growth Rate in Per cent)Countries 1990 1991 1992 1993 1994
Value Share YOY Value Share YOY Value Share YOY Value Share YOY Value Share YOY
World 830236 100 18.8 877073 100 5.6 976444 100 11.3 993371 100 1.7 1083168 100 9.0
Australia 10204 1.23 15.2 10970 1.25 7.5 11211 1.15 2.2 12103 1.22 8.0 14507 1.34 19.9
Canada 19210 2.31 9.5 20368 2.32 6.0 20785 2.13 2.0 21868 2.20 5.2 23958 2.21 9.6
France 67782 8.16 13.1 71583 8.16 5.6 76191 7.80 6.4 75310 7.58 -1.2 75521 6.97 0.3
Germany 62447 7.52 …. 63835 7.28 2.2 68041 6.97 6.6 63364 6.38 -6.9 65385 6.04 3.2
India 4625 0.56 11.7 4925 0.56 6.5 4934 0.51 0.2 5107 0.51 3.5 6038 0.56 18.2
Italy 49666 5.98 56.2 46911 5.35 -5.5 58545 6.00 24.8 52285 5.26 -10.7 53681 4.96 2.7
Japan 41384 4.98 2.8 44837 5.11 8.3 49069 5.03 9.4 53219 5.36 8.5 58297 5.38 9.5
U. K. 56422 6.80 19.1 56278 6.42 -0.3 64227 6.58 14.1 62377 6.28 -2.9 69925 6.46 12.1
U. S. 147832 17.81 16.3 164264 18.73 11.1 177251 18.15 7.9 185917 18.72 4.9 200395 18.50 7.8Source: Computed from WTO, International Trade Statistics
Figure 8.1
World
Austra
lia
Canad
a
Fran
ce
Germ
any
India
Italy
Japa
nU. K
.U. S
.0123456789
10
6.87
9.19
5.63
2.73
1.14999999999998
6.89
1.96000000000002
8.96
5.51
7.9
Compound Annual Growth Rate of Services of Selected Developed Countries and India
CAGR 1990-94
Post-WTO Period; 1995-2011
With the growing importance of trade in services and inclusion of GATS in the
WTO, the services exports of many countries has effected in past decade. The formation of
WTO has brought about liberalisation in trade in services and with greater opening of
economy and removal and reduction of service trade barriers in many countries, there has
been tremendous growth opportunities in service export for potential nations of the world
like India. In post WTO period, we can observe that India’s services exports has performed
well and has competed well with that of many developed countries like Australia, Canada
and Italy. India’s share in world export of services has constantly improved and had reached
to 3.23 per cent in 2011 from 2.05 per cent in 2005, 1.10 per cent in 2000 and 0.55 per cent
in 1995. In terms of value it was US$ 6775 million in 1995 which reached to US$ 16685
million in 2000, US$ 52527 million in 2005 and US$ 137149 million in 2011 (see table
8.7). The share of many developed countries in world export of services has fallen as in
1995 for few developed countries it was as follow; Australia(1.35), Canada(2.14),
France(6.88), Germany(6.51), Italy(5.04) and Japan(5.43) which has declined in 2000 to;
Australia(1.31), Canada(2.64), France(5.43), Germany(5.45), Italy(3.72) and for
Japan(4.62) which was further declined in 2011 to; Australia(1.22), Canada(1.79),
France(3.95), Germany(6.08), Italy(2.51) and Japan(3.43), see table 8.8. However, the U.S.
and U.K. were among the top exporters of the services in the world with share of 14.13 and
6.54 per cent in 2011, but however their share too has declined as in 1995 it was 17.94 per
cent for U.S. and 6.53 per cent for U.K., India’s share was below them but has reached quite
near to that of Japan and France. The table 8.8 also reveals that India’s year of year growth
rate in service export is more than that of many developed countries. The CAGR in the
study period (1995-2011) was also highest for India with 20 per cent followed by U.K. (8.1)
and Germany (7.6), refer fig. 8.2. For U.S. it was 6.49 per cent. On the other hand Italy
recorded lowest of 3.4 per cent. India’s rank in world leading exporters of commercial
services also improved to 8th in 2011 as compared to 33rd in 1995.It is quite evident that
India’s service exports have greatly benefited from opening up of the economy. Hence, it
could be seen that in post WTO period, India’s services export performance was better than
many given developed countries and if this trend continues, it may outpace few more
developed countries in coming years in terms of share and value.
Table 8.7: Value of Services Exports of Developed Countries and India in Post-WTO Period.
(Value in US$ million) Countries 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
World 1222088 1307821 135877 1396617 1432571 1521680 1527469 1645293 1888169 2291833 2563438 2904644 3488205 3914741 3486623 3834989 4243259
Australia 16491 19101 19329 17174 18898 19894 18092 19594 23747 28485 31047 33088 40496 45240 41005 47726 51760
Canada 26128 29243 31596 33836 36117 40230 38804 40481 44242 50286 55829 60353 65338 68359 60089 69166 76154
France 84090 83529 80790 84958 81635 82703 82227 88734 101585 114758 122331 128574 149234 165364 144047 145491 1678125
Germany 79507 83283 82463 84267 83732 82929 88509 102913 123571 147349 164238 187575 222671 254449 231602 237574 2581295
India 6775 7238 9111 11691 14509 16685 17337 19478 23902 382817 52527 69730 86929 107131 93036 123762 137149
Italy 61620 65660 66991 67549 58788 56556 57676 60439 71767 84673 89410 98774 111931 115391 94185 98833 1066145
Japan 663467 69069 70741 63670 62132 70365 65614 66856 73472 92346 104406 117336 129027 148743 128242 141286 145437
U.K. 79796 90584 101642 112596 119068 120397 120978 135308 158615 197699 207672 236050 289082 285376 244735 250044 2776695
U.S. 219185 239491 256092 264520 269944 289141 278079 285654 295273 342851 376674 421532 492578 537875 508456 550456 5996495
Source: WTO, International Trade Statistics
Figure 8.2
Wor
ld
Aus
tralia
Can
ada
Fran
ce
Ger
man
y
Indi
aIta
ly
Japan
U. K
.
U. S
.0
5
10
15
20
25
8 7.41 6.914.4
7.6
20
3.45
8.16.49
Compound Annual Growth Rate of Services of Selected Developed Countries and India
CAGR 1995-2011
Table 8.8: Share and Growth Rate of Services Exports of Developed Countries and India in Post-WTO Period
(Share and Growth Rate in Per cent)
Countries 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Australia
13.7(1.35)
15.8(1.46)
1.2(1.42)
-11.1(1.23)
10.0(1.32)
5.3(1.31
)
-9.1(1.18)
8.3(1.19)
21.2(1.26)
20.0(1.24)
9.0(1.21)
6.6(1.14)
22.4(1.16)
11.7(1.16)
-9.4(1.18)
16.4(1.24)
8.5(1.22)
Canada 9.1(2.14)
11.9(2.24)
8.0((2.33
)
7.1(2.42)
6.7(2.52)
11.4(2.64
)
-3.5(2.54)
4.3(2.46)
9.3(2.34)
13.7(2.19)
11.0(2.18)
8.1(2.08)
8.3(1.87)
4.6(1.75)
-12.1(1.72)
15.1(1.80)
10.1(1.79)
France 11.3(6.88)
-0.7(6.39)
-3.3(5.95)
5.2(6.08)
-3.9(5.70)
1.3(5.43
)
-0.6(5.38)
7.9(5.39)
14.5(5.38)
13.0(5.01)
6.6(4.77)
5.1(4.43)
16.1(4.28)
10.8(4.22)
-12.9(4.13)
1.0(3.79)
15.3(3.95)
Germany
21.6(6.51)
4.7(6.37)
-1.0(6.07)
2.2(6.03)
-0.6(5.84)
-1.0(5.45
)
6.7(5.79)
16.3(6.25)
20.1(6.54)
19.2(6.43)
11.5(6.41)
14.2(6.46)
18.7(6.38)
14.3(6.50)
-9.0(6.64)
2.6(6.19)
8.7(6.08)
India 12.2(0.55)
6.8(0.55)
25.9(0.67)
28.3(0.84)
24.1(1.01)
15.0(1.10
)
3.9(1.14)
12.4(1.18)
22.7(1.27)
60.2(1.67)
37.2(2.05)
32.8(2.40)
24.7(2.49)
23.2(2.74)
-13.2(2.67)
33.0(3.23)
10.8(3.23)
Italy 14.8(5.04)
6.6(5.02)
2.0(4.93)
0.8(4.84)
-13.0(4.10)
-3.8(3.72
)
2.0(3.78)
4.8(3.67)
18.7(3.80)
18.0(3.69)
5.6(3.49)
10.5(3.40)
13.3(3.21)
3.1(2.95)
-18.4(2.70)
4.9(2.58)
7.9(2.51)
Japan 13.87
(5.43)4.1
(5.28)2.4
(5.21)-10.0(4.56)
-2.4(4.34)
13.2(4.62
)
-6.8(4.30)
1.9(4.06)
9.9(3.89)
25.7(4.03)
13.1(4.07)
12.4(4.04)
10.0(3.70)
15.3(3.80)
-13.8(3.68)
10.2(3.68)
2.9(3.43)
U.K. 14.1(6.53)
13.5(6.93)
12.2(7.48)
10.8(8.06)
5.7(8.31)
1.1(7.91
)
0.5(7.92)
11.8(8.22)
17.2(8.40)
24.6(8.63)
5.0(8.10)
13.7(8.13)
22.5(8.29)
-1.3(7.29)
-14.2(7.02)
2.2(6.52)
11.0(6.54)
U.S. 9.4(17.94
)
9.3(18.31
)
6.9(18.85
)
3.3(18.94
)
2.1(18.84
)
7.1(19.0
)
-3.8(18.21
)
2.7(17.36)
3.4(15.64
)
16.1(14.96
)
9.9(14.69
)
11.9(14.51
)
16.9(14.12
)
9.2(13.74
)
-5.5(14.58)
8.3(14.36)
8.9(14.13)
WORLD
12.8(100)
7.0(100)
3.9(100)
2.8(100)
2.6(100)
6.2(100)
0.4(100)
7.7(100)
14.8(100)
21.4(100)
11.9(100)
13.3(100)
20.1(100)
12.2(100)
-10.9(100)
10.0(100)
10.6(100)
Note: share in total world export of services is in bracket Source: WTO, International Trade Statistics
Developing Countries and India
In Services exports, developing countries have successfully exported a variety of
services to both developed and developing countries in recent years, however the major
share in export of services still lies with developed countries. During 1990s, it was seen that
the top 10 service exporters were only the developed countries but in the past few years,
most of the developing countries especially India and China have registered a considerable
expansion of total service export and fall in the category of top 10 exporters of services.
The pre-WTO Period 1990-94
From the table 8.9 below we can analyse that in the pre-WTO period, India
was below many other developing countries in terms of share in world export of
services. India’s share was 0.56 per cent in 1990, which remained constant at 0.56
per cent in 1994. The share of China was 0.71 per cent in 1990, which increased to
1.53 per cent in 1994. The share of Mexico, Russia federation and Turkey was 0.95,
0.79 and 1.0 per cent in 1994. Few countries like; Argentina, Brazil, Saudi Arab and
South Africa could not surpass India’s performance. The CAGR recorded was
highest for China that is 18.38 per cent and for India it was 6.89 per cent which was
below that of Argentina (8.29), Indonesia (17.8) and Turkey (7.73), see fig.8.3
Hence it could be seen that in pre-WTO period India’s export of services was far
behind China and many other developing countries like Mexico, Turkey, and
Russian federation.
Table 8.9: Value, Share and Growth Rate of Export of Total Services of Developing
Countries and India in Pre-WTO Period.(Value in US$ million, Growth Rate and Share in per cent)
Countries 1990 1991 1992 1993 1994
Value Share YOY value ShareYOY Value ShareYOY Value ShareYOY Value ShareYOY
Argentina 2446 0.29 11.5 2408 0.27 -1.6 2984 0.31 23.9 3071 0.31 2.9 3364 0.31 9.6
Brazil 3762 0.45 20.1 3319 0.38 -11.8 4088 0.42 23.2 3965 0.40 -3.0 4908 0.45 23.8
China 5855 0.71 27.2 6979 0.80 19.2 9249 0.95 32.5 11193 1.13 21.0 16620 1.53 48.5
India 4625 0.56 11.7 4925 0.56 6.5 4934 0.51 0.2 5107 0.51 3.5 6038 0.56 18.2
Indonesia 2488 0.30 32.7 2822 0.32 13.4 3391 0.35 20.2 3959 0.40 16.8 4797 0.44 21.2
Mexico 8094 0.97 12.3 8869 1.01 9.6 9275 0.95 4.6 9517 0.96 2.6 10321 0.95 8.5
Russian federation - - - - - - - - - - - - 8594 0.79 -
Saudi Arab 3027 0.36 20.7 2904 0.33 -4.1 3462 0.35 19.2 3279 0.33 -5.3 3342 0.31 1.9
South Africa 3407 0.41 18.1 3191 0.36 -6.3 3353 0.34 5.1 3278 0.33 -2.3 3751 0.35 14.4
Turkey 8016 0.97 25.0 8372 0.95 4.4 9407 0.96 12.4 10652 1.07 13.2 10801 1.00 1.4
World830236 100 18.8 877073 100 5.6 97644
4 100 11.3 993371 100 1.7 1083168 100 9.0
Source: Computed from WTO, International Trade Statistics
Figure 8.3
WORLD
Argen
tina
Brazi
l
China
Indi
a
Indo
nesia
Mex
ico
Saud
i Ara
b
Sout
h Afri
ca
Turke
y02468
101214161820
6.898.29
6.87
18.38
6.89
17.8
6.26
2.5 2.43
7.73
Compound Annual Growth Rate of Services of Develop-ing Countries
CAGR 1990-94
Post-WTO Period; 1995-2011
In the post WTO, India’s services exports showed remarkable transformation and
continuous growth in service export made India one of the top 5 leading exporters of the
services among the developing countries in recent years. As per 2011 Trade Report of
WTO, India ranks second after China in the export of services in the world among the
developing countries and 8th in world. This picture clearly signifies that WTO liberalised
and unrestricted system of trade has proved fruitful for India’s export of services. In the
post-WTO period it was only China fairly ahead of India in service exports performance
with share of 1.57 per cent in 1995, 2.0 per cent in 2000 and 4.32 per cent in 2011 in world
export of services. Whereas share in world services exports was 0.55 per cent in 1995 and
3.23 per cent in 2011. Many developing countries, which were ahead of India in services,
export performance showed declining trend in the post-WTO period and they fall below
India in terms of value, growth rate and share in world export of services. The share and
value of services exports of Mexico was 0.80 per cent and US$ 9780 million in 1995, of
Russian Federation 0.88 per cent and US$ 10781 million and of Turkey it was 1.20 per cent
and US$ 14606 million in the 1995, which declined in future years (see table 8.10 and
8.11). The share of export of services recorded in 2005 and 2011 for following countries
were; Mexico (0.61, 0.36), turkey (1.04, 0.90), however Russian federation showed some
improvement with share of 1.27 per cent in 2011. The CAGR during 1995-2011 was highest
for India (20.0 per cent) and then followed by China (15.1 per cent). For rest of the other
developing countries also CAGR was below India as could be seen from the fig 8.4.
Table 8.10: Value of Export of Services of Developing Countries and India in Post-WTO Period.
(Value in US$ million at current prices)Countries 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Argentina 3826 4405 4599 4854 4719 4936 4627 3495 4500 5288 6634 8023 10363 12156 10967 13117 14193
Brazil 6135 4655 5989 7631 7189 9498 9322 9551 10447 12584 16048 19462 23954 30451 27728 31821 38434
China 19130 20601 24569 23895 26248 30431 33334 39745 46734 62434 74404 91999 122206 147112 129549 171203 1831015
India 6775 7238 9111 11691 14509 16685 17337 19478 23902 382817 52527 69730 86929 107131 93036 123762 137149
Indonesia 5469 6599 6941 4479 4599 5214 5500 6663 5293 120457 12927 11520 12487 15247 13156 16766 20532
Mexico 9780 10723 11183 11463 11536 13480 12446 12508 12397 13661 15666 15827 17149 17575 14730 15168 15298
Russian federation 10781 13550 14364 12622 9250 9758 11442 13611 16229 20595 24970 31102 39257 51178 41594 44981 54025
Saudi Arab 3475 2769 4251 4723 5373 4779 5008 5177 5713 5852 114107 14202 15987 9370 9749 10683 11489
South Africa 4619 5069 5394 5396 5210 5046 48757 4985 8440 9873 11300 12214 13818 12805 12020 14004 14824
Turkey 14606 13083 19418 23376 16451 19528 15234 14046 18013 22960 26770 25600 29027 35243 33655 3440 383425
World 1222088 1307821 135877 1396617 1432571 1521680 1527469 1645293 1888169 2291833 2563438 2904644 3488205 3914741 3486623 3834989 4243259
Source: WTO, International Trade Statistics
Figure 8.4
WORLD
Argentin
aBraz
ilChin
aIndia
Indonesi
a
Mexico
Russia
Fede
ration
Saudi
Arab
South Afric
aTurk
ey0
5
10
15
20
25
8 8.53
12.1515.1
20
8.6
2.8
10.597.76 7.5
6.2
Compound Annual Growth Rate of Services of Develop-ing Countries
CAGR 1995-2011
Table 8.11: Share and Growth Rate of Services Exports of Developing Countries and India in Post-WTO Period.
(Share and Growth Rate in Per cent)
Countries 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Argentina 13.7(0.31)
15.2(0.34)
4.4(0.34)
5.6(0.35)
-2.8(0.33)
4.6(0.32)
-6.3(0.30)
-24.5(0.21)
28.7(0.24)
17.5(0.23)
25.5(0.26)
20.6(0.28)
29.2(0.30)
17.3(0.31)
-9.8(0.31)
19.6(0.34)
8.2(0.33)
Brazil 25.0(0.50)
-24.1(0.36)
28.7(0.44)
27.4(0.55)
-5.8(0.50)
32.1(0.62)
-1.9(0.61)
2.5(0.58)
9.4(0.55)
20.5(0.55)
27.5(0.63)
21.3(0.67)
23.1(0.69)
27.1(0.78)
-8.9(0.80)
14.8(0.83)
20.8(0.91)
China 15.1(1.57)
7.7(1.58)
19.3(1.81)
-2.7(1.71)
9.8(1.83)
15.9(2.00)
9.5(2.18)
19.2(2.42)
17.6(2.48)
33.6(2.72)
19.2(2.90)
23.6(3.17)
32.0(3.50)
20.4(3.76)
-11.9(3.72)
32.2(4.46)
6.9(4.32)
India 12.2(0.55)
6.8(0.55)
25.9(0.67)
28.3(0.84)
24.1(1.01)
15.0(1.10)
3.9(1.14)
12.4(1.18)
22.7(1.27)
60.2(1.67)
37.2(2.05)
32.8(2.40)
24.7(2.49)
23.2(2.74)
-13.2(2.67)
33.0(3.23)
10.8(3.23)
Indonesia 14.0(0.45)
20.7(0.50)
5.2(0.51)
-35.5(0.32)
2.7(0.32)
13.4(0.34)
5.5(0.36)
21.1(0.40) - 127.6
(0.53)7.3
(0.50)-10.9(0.40)
8.4(0.36)
22.1(0.39)
-13.2(0.38)
33.0(0.44)
10.8(0.48)
Mexico -5.2(0.80)
9.6(0.82)
4.3(0.82)
2.5(0.82)
0.6(0.81)
16.9(0.89)
-7.7(0.81)
0.5(0.76)
-0.9(0.66)
10.2(0.60)
14.7(0.61)
1.0(0.54)
8.4(0.49)
2.5(0.45)
-16.2(0.42)
3.0(0.40)
0.9(0.36)
Russian federation
25.4(0.88)
25.7(1.04)
6.0(1.06)
-12.1(0.90)
-26.7(0.65)
5.5(0.64)
17.3(0.75)
19.0(0.83)
19.2(0.86)
26.9(0.90)
21.2(0.97)
24.6(1.07)
26.2(1.13)
30.4(1.31)
-18.7(1.19)
8.1(1.17)
20.1(1.27)
Saudi Arab
4.0(0.28)
-20.3(0.21)
53.5(0.31)
11.1(0.34)
13.7(0.38)
-11.0(0.31)
4.8(0.33)
3.4(0.31)
10.4(0.30)
2.4(0.26)
95.0(0.45)
24.5(0.49)
12.6(0.46)
-41.4(0.24)
4.1(0.28)
9.6(0.28)
7.5(0.27)
South Africa
23.1(0.38)
9.7(0.39)
6.4(0.40)
0.0(0.39)
-3.4(0.36)
-3.2(0.33)
-4.0(0.32)
2.9(0.30)
69.3(0.45)
17.0(0.43)
14.5(0.44)
8.1(0.42)
13.1(0.40)
-7.3(0.33)
-6.1(0.34)
16.5(0.37)
5.9(0.35)
Turkey 35.2 -10.4 48.4 20.4 -29.6 18.7 -22.0 -7.8 28.2 27.5 16.6 -4.4 13.4 21.4 -4.5 2.3 11.3
(1.20) (1.00) (1.43) (1.67) (1.15) (1.28) (1.00) (0.85) (0.95) (1.00) (1.04) (0.88) (0.83) (0.90) (0.97) (0.90) (0.90)
World 12.8(100)
7.0(100)
3.9(100)
2.8(100)
2.6(100)
6.2(100)
0.4(100)
7.7(100)
14.8(100)
21.4(100)
11.9(100)
13.3(100)
20.1(100)
12.2(100)
-10.9(100)
10.0(100)
10.6(100)
Note: Share in total world export of services is in bracketSource: WTO, International Trade Statistics
LEADING EXPORTERS OF SERVICES IN WORLD
The figure 8.5a,b,c,d given below shows the leading exporters of commercial services in
the year 2001, 2005, 2008 and 2011. India shares the top 10 position along with few
developed countries and China in recent years.
Figure 8.5a
United
States
United
King
dom
German
yJap
an
France
Netherl
ands
Belgium-lu
xembo
urg Italy
Canad
a
Hongko
ng,C
hina
India(ra
nk 15)
0
20
40
60
80
100
120
140 128.6
72.6
42.4 36.4 31.3 25.2 25 22.9 18.1 17.7 15.519.711.1 6.5 5.6 4.8 3.9 3.8 3.5 2.8 2.7 2.4
TOP 10 EXPORTERS OF OTHER COMMERCIAL SERVICES (incl. India) IN 2001
Value(in billion dollars)Share(in per cent)
Source: WTO, International Trade Statistics
Figure 8.5b
United Stat
es
United King
dom
German
yFra
nce
Japan Ita
lySp
ain
Netherl
ands
China
Hong Kon
g,China
India
0
50
100
150
200
250
300
350
400354
188
148115 108 93.5 92.7
76.7 73.9 62.2 56.1
14.7 7.8 6.2 4.8 4.5 3.9 3.8 3.2 3.1 2.6 2.3
TOP 11 EXPORTERS OF COMMERCIAL SERVICES IN 2005
Value(in billion dollars)Share(in per cent)
Source: WTO, International Trade Statistics
Figure 8.5c
United
State
s
United
Kin
gdom
German
y
Franc
e
China
Japan
Spain Ita
lyInd
ia
Netherl
ands
0
100
200
300
400
500
600521.4
283241
160.5 146.4 146.4 142.6 121.9 102.6 101.6
13.8 7.5 6.4 4.2 3.9 3.9 3.8 3.2 2.7 2.7
TOP 10 EXPORTERS OF COMMERCIAL SERVICES IN 2008
Value(in billion dollars)Share(in per cent)
Source: WTO, International Trade Statistics
Figure 8.5d
United St
ates
United Kingd
om
German
yChina
Fran
ceJap
anSp
ain India
Nether
lands
Singa
pore0
100
200
300
400
500
600
700581
274 253182 167 142 140 137 134 129
13.9 6.6 6.1 4.4 4 3.4 3.4 3.3 3.2 3.1
TOP 10 EXPORTERS OF COMMERCIAL SERVICE IN 2011
Value(in billion dollars)Share(in per cent)
Source: WTO, International Trade Statistics, 2012
From the cross country analysis it could be concluded that in the pre- WTO period
India’s services export performance was not decent as compared to that of developed and
many developing countries. The reason could be attributed to restrictive and regulated
domestic policies, tightened trade in services and low development of communication and
information technology. However in the post-WTO period, India’s services export
performance was better than many developed and developing economies mainly due
liberalization of trade in services brought about by WTO by removal and reduction of
service trade barriers, better negotiations and growing commitment in service trade under
WTO forum, more opening of the economy and obviously due to growth and development
of communication and information technology and FDI in service sector.
INDIA’S SERVICES EXPORT PERFORMANCE-
Trends in Value, Growth Rate and Share
India’s services exports compete with many of the developed countries export of
services. During recent years, India is among the top 10 exporters of services in the world
and among the developing countries one of the top 5 exporters of services. World
liberalisation in service trade and opening of the world economy has resulted into India’s
services export penetrating into global market. Due to large pool of talents in the country,
it is able to produce quality services and so being recognised in global market. India
enjoys comparative advantage in many of the services like communication, software,
business services etc. due to skilled manpower & low cost labour in the world market.
This factor has enabled it to secure a better rank in the world export of services. Many of
the developed countries of the world like U.S.A., U.K., Japan etc. imports services from
India. India’s service exports have grown much faster than its merchandise exports. This
robust performance in services has made the country net exporter of services in current
account of BOP and thereby helps in covering trade deficit.
India’s share in service exports was 3.3 per cent in 2011 and in merchandise exports,
share was 1.67 per cent in 2011, this itself reveals that India enjoys comparative advantage
in the export of services as compared to export of goods. In table, 8.12 given below we
can study the share of India’s service exports and merchandise exports in the world
exports and also the growth rate of India’s services and merchandise export in last few
decades see fig 8.7.
Table 8.12: India’s Share in World Merchandise and Service Exports (In per cent)
Year Share of Services in World Export of Services
Share of Merchandise Export in World Export of Goods
1990 0.5 0.51991 0.5 0.51992 0.5 0.51993 0.5 0.51994 0.5 0.61995 0.5 0.61996 0.5 0.61997 0.6 0.61998 0.8 0.61999 1.0 0.62000 1.1 0.62001 1.1 0.72002 1.2 0.72003 1.3 0.82004 1.6 0.82005 2.0 0.82006 2.4 1.02007 2.5 1.12008 2.7 1.22009 2.6 1.32010 3.2 1.42011 3.3 1.67Source: WTO, International Trade Statistics
Figure 8.6: Share of Merchandise and Service Exports in World Exports
1990199119921993199419951996199719981999200020012002200320042005200620072008200920102011
0 0.5 1 1.5 2 2.5 3 3.5
Share of merchandise exports
share of services exports
Figure 8.7: Annual Growth Rate in Export of Goods and Services
1990-91 1992-93 1994-95 1996-97 1998-99 2000-01 2002-03 2004-05 2006-07 2008-09 2010-11
-10
0
10
20
30
40
50
60
70
7.18
-5.81
16.55
1.77
39.85
23.3721.14
60.97
27.96
17.29
37.82
9.2
3.8
18.4
5.3
-5.1
21 20.3
30.8
22.6
13.6
40.5
Annual growth in export of services Annual growth in export of goods
Hence, we could see that India’s export of services has performed much
better than merchandise export (fig 8.6) and growth in services exports has outpaced
growth in merchandise exports.
India’s services shares good market repute in the world market and its share in the
world export of services have increased from 0.56 per cent in 1990-91 to 3.3 per cent in
2011-12. Here the India’s services export performance is studied for two periods one before
the establishment of WTO and one after it. The entire study periods is divided into pre-
WTO starting from 1990-91 to 1995-96 and post -WTO from 1995-96 to 2011-2012. It is
evident from the table that India’s service export in the entire study period has constantly
increased from US$ million 4551 in 1990-91 to US$ million 16268 in 2000-01 and recently
to US$ million 142325 in 2011-12. The CAGR of 20.35 per cent was recorded from 1995-
96 to 2010-11. The rank of Indian service export in world has also improved from 11 th in
2005 to 8th in 2011.
Pre WTO period; 1990-91 to 1994-95
The rise in India’s export of services during 1990-95 was not significantly high. It
increased at the moderate rate and recorded CAGR of 7.75 per cent in 1990-91 to 1994-95.
The export of services in US$ million in 1990-91 was 4551 and reached to US$ million
6135 in 1994-95 (table 8.13). The share in world export of services also did not reach a
significant level and it reached to 0.6 per cent in 1994-95 from 0.56 per cent in 1990-91.
Post WTO Period; 1995-96 to 2011-12
India’s services exports performed well and grew at the Compound annual growth
rate of 20.35 per cent during 1995-96 to 2011-12. The value export of services has grown
throughout the study period from US$ million 7344 in 1995-96 to US$ million 57659 in
2005-06, and to US$ 142325 million in 2011-12. The annual growth rate in export of
services was also high at 19.71 per cent in 1995-96, 33.32 per cent in 2005-06 and 38.35 per
cent in 2010-11 but low growth of 7.10 per cent in 2011-12 (table 8.13). However, service
export recorded a negative growth of -9.35 in 2009-10. It was due to global slowdown and
economic crisis. Otherwise, in entire study period it has shown robust performance. The
share in world export of services rise from 0.55 per cent in 1995-96 to 3.3 per cent in 2011-
12. This performance of India was due to growth in service sector, opening of economy,
global service trade liberalisation and country’s strong competitive edge in production and
trade. So it is evident from the table and analyses that post WTO India’s overall service
exports performed well and WTO had positive impact on India’s services exports.
Table 8.13: Value, Growth Rate and Share of India’s Service Exports in World Export of Services.
(Value in US$ Million and Growth Rate in per cent)
Year Export of Services Growth Rate %Share in World Export of Services
1990-91 4551 7.18 0.561991-92 5022 10.35 0.561992-93 4730 -5.81 0.511993-94 5264 11.29 0.511994-95 6135 16.55 0.561995-96 7344 19.71 0.551996-97 7474 1.77 0.551997-98 9429 26.16 0.671998-99 13186 39.85 0.841999-00 15709 19.13 1.012000-01 16268 23.37 1.12001-02 17140 5.36 1.12002-03 20763 21.14 1.22003-04 26868 29.40 1.3
2004-05 43249 60.97 1.72005-06 57659 33.32 2.12006-07 73780 27.96 2.4(10)2007-08 90342 22.45 2.5(9)2008-09 105963 17.29 2.7(12)2009-10 96045 -9.35 2.672010-11 132880 38.35 3.23(7)2011-12 142325 7.10 3.3(8)
Source: Computed from RBI, Handbook of Statistics on Indian Economy.Note: Data in bracket represents rank in world Data for 2011-12 are preliminary estimates and for 2010-11 are partially revised
CAGR – Pre WTO 1990-91 to 1994-95 – 7.75CAGR – Post WTO 1995-96 to 2011-12-20.35
COMPOSITION OF INDIA’S SERVICES EXPORTS
Major categories of services composed in Indian services export basket and its
performance is studied for two period; pre and post WTO period. The total export of services
is divided into major categories of services i.e. travel, transportation, insurance, G.N.I.E., and
miscellaneous service (including software and non-software exports like communication
services, financial services, insurance, business services etc.). The composition of India’s
export of services in post-WTO period has diversified a little with share of traditional
services like travel, transportation and G.N.I.E. have declined and that of miscellaneous
services like software, finance, business services etc. has increased.
Pre-WTO Period; 1990-1995
In the pre-WTO period, the two traditional services i.e. travel and transportation
occupied the major share in total export of services and then followed by miscellaneous
services (see table 8.14). The value of export of travel services in 1990-91 was US$ million
1456 it reached to US$ million 2098 in 1992-93 and then US$ million 2365 in 1994-95 and
the share in total export of services was 31.99 per cent, 44.36 per cent and 38.59 per cent in
the same period. The growth rate in the year 1990-91 was 0.016 per cent and 6.44 per cent
in 1994-95. The export of travel services grew at compound annual growth rate of 13 per
cent.
Table 8.14: Composition of India’s Export of Services by Major Categories in Pre-WTO (Value in US$ million, Growth Rate and Share in per cent)
Year Travel Transportation Insurance G.N.I.E. Miscellaneous services Total
servicesValue %share Growth rate value % share Growth rate Value % shareGrowth rate value % shareGrowth rate value % share Growth rate
1990-91 1456 31.99 .016 983 21.60 0.083 111 2.44 -0.067 15 0.33 -0.52 1986 43.64 0.13 4551
1991-92 1977 39.37 35.78 939 18.70 -4.48 108 2.15 -2.70 17 0.34 13.33 1981 39.45 -0.25 5022
1992-93 2098 44.36 6.12 982 20.76 4.50 158 3.34 46.30 75 1.59 -341 1417 29.96 -28.5 4730
1993-94 2222 42.21 5.91 1433 27.22 45.93 124 2.36 -21.58 30 0.60 -60 1455 27.64 2.68 5264
1994-95 2365 38.59 6.44 1696 27.64 18.35 152 2.48 22.58 10 0.16 -66.67 1912 31.16 31.41 6135CAGR
1990-91 to 1994-95
13 15 8.2 -9.6 -0.9 7.8
Source: Calculated from RBI, Handbook of Statistics on Indian Economy.
In transportation services, the value of exports in 1990-91 was US$ million
983 it reached to US$ million 982 in 1992-93 and then to US$ million 1696 in 1994-
95 and the share in total export of services was 21.60 per cent, 20.76 per cent and
27.64 per cent in the same period. The annual growth rate in the year 1990-91 was
0.083 per cent and 18.35 per cent in 1994-95. The export of transportation services
constantly grew in the pre-WTO period and the CAGR recorded was 15 per cent.
In insurance services, the value of exports in 1990-91 was US$ million 111 it
reached to US$ million 158 in 1992-93 and then to US$ million 152 in 1994-95 and the
share in total export of services was 2.44 per cent, 3.34 per cent and 2.48 per cent in the
same years. The growth rate in the year 1990-91 was -0.067 per cent and 22.58 per cent in
1994-95. The export of insurance services grew at compound annual growth rate of 8.2 per
cent.
In Government Services (not included elsewhere), the value of exports in
1990-91 was US$ million 15 it reached to US$ million 75 in 1992-93 and then fall
to US$ million 10 in 1994-95 and the share in total export of services was 0.33 per
cent, 1.59 per cent and 0.16 per cent in the same years. The growth rate in the year
1990-91 was -0.52 per cent and -66.67 per cent in 1994-95. The export of G.N.I.E.
services grew at negative compound annual growth rate of -9.6 per cent.
In miscellaneous services, the value of exports in 1990-91 was US$ million
1986 it reached to US$ million 1417 in 1992-93 and then to US$ million 1912 in
1994-95 and the share in total export of services was 43.64 per cent, 29.96 per cent
and 31.16 per cent in the same years. The growth rate in the year 1990-91 was 0.13
per cent and 31.41 per cent in 1994-95. The export of miscellaneous services grew at
negative compound annual growth rate of -0.9 per cent.
It is cleared that in pre-WTO period, among all the major services the value
of export and the share in total export of services was highest for travel services and
it had also revealed comparative advantage, the share of transportation and
miscellaneous services were also significant but insurance and G.N.I.E recorded less
share. However, the G.N.I.E. and miscellaneous services recorded a negative CAGR
hence representing its meagre performance and CAGR for transportation services
was highest with 15 per cent followed by travel with 13 per cent.
The post WTO period; 1995-2012
In the post WTO period India’s services export basket has diversified as the
share of traditional services like travel and transportation has declined and those of
miscellaneous services like software services, business services, financial services
has captured a major share in country’s total export of services. This phenomenal
shift is the outcome of new avenues in services export. The traditional services have
displayed slowness and skilled and technology based services have shown better
progression.
Travel Services
In post-WTO period travel receipts has increased from US$ 2712 million in
1995-96 to US$ 3497 million in 2000-01 and then to US$ 7853 million in 2005-06
to US$ 18462 in 2011-12 and the year of year growth rate in the same years was
registered as 14.67 per cent, 15.18 per cent, 17.80 per cent and 20.86 per cent (table
8.16). This increment in travel receipt is the result of increase in number of foreign
tourist arrival in the country and also the increase in travel to the country for
business, health and education purpose. The World Economic Forum Report (WEF
2008) on Travel and Tourism Competitiveness across the World placed India at the
65th position in overall growth among 130 nations. According to the Report (p.19),
‘India is well assessed for its natural resources (ranked 13th) and cultural resources,
with many World Heritage 16 sites, both natural and cultural. The country also
benefits from good price competitiveness (ranked 20th overall), despite somewhat
high comparative hotel prices. India also has quite a good air transport network
(ranked 35th), particularly given the country’s stage of development, and a
reasonable ground transport infrastructure (ranked 39th)’. The number of foreigners
arriving in India has increase constantly between 1991 and 2011 (Table 8.15).
However, the share of travel services in total export of services has declined in
recent years due to increase in the share of other services. The share in total exports
of services was 36.93 per cent in 1995-96, which fall to 21.50 per cent in 2000-01
and 12.97 per cent in 2011-12. However in few years the travel receipt has declined
like in 2001-02 it recorded US$ 3137 million from US$ 3497 million in 2000-01,a
negative growth rate of -10.29 per cent. This dip was due to the terrorist attacks in
September 2001 in the US. Again, in 2008-09 receipt fall to US$ 10894 from US$
11349 in 2007-08, a negative growth rate of -4.0 per cent. This fall in travel receipt
is the reflection of decline in foreign tourist arrivals, which was recorded 5.17
million, a negative growth of -2.2 per cent in 2009 as compared to the previous year
and the Global crisis led to decline. The export of travel services grew throughout
the study period at CAGR of 12.73 per cent (fig 8.8).
Table 8.15: Number of Foreign Tourist Arrivals in India
Year Numbers (Million) Growth Over Previous Year (%)1991 1.68 - 1.71992 1.86 11.31993 1.76 -5.51994 1.88 6.91995 2.12 12.61996 2.28 7.71997 2.37 3.81998 2.35 -0.71999 2.48 5.22000 2.64 6.72001 2.53 -4.22002 2.38 -6.02003 2.72 14.32004 3.45 26.82005 3.91 13.32006 4.44 13.52007 5.08 14.32008 5.28 42009 5.17 -2.22010 5.78 11.82011 6.29 8.9
Sources: Directorate General of Civil Aviation, Ministry of Tourism, GOI
The European Union, United States and China were the leading exporters of
travel services in the world in the recent years with a combined share of 60.9, 59.8,
57.6, 54.4 and 53.8 per cent in 2007, 2008, 2009, 2010 and 2011. China among the
developing countries has become the third largest exporter of travel services, surpassed
only by the EU and the United States. India’s share in world exports of travel services
however, was much smaller at 1.3 per cent (in 2007), 1.2 per cent (in 2008, 2009), 1.5
per cent (in 2010) and 1.6 per cent in 2011. From 2007 onwards India does feature
amongst the top 15 exporters in world travel services but not afore that.
Transportation The transportation services include receipt from sea, air and other means of
transport. The value of export of transportation services was US$ 2011 million in
1995-96, which continued to decline for few years and reached to US$ 1707 million
in 1999-00. It recorded negative year of year growth rate of -2.88 per cent, -5.99 per
cent and -11.32 per cent in year 1996-97, 1997-98 and 1999-00. The share in total
export of services declined because of rise in share of other prospective services and
registered 27.38 per cent in 1995-96 and 12.81 per cent in 2011-12. However, the
value of transportation exports continuously increased for rest of the period that is
from US$ 2046 million in 2000-01 to US$ 6325 million in 2005-06 to US$ 18241
million in 2011-12 except for the year 2009-10, US$ 11178 million (table 8.16). The
rise in transportation receipt was due to pick up in global economy and growth in
global merchandise trade. The decline in value of exports was owed to fall in world
merchandise trade. Global and financial crisis resulted into decline in demand for
goods and thereby causing decline in demand for sea transport. Beside continuous
rise in fuel prices and instability in the sea route has also led to poor performance in
few years. The export of transportation services grew throughout the study period at
CAGR of 14.77 per cent (fig. 8.8)
The European Union, United States and Japan were the leading exporters of
transportation services in the world in six consecutive years from 2006 to 2011, with a
combined share of 61.5, 60.9, 60.7, 59.4, 57.3 and 57 per cent in 2006, 2007, 2008,
2009, 2010 and 2011. India’s share in world exports of transportation services however,
was much smaller at 1.2 per cent for three consecutive years ( 2006, 2007, 2008), 1.5
per cent (in 2009), 1.7 per cent (in 2010)and 2.0 per cent in 2011, while China’s share
was higher at 4.1 per cent in 2011 from 3.3 per cent in 2006. Nevertheless, India does
feature amongst the top 15 exporters of transportation services in the world after the 10
years of establishment of WTO that is from 2006 till present.
Table 8.16: Composition of India’s Export of Services by Major Categories (Value in US$ million, Growth Rate and Share in per cent)
Year
Travel Transportation Insurance G.N.I.E. Miscellaneous ServicesTotal
servicesValue % share Growth
rate value % share Growth rate Value % share Growth
rate Value % share Growth rate value % share Growth
rate
1995-96 2712 36.93 14.67 2011 27.38 18.57 179 2.44 17.76 13 0.18 30 2430 33.08 27.09 7344
1996-97 2878 38.50 6.1 1953 26.14 -2.88 217 2.9 21.23 72 0.96 454 2354 31.50 -3.13 7474
1997-98 2914 30.90 1.3 1836 19.47 -5.99 240 2.55 10.60 276 2.93 283 4163 44.15 76.85 9429
1998-99 2993 22.70 2.7 1925 14.60 4.85 224 1.70 -6.67 597 4.53 116 7447 56.48 78.89 13186
1999-00 3036 19.33 1.4 1707 10.87 -11.32 231 1.47 3.13 582 3.70 -2.5 10153 64.63 36.34 15709
2000-01 3497 21.50 15.18 2046 12.48 19.86 270 1.66 16.88 651 4.00 11.86 9804 60.26 -3.56 16268
2001-02 3137 18.30 -10.29 2161 12.61 5.62 288 1.68 6.67 518 3.02 -20.45 11036 64.39 12.57 17140
2002-03 3312 15.95 5.58 2536 12.21 17.35 369 1.78 28.13 293 1.41 -43.43 14253 68.65 29.15 20763
2003-04 5037 18.75 52.08 3207 11.99 26.46 419 1.56 13.55 240 0.89 -18.08 17965 66.86 26.04 26868
2004-05 6666 15.41 32.34 4683 10.83 46.02 870 2.01 107.64 401 0.93 67.08 30629 70.82 70.49 43249
2005-06 7853 13.62 17.80 6325 10.97 35.06 1062 1.84 22.06 314 0.54 -21.70 42105 73.02 37.47 57659
2006-07 9123 12.37 16.17 7974 10.80 26.07 1195 1.62 12.5 253 0.34 -0.194 55235 74.86 31.18 73780
2007-08 11349 12.56 24.40 10014 11.08 25.58 1639 1.81 37.15 331 0.37 30.83 67010 74.17 21.32 90342
2008-09 10894 10.28 -4.0 11310 10.67 129 1422 1.34 -13.24 389 0.37 17.5 81948 77.34 22.29 105963
2009-10 11859 12.38 8.86 11178 11.67 -1.18 1591 1.67 12.73 441 0.46 13 70977 73.81 -13.75 96045
2010-11 15275 11.49 28.81 14271 10.73 27.67 1948 1.46 22.43 535 0.40 21.36 100851 75.87 42.08 132880
2011-12 18462 12.97 20.86 18241 12.81 27.81 2632 1.84 35.11 478 0.33 -10.65 102513 72.02 1.64 142325
CAGR1995-96 to 2011-
12
12.73 14.77 18.29 25.26 26.34 20.35
Data for 2011-12 are preliminary estimates and for 2010-11 are partially revisedSource: Calculated from RBI, Handbook of Statistics on Indian Economy.
Figure 8.8
Trave
l
Transp
ortation
Insuran
ce
G.N.I.E.
Miscell
aneo
us Serv
ices
Total
Servi
ces
-15-10
-505
1015202530
13 158.2
-9.6
-0.9
7.8
12.7314.77
18.29
25.26 26.34
20.35
Compound Annual Growth Rate of Major Categories of Services
CAGR 1990-91 TO 1994-95
CAGR 1995-96 TO 2011-12
Other commercial services
This category includes the following services like; insurance, communication,
financial, computer and information services, other business services, and royalties etc.
The OCS has the largest share of India’s services exports; (OCS is the total of all the
commercial services excluding travel and transport services). Business process
outsourcing (BPO) activities, which are a part of IT-enabled services, fall under other
business services as per IMF classifications. The growth in India’s exports of this
category during the post-WTO period has enabled India to achieve a compound annual
growth rate of 20.35 per cent for total services export.
In the post-WTO period from 2001 onwards, India shared the top 15 position in
world exports of other commercial services (OCS), however, in recent years India was
among top 5 leading exporters of OCS. United States, United Kingdom and Germany
were the leading exporters of OCS from 1999 until 2005 with combined share of 36.8
per cent in 1999 and 34.2 per cent in 2005. However, from 2006 classification U.K. and
Germany falls under E.U. and since then leading exporters are E.U., United States and
Japan with combined share of 69.2 per cent in 2006, 69.4 per cent in 2009. India’s
share was 2.4 per cent in 2001, 3.8 per cent in 2005 and 3.7 per cent in 2009 and China
was behind India in terms of share with 2.5 per cent in 2005 and on same position in
2009 with 3.7 per cent. However, in 2010 and 2011, India became the third leading
exporter of OCS with share of 4.9 and 4.5 per cent after EU and United States whose
combined share was 61.6 and 62.2 per cent for the same year. China stood at number
four with share of 4.4 per cent in both the years (2010, 2011).
Insurance
The value of export of insurance services was US$ 179 million in 1995-96
which increased to US$ 270 million in 2000-01 and then to US$ 1062 million and
US$ 2632 million in 2005-06 and 2011-12. The year of year growth rate recorded in
the following year was 17.76 per cent, 16.88 per cent, 22.06 per cent and 35.11 per
cent (table 8.16). The rise reflects continuous liberalisation and deregulation of
policies both in domestic and foreign country. However in few years, the value of
exports registered decline like in 1998-99 to US$ 224 million from US$ 240 million
in 1997-98,a negative growth of -6.67 per cent. Then in 2008-09, value of exports
decline to US$ 1422 million, a negative growth of -13.24 per cent was recorded. The
main reason for this slowdown was the global financial crisis. Beside the hurricane
hit in US gulf region and various natural calamities from time to time led to
financial upshot spread to large number of economies. The share of insurance
services in total export of services have risen and fallen in some years. The share
registered in 1995-96 was 2.44 per cent and in 2011-12, it was 1.84 per cent. The
export of insurance services grew throughout the study period at CAGR of 18.29 per
cent.
G.N.I.E.
In G.N.I.E. (Government services, not included elsewhere) Services, the
value of exports in 1995-96 was US$ 13million it reached to US$ 651 million in
2000-01 and then fall to US$ 478 million in 2011-12 and the share in total export of
services was 0.18 per cent, 4.0 per cent and 0.33 per cent in the same years. The
growth rate in the year 1995-96 was 30 per cent and -20.45 per cent in 2001-02 and -
10.65 per cent in 2011-12 (table 8.16). The export of G.N.I.E. services grew at
compound annual growth rate of 25.26 per cent.
Miscellaneous services
In miscellaneous services, the value of export in 1995-96 was US$ 2430 million it
reached to US$ 9804 million in 2000-01 and then to US$ 42105 million in 2005-06 and to
US$ 102513 million in 2011-12 and the share in total exports of services was 33.08 per
cent, 60.26 per cent, 73.02 per cent and 72.02 per cent in the above mentioned years. The
year of year growth rate in the year 1995-96 was 27.09 per cent, 37.47 per cent in 2005-06,
42.08 per cent in 2010-11 and 1.64 per cent in 2011-12 (table 8.16). The export of
miscellaneous services grew at compound annual growth rate of 26.34 per cent.
The Table 8.17 given below shows the various categories of services falling
under group miscellaneous services and their respective export performance during
post WTO. Miscellaneous receipts includes receipt from software services, business
services, financial services, communication services, construction services, royalties,
copyrights and license fee, news agency, personal, cultural and recreational services
etc.
Table 8.17: Composition of Exports of Miscellaneous Services
(Value in US$ million, share and growth rate in percentage)
YearSoftware Business Financial Communication Construction News Agency Royalties, Copyright,
License feesPersonal, Cultural &
Recreational
Value YOY % share Value YOY %
share Value YOY % share Value YOY %
share Value YOY % share Value YOY %
share Value YOY % share Value YOY % share
1997-98 1760 _ 18.66 - - - 296 - 3.14 171 1.81 101 1.07 156 1.65 21 0.22 -
1998-99 2626 49.2 19.92 - - 283 -4.39 2.15 601 251 4.56 150 48.51 1.14 262 67.95 1.99 18 -14.28 0.14 - - -
1999-00 4015 52.89 25.56 643 4.09 361 27.56 2.30 1063 76.87 6.77 390 160 2.48 341 30.15 2.17 55 205.5 0.35 - - -
2000-01 6341 57.93 38.98 334 -48.05 2.05 347 -3.88 2.13 1138 7.05 7.0 536 37.44 3.29 114 -66.56 0.70 60 9.0 0.37 - - -
2001-02 7556 19.16 44.08 519 55.39 3.03 292 -15.8 1.70 752 -33.91 4.39 144 -73.13 0.84 9 -92.1 0.0 22 -63.33 0.13 - - -
2002-03 9600 27.05 46.24 807 55.49 3.89 676 131.5 3.26 812 7.98 3.91 178 23.61 0.86 59 555.5 0.28 23 0 0.22 - - -
2003-04 12800 33.33 47.64 1296 60.59 4.82 315 -53.4 1.17 1047 28.94 3.90 465 161 1.73 59 0 0.22 24 4.34 0.089 - - -
2004-05 17700 38.23 40.92 5167 298.68 11.95 512 62.54 1.18 1384 32.19 3.20 491 5.59 1.13 171 190 0.40 71 196 0.16 105 -0.24
2005-06 23600 33.33 40.93 9307 80.12 16.14 1209 136 2.09 1575 13.8 2.73 242 -50 0.42 185 8.18 0.32 191 169 0.33 189 80 0.33
2006-07 31300 32.63 42.42 14544 56.26 19.71 3106 156.9 4.21 2262 43.62 3.06 332 37.19 0.45 334 80.54 0.45 97 -49.21 0.13 243 28.57 0.33
2007-08 40300 28.75 44.60 16772 15.32 18.57 3217 3.57 3.56 2408 6.45 2.67 763 129.8 0.84 503 50.60 0.57 157 61.85 0.17 562 131.27 0.62
2008-09 46300 19.89 43.69 18603 10.9 17.57 4428 37.64 4.18 2298 -4.57 2.17 542 -28.9 0.72 799 58.84 0.75 132 -15.92 0.12 729 29.72 0.69
2009-10 49705 7.35 51.90 11368 -38.89 11.87 3736 -15.63 3.90 1229 -46.52 1.28 589 8.6 0.62 351 -56 0.37 202 53.03 0.21 527 -27.70 0.55
2010-11 55460 18.70 41.73 24050 111.5 18.09 6508 74.19 4.93 1562 27.07 1.18 676 14.77 0.51 605 72.36 0.46 193 -4.46 0.15 227 -56.9 0.17
2011-12 62212 12.17 43.71 25910 7.73 18.20 5967 -8.31 4.19 1600 2.42 1.12 - - - - - - - - - - - -
Data for 2011-12 are preliminary estimates and for 2010-11 are partially revisedSource: Calculated from data from RBI, Handbook of Statistics on Indian Economy
Under miscellaneous services, software services constitutes the largest share
followed by business services, financial services etc. The value of exports of software
services increased from US$ 1760 million in 1997-98 to US$ 6341 million in 2000-
01 to US$ 23600 million in 2005-06 to US$ 62212 million in 2011-12. The year of
year growth rate recorded in 1998-99 was 49.2 per cent; in 2005-06 was 33.33 per
cent and 12.17 per cent in 2011-12 (Table 8.17). The share in total exports of services
has increased from 18.66 per cent in 1997-98 to 43.71 per cent in 2011-12. Both in
terms of share and growth rate, exports of software services has improved due to its
low cost of operation, high quality of services and suited time zone and hence many
countries have continuously demanding this service from India. Even at the time of
global economic and financial crisis when all the other categories of services recorded
a negative growth that is in year 2009-10, it remained positive with growth rate of
7.35 per cent. The export of software services grew at a CAGR of 29.0 per cent
(1997-98 to 2011-12) in post WTO period.
The rise and expansion of the Indian IT and ITES services industry is a much
talked about subject in the world over. Total export revenues earned by this sector
have grown from US$ 7.5 billion in 2001–02 to US$ 31.3 billion in 2006–07, thus
showing a near 32 % compounded growth. India now accounts for 65% of the global
market in offshore IT and 46% of the ITES market. A majority of the Fortune 500 and
Global 2000 corporations are sourcing IT and ITES from India. Export forecast for
the Eleventh Plan period is estimated at US$ 37.6 billion for 2007–08, which is
expected to increase to US$ 86.6 billion in 2011–12 according to NASSCOM
McKinsey Report 2005. The domestic software services market however is growing
at a lower rate compared to software exports. From US$ 3 billion in 2002–03, the
domestic market grew to nearly US$ 5 billion in 2004–05. Clearly Indian software
services are a globalized and outward looking sector6.
Exports of business services too recorded continuous rise throughout the
study period except for the year 2009-10 due to slowdown in business activity due to
financial and economic crisis worldwide. The value of exports of business services
increased from US$ 643 million in 1999-00 to US$ 1296 million in 2003-04 to US$
9307 million in 2005-06 to US$ 25910 million in 2011-12. The year of year growth
rate recorded in 2001-02 was 55.39 per cent; in 2005-06 was 80.12 per cent and 111.5
per cent in 2010-11 and 7.73 per cent in 2011-12. The share in total exports of
services has increased from 4.09 per cent in 1999-00 to 18.20 per cent in 2011-12.
This robust performance was the result of modernisation of Indian industry and
capability of meeting standards of international market due to technological up
gradation. The export of business services grew at a CAGR of 35.75 (1999-00 to
2011-12) per cent in post WTO period.
In financial services, the receipt was US$ 296 million in 1997-98 which rise
to US$ 347 million in 2000-01 and to US$ 3106 million in 2006-07 to US$ 6508
million in 2010-11 and then fall to 5967 in 2011-12. The year of year growth rate
recorded in 1999-00 was 27.56 per cent; in 2006-07 it was 156.9 per cent, 74.19 per
cent in 2010-11 and -8.31 per cent in 2011-12. The growth was the result of more
economic integration of financial markets and liberalisation and deregulation of
policies under this area. However, in the year 2009-10 negative growth rate was due
to financial crisis in European and US market, both the countries are major trading
partner of India. The share in total export of services for some year has risen and for
some years, it has fallen and in 2011-12 registered 4.19 per cent. The export of
financial services grew at a CAGR of 23.92 per cent (1997-98 to 2011-12) in post
WTO period.
In communication services, the receipt was US$ 171 million in 1997-98,
which rise to US$ 1138 million in 2000-01 and to US$ 2262 million in 2006-07 and
then fall to US$ 1600 in 2011-12. This fall was due to falling prices of
communication services. The year of year growth rate recorded in 1999-00 was 76.87
per cent; in 2006-07, it was 43.62 per cent and 2.42 per cent in 2011-12. The share in
total export of services was 1.81 per cent in 1997-98, 3.06 per cent in 2006-07 and
1.12 per cent in 2011-2012. The export of communication services grew at a CAGR
of 21.81(1997-98 to 2011-12) per cent in post WTO period.
Other services like construction services, news agency, royalties, copyrights,
license fees and personal, cultural and recreational services has also shown better
performance both in terms of value of export and year of year growth rate and has
grown at the CAGR of 15.75 per cent for construction services, 10.99 per cent for
news agency, 18.60 per cent for royalties, copyrights, license fee and 13.71 per cent
for personal, cultural and recreational services. In post WTO period, their share in
total exports of services has continuously increasing which is evident from the table
8.17 thereby representing a markedly diversification in India’s service export basket.
COMPETITIVENESS IN EXPORT OF MAJOR CATEGORIES OF SERVICES
From the table 8.18 it is clear that travel services displayed revealed
comparative advantage in the given pre-WTO period but however the other
commercial services( OCS including communication services, financial, insurance,
computer and information, other business services etc.) had revealed comparative
advantage in the year 1990 and 1991 but not in later years (i.e. from 1992 to 1994).
The transport services had RCA only in year 1994. India was not among the leading
exporters of services in the pre-WTO period.
Table 8.18: India’s RCA in Major Categories of Service Exports (1990-1994)
Year Transport Travel OCS 1990 0.73 1.00 1.21 1991 0.72 1.12 1.10 1992 0.80 1.36 0.82 1993 0.95 1.25 0.82 1994 1.11 1.11 0.84
Source: Computed on the basis of data from WTO, International Trade Statistics
India lost its RCA in the travel category by 1997(table 8.19). The financial crisis
in the Asian markets in the post 1997 period may have affected business and leisure travel
immensely, thus reducing the number of travellers arriving in India. India had a revealed
comparative advantage in eighties and early nineties. After the establishment of WTO this
sector revealed advantage in 1995 and 1996 but from 1997 onwards right until 2011, it
did not exhibited any revealed advantage. Although the country is rich in natural and
wildlife endowments and cultural sites and strong potential for business travel exports but
cannot exploit its comparative advantage due to poor physical infrastructure, lack of
safety to tourist and poor hygiene etc. Defective government policies proved detrimental
for the air travel industry. Similar was the case with transportation services, which
displayed RCA only in 1995 and 1996 in the post WTO. Whereas the Other Commercial
Services has displayed RCA in the post-WTO period year (table 8.19).
Table 8.19: India’s RCA in Major Categories of Service Exports (1995-2011)
Source: Computed on the basis of data from WTO, International Trade StatisticsThe table 8.20 clearly signifies that in the post-WTO period India had an advantage in
computer and information services. India is among the key traders of Asia of these services.
India does enjoy a comparative advantage in exports of communication and computer and
information services as both these sectors have demonstrated RCA but at declining trend,
however in recent years, in case of communication services no RCA has been since 2008.
India is also a leading exporter in communication services and featured
amongst the top 5 exporters in the world in recent years i.e. rank 4 in 2005 and 2007
with share of 4.3 and 3.3 per cent and rank 5 in 2011 with however declining share of
1.9 per cent. In computer and information services India ranked 2nd in 2006 with share
of 17.8 per cent, until 2010 it remained same and in 2010 share was 20.7 per cent.
Globally, the banking, financial and insurance services (BFIS) are the fastest
emerging segments in outsourcing businesses. Although India may not have revealed
an advantage in exports of financial services, it has displayed RCA in exports of
insurance services in 2004 (Table 8.20) and is also amongst the top 10 leading
exporters of financial and insurance services with share of 2.3 and 2.4 per cent in
world exports of financial and insurance services and ranked 7th and 6th in 2010, in
2006 rank was 8th for both the services and share; insurance (1.9) and financial
services (1.0). Construction is yet another category where India has displayed
comparative advantage in few years but however since 2008 India is not among top
10 leading exporters of construction services; prior to it in 2005 it ranked 7 th with
Year Transport Travel OCS1995 1.08 1.10 0.861996 1.13 1.13 0.811997 0.90 0.96 1.091998 0.69 0.81 1.311999 0.57 0.65 1.492000 0.53 0.67 1.492001 0.53 0.61 1.522002 0.57 0.53 1.512003 0.57 0.64 1.412004 0.50 0.56 1.512005 0.44 0.48 1.562006 0.45 0.44 1.562007 0.45 0.47 1.512008 0.46 0.44 1.52009 0.59 0.47 1.392010 0.51 0.45 1.442011 0.63 0.50 1.38
share of 1.8 per cent and in 2007, 9th rank with share of 1.3 per cent. India has also
revealed comparative advantage in other business services in many years and is
amongst the top 10 leading exporters of business services as per data from 2005
onwards, India ranked 6th in 2005 with share of 3.5 per cent, in 2006 ranked 3 rd with
share of 4.8 per cent but in later years its rank declined to 5 in 2007 and to 7 th rank in
2009 with share of 3.8 per cent but however again in 2010 rank has improved to 4 th
and share in world exports as 5.3 per cent. India has no RCA in royalties and license
fee and is also not amongst top 10 leading exporter and same was observed in case of
audio-visual services. In personal, cultural and recreational services, though India has
no RCA but fall under top 15 leading exporters from 2006 onwards but not in the year
2010. In 2006 rank was 12th share 0.7 per cent, in 2008 rank 5th share 1.8 per cent.
Table 8.20: RCA Index of India’s Service Exports as per the EBOPS (2000-2011)
2000 2001 2002 2003 2004 2005 2006
2007
2008
2009
2010
2011
Transportation 0.55 0.59 0.60 0.58 0.50 0.45 0.45 0.46 0.59 0.59 0.51 0.63Travel 0.75 0.69 0.63 0.75 0.60 0.48 0.44 0.47 0.44 0.47 0.45 0.50Communications 3.65 2.28 2.06 1.85 1.84 1.78 1.25 1.12 0.91 0.59 0.45 0.47Construction 1.90 0.50 0.52 1.01 0.70 0.83 0.37 0.34 0.27 0.31 0.17 0.77Insurance 0.92 0.87 0.66 0.52 1.02 0.91 0.74 0.78 0.67 0.70 0.67 2.2Financial 0.41 0.36 0.61 0.20 0.27 0.55 0.43 0.45 0.51 0.52 0.66 -Computer and Information
21.11 20.03 19.91 17.29 16.73 14.53 9.15 9.2 8.84 8.85 8.03 -
Royalties and License Fees
0.07 0.03 0.02 0.02 0.03 0.04 0.01 0.03 0.02 0.03 0.01 -
Other Business Services
0.10 0.15 0.19 0.22 0.62 1.00 1.7 0.96 0.71 1.19 0.67
Personal, Cultural & Recreational
0.00 0.00 0.00 0.00 0.20 0.18 0.34 0.49 0.60 0.42 0.22 -
Government Services, n.i.e.
1.73 1.34 0.60 0.36 0.39 0.20
Source: Computed on the basis of data from WTO, International Trade Statistics
The emerging services trade sectors such as insurance, telecommunications and
information technology services clearly possess growth-generating characteristics. In
other words, compared to other sectors, India’s comparative advantage and specialization
has been transformed from labour-intensive services trade to technology and knowledge
intensive services trade (such as insurance, and computer and information services),
where Mode 1 (cross-border trade) and Mode 4 (movement of natural persons) are the
two key modes of service delivery. India’s liberalization in services trade in GATS has
thus been devoted to Mode 1 and Mode 4 liberalization, since these two modes are fast
emerging as an important mode of delivery of a wide range of services from India.
Thus, it is clear that there are certain services like finance and construction
where India has prospectus and potential for growth so should pursue, not only
because of its importance in world exports, but also due to the advantage that India
can offer. Then, our service exports will not be heavily concentrated in computer and
information services and some degree of diversity will be achieved.
DIRECTION OF INDIA’S SERVICES EXPORTS
Data on India’s country wise exports of services is not available in detail and
not yet been published by RBI. Here India’s services export destinations is based on
the WTO international trade statistics where the import and export data of some major
countries are mentioned which gives some indication of India’s export of services in
different countries. However much detail is not available but imperative information
could be gathered which gives the idea about India’s major market where services are
exported. Through data available on export and import of different countries, it is
evident that in the pre WTO period India’s major services export partners were U.K.
and U.S.A. and few other developed countries. In the post WTO period too U.K. and
U.S.A. are major service destination for India but some export market diversification
has been obtained like many developing countries and South-East Asian countries
have become important market for Indian services. However, India was unable to
capture major share in Japan.
The direction of India’s services exports is studied in terms of major
categories of services i.e. travel, transportation and other commercial services. Given
below table 8.21, 8.22 and 8.23 is drawn with the help of import data available for
few countries, if India is in their list from where they import services than that data
indicates the value of export from India to that country and accordingly original table
is reclassified to represent India’s export destination.
Table 8.21: Export Destinations of Transportation Services from India (In US$ million)
2005 2007 2009 2010EU 1521 2080 2182 2430Hong Kong, china
229 328 295 375
Canada 135 166 - -Singapore - 442 493 -Norway - - 26 -Source: WTO, International Trade Statistics.
Table 8.22: Export Destinations of Travel Services from India (In US$ million)
2005 2007 2009 2011EU 2066 2775 2056 2198United States 1518 2105 2459 2158Canada 74 - - -Australia 181 274 356 445Source: WTO, International Trade Statistics.
Table 8.23: Export Destinations of Other Commercial Services from India (In US$ million)
2005 2007 2009 2011EU 226 4490 5916 -United States 3023 6961 9580 -Canada 64 110 - -Singapore - 806 1045 -Korea republic of - - 432 -Source: WTO, International Trade Statistics.
India‘s service exports have achieved marginal gains in market shares in most
OECD markets (Table 8.24). Only in the United States and United Kingdom do more
than 1% of these countries’ service imports originate in India. Moreover, the annual
growth rate of India’s service exports share has been modest and in some cases, as for
some countries in the EU15, negative. At the same time, no data is available for
separate non-OECD countries with the exception of Hong Kong, China that reports to
the OECD database but it is realistic to envisage that India has been gaining market
share in developing countries services imports. In 1999, 67% of India’s services
exports went to non-OECD countries, with this share increasing to an estimated 74%
in 2003
Table 8.24: Evolution of India's Services Exports in key Destination MarketsAs a share of individual countries' services imports
2000 2006 Annual growth rateUnited States 0.85 1.94 14.7United Kingdom 1.01 1.56 7.5Hong Kong China 0.43 1.16 18.2Denmark 0.58 0.89 7.4Australia 0.65 0.88 5.1France 0.39 0.65 8.7Austria 0.12 0.48 25.8Netherlands 0.21 0.46 13.8Sweden 0.16 0.38 15.7Italy 0.45 0.37 -3.3Japan 0.36 0.30 -3.0
Portugal 0.17 0.14 -3.5Czech Republic 0.06 0.12 13.6
Source: OECD TISP (2006)
Inference from the Trends in India’s Services Exports in Pre and Post WTO Period
Value of Exports
In post WTO period, the Indian services exports grew at CAGR OF 20.35
per cent, which was almost three times high as compare to pre WTO period
where CAGR recorded was just 7.5 per cent. This growth in service export
in post WTO is owed to liberalisation and multilateral trade negotiations
under WTO service trade agreement.
Before the establishment of WTO, India’s share in world export of services
was not significant at 0.53 per cent in 1990-91. However, it reached to
remarkable position from 0.55 per cent in 1995-96 to around 3.3 per cent in
2011-12. This outcome of various sectoral levels of negotiations was held
in services like financial and communication among different member
countries of WTO. With larger commitments and alteration in domestic
policies according to agreement resulted into increase in share of Indian
service export in world market.
The service sector showed positive year of year growth rate in export
throughout the study period except for the year 2009-10, a negative growth
of -9.35 per cent, due to global slowdown. India could not be remained
unaffected by the impact of weakening of word economy. With global
recovery, it bounces back to growth rate of 38.35 per cent in 2010-11.
India exhibited Revealed comparative advantage in travel services in pre-
WTO period but not in post- WTO period. In transportation, no RCA in
past 10 years was achieved but in OCS, India revealed comparative
advantage in the post-WTO period especially in computer and information
services, other business services and communication services.
Composition of Services
In the pre WTO period, traditional services like travel and transportation
services has performed well while the G.N.I.E., miscellaneous services
recorded a negative compound annual growth rate. This was due to lack of
technology advancement, poor demand and various barriers to service
trade.
The composition of India’s exports of services in post-WTO period has
shown some diversification with share of traditional service item like
travel, transportation and G.N.I.E. have declined and that of miscellaneous
services like software, finance, business services etc. has increased.
In the post WTO period, among the various major categories of services,
the miscellaneous services have registered the robust performance and
grew at the CAGR of 26.34 per cent followed by G.N.I.E. with CAGR of
25.26 per cent then insurance services with CAGR of 18.29 per cent,
transportation services with CAGR of 14.77 per cent and Travel services
with CAGR of 12.73 per cent.
During the period of global crisis, all the categories of services showed a
downturn and negative growth in the year 2009-10 except for few services
like software services, insurance services, and G.N.I.E. services.
The travel services has grew at the CAGR of 12.73 per cent in the post
WTO period from 1995-96 to 2011-12., which is the lowest among all
other services. This performance reflects that India is losing revealed
comparative advantage in travel services. Even the share of travel services
in total export of services is falling reflecting incapability of the country in
tapping vast tourism potential of the country. The reason attributed to this
is fall is global and economic crisis in some years, terrorist attack within
the country, fear of influenza pandemic (H1N1), cheating and frauds with
foreign visitors, lack of government policy in attracting foreign tourist etc.
however in recent years there is revival in India’s tourism services which is
proved by year of year growth rate which was recorded as 28.81 per cent in
2010-11 as compared to 8.86 per cent in 2009-10.
The CAGR for transportation services was high both in pre and post WTO
period as compared to travel services. During the early years of WTO
establishment the performance was poor and registered negative year of
year growth rate but later on improved with increased in world trade and
economic activity. The share of transportation services in total export of
services was not high both in pre and post WTO period due to high share of
other services.
Trends in composition of services exports indicates good prospectus for
insurance services as it has registered positive year of year growth rate
throughout the period except during the years of global crisis. G.N.I.E.
services showed mixed performance both positive and negative growth.
The miscellaneous services was on the top both in terms of growth rate and
share in total exports of services during post WTO period and amongst it
the software and computer services performed the best with positive year of
year growth rate even during the period of global crisis and then followed
by business services. Various study has proved that the above mentioned
services enjoys the revealed comparative advantage due to its low cost,
excessive manpower and pools of talent within the country, constantly
development of infrastructure and directed efforts of government in
assisting this sector with supportive policies.
Other services falling under the category of miscellaneous services like
construction services, communication services, financial services etc. have
also shown an improved performance in post WTO period.
It can be concluded by saying that the dynamic and remarkable
performance of some of the services in post WTO period reflects the
positive impact of various service trade liberalisations and deregulation of
domestic policies under WTO agreement.
India has been gaining revealed comparative advantage in emerging areas
such as insurance services, telecommunication services, computer and
information technology, but losing advantages in traditional areas such as
transport, travel and tourism services.
Direction of Exports
Data relating to India’s service export destinations is not available in
published form however, with the help of few sources it was clear that U.S. and U.K.
were the major service trading partners in pre and post WTO period. However later on
in post WTO period few market diversifications has been achieved and many
developing countries and South East nations have become the service trading partners
of India. This is due to various regional agreements with countries other than U.K.
and U.S. in matter relating to service trade
3. EMERGING OPPORTUNITIES AND CHALLENGES FOR
INDIAN SERVICES EXPORT UNDER THE WTO REGIME
Services exports represent an opportunity for many developing countries
because they can directly affect overall competitiveness and growth and indirectly
affect poverty, employment and consumption7. The India’s services export plays a
significant role in foreign exchange earnings and had played role in reducing balance
of payments deficits. In services export India rank’s amongst top 15 service exporter
countries as it has strong revealed comparative advantage in service trade especially
in services like software and business etc. However, there is challenge for India to be
more potential in expansion of export of various categories of service. Being traded
invisible, it faces many complicated barriers. Removal of these barriers through
liberalisation, and complementary policy reforms can lead to both sectoral and
economy-wide improvements in performance.
GATS represent an important step in the process of service liberalisation,
which requires the removal of all discriminatory barriers that affect services and
services providers8. According to Adlung and Roy, other two main reasons contribute
to make service liberalisation even more beneficial than liberalisation of merchandise
trade: barriers to trade in services are higher, less transparent and more distortive of
competition than those to trade in goods; and most of the restrictions applied to
services are non-revenue generating quotas9.
Liberalization can occur unilaterally as well as at plurilateral and multilateral
level. Although GATS remain the main forum for multilateral negotiations,
plurilateral trade agreements (PTAs) covering services have flourished since the mid-
1990s. More than 83 services PTAs have been notified since 1995. They account for
almost 30% of all WTO-notified PTAs. Moreover, many governments have carried
out policy reforms to relax restrictions on foreign provisions of services
autonomously, outside the realm of negotiations. Indeed, the commitments inscribed
in the Members’ schedules of commitments at the end of the Uruguay Round were
essentially confined to existing regimes in a limited number of sectors whereas further
progress has been the result of unilateral liberalisation by individual countries10.
In Indian services, there exists high export potential as it meets the standard of
international market. There are many untapped services within the country, which
needs utmost attention so there is need to create export opportunities for them. India is
a country with diverse culture, climate and people; all these factors are definite to
bestow some advantage to the country. Various service negotiations under WTO to
remove restrictive service trade practices by member countries and to create more
market access for countries by deregulating domestic policies have definitely created
an opportunity for India’s service export. Both traditional services like travel and
transportation and diversified services like business services, software services,
consultancy services and others have good scope for further growth and expansion in
this new optimistic atmosphere.
In travel and tourism services, India have the potential to earn more foreign exchange
although due to global financial and economic crisis this sector did not performed well in past
few years but as the world proceeds towards global recovery the benefits would ensue to
India as it is a country with rich in its culture and heritage so many tourist all over the world
are always willing to visit the country and know about it. Beside it India being a cost-
effective country in many terms so people from abroad always wish to come to the country
for education purpose and business purpose and latest development in health facilities has
resulted into increase in number of visitors to the country for health purposes also. However
challenges with the country is to remove or reduce legal and other barriers in the way like
visa issues, safety and health issues of tourist, provision of better accommodation and
physical infrastructure and other facilities must be adequate etc. India has placed request for
liberalization in the WTO negotiations but not achieved expected response. Much ground still
needed to be covered in order to reach a common understanding of the request and achieve
significant improvements over existing offers.
Recently global crisis has resulted into decline in merchandise trade thereby
effecting sea transport business and had led to fall in the number of tourist arrival to
the country affecting air transport but with the revival of global economy there is an
opportunity for growth in transportation business. However, challenges with the
country are to undertake huge investment in infrastructure development and to
modernise port and produce more vessels to meet out the demand.
Insurance and financial services are the most emerging and fast growing sector
with immense export potential. One of the drawbacks is, as it is one of the most
fluctuating services so challenge is to make it more stable by protecting it from
internal and external shocks so efforts are needed to make them at least as stable as
software and telecom services. This brings us to the challenge of domestic regulations
in most of these sectors. While in the WTO, India has been at the forefront of
negotiations for removal of such regulations in other countries, however had limited
affirmative responses concerning the removal or easing of significant restrictions on
mode 3, including with respect to foreign equity participation, juridical form, and
economic needs tests. In addition, the offers submitted fell well below current levels
of liberalization. Many countries had signalled no flexibility to remove foreign equity
caps, juridical form restrictions, quantitative/numerical restrictions, or economic
needs test requirements. Only a few had signalled some flexibility regarding the
cross-border supply of reinsurance and large-scale commercial risk insurance
services. So there is a need to continue with effort of request and also have to take a
lead in making regulatory improvements domestically as such regulations could come
in the way of further growth of the services sector11.
In the software, telecommunication and other business services there is lot of
untapped potential in the economy. These services enjoys revealed comparative
advantage as compared to other services and factors contributing this advantage are
the existence of pools of talent, skilled manpower, low cost and efficiency in the
economy. So the challenge is to maintain the present growth, explore new markets
while sustaining the existing one. Besides the above mentioned services there is scope
for further diversification into areas like consultancy services, research and
development services, entertainment services, satellite mapping services, accounting
and hospitality services etc. what is required is to be more attentive in the process of
request and offer of different countries in WTO.
So India’s export of services can be provided a further impetus by bringing
about reform in domestic policies and regulations relating to services and negotiating
with other countries for market access in services which are of interest and advantage
to the country.
Strategy for Service Trade under WTO- a brief study
In services, India’s major interest is the liberalization of cross-border trade
(Modes 1&2) and also in Mode 4 which relates to movement of person. In cross-
border trade, India has requested for broad-based commitments across a wide range of
service sectors. In Mode 4 the main request by India is in respect of admission of
independent professionals and contractual service suppliers for provision of services.
In order to promote the liberalisation of mode 4, India has been submitting negotiating
proposals at the WTO. In November 2000, India submitted a proposal on
“Liberalisation of Movement of Professionals” (S/CSS/W/12 dated 24th November
2000). The Indian proposal notes that the developed member countries have taken
limited commitments in Mode 4, which is of significant interest to developing
countries. These commitments are further reduced in scope on account of various
measures taken by developed member countries, such as Economic Needs Test
(ENT); restrictive visa regimes; Non-recognition of qualifications etc. The proposal
suggested various strategies for improving access for Indian service providers such as
transparency in the visa regimes, creation of a separate GATS visa different and less
onerous from the normal immigration visa, facilitation of Mutual Recognition
Agreements (MRAs) etc. India’s major trading partners especially US and EU have
not been forthcoming in offering openings for professionals under Mode 4. .
Subsequently India also tabled various proposals along with other like-minded
members, for liberalization of Movement of Natural Persons. The proposal contained
in paper no. TN/S/W/14 dated 3rd July 2003 addressed similar issues and suggested
several remedial measures. The paper on Categories of Natural Persons for
commitments under Mode 4 of GATS (TN/S/W/31 dated 18 February 2005) stressed
on the need for arriving at a common understanding on a list of categories of natural
persons for whom commitments are being sought, along with common parameters and
market access conditions attached to them. The objective of the paper was to ensure
greater uniformity and clarity in scheduling commitments and improving the level of
commitments in Mode 4. In addition, India has also tabled along with other countries
at the WTO a paper on the “Assessment of Mode 4 offers of members” (JOB (05)/131
dated 30.6.2005).
Business Process Outsourcing (BPO) / Information Technology Enabled Services
(ITES) is undertaken through electronic modes of delivery i.e., Mode 1. BPO/ITES and off
shoring are likely to continue as major thrust areas from India’s point of view. In the present
Round of Services negotiations, one of our major objectives is to achieve better access for our
service suppliers under this mode. When it began, outsourcing had a limited objective to
achieve cost savings in transaction-intensive, back-office business processes. In the area of
disciplining of domestic regulations, which is important for gaining effective market access
for our service providers, India has been playing a pro-active role at the WTO. In this regard,
India has put in several proposals for discussions on this subject, including a paper on
Development of Disciplines for Professional Services (JOB (03)/192 dated 30 September
2003. India along with some other developing countries such as Chile, Mexico, Pakistan and
Thailand again tabled a proposal (JOB (05)/50, dated 30 March 2005) suggesting some
alternative approaches for addressing the issue of recognition such as development of
disciplines for professional services; establishing guidelines for recognition of qualification;
possibility of undertaking additional commitments for verifying a foreign service provider’s
competence to provide the service etc. Most members have not offered any commitment in
this category of service.
In pursuance of the Hong Kong Ministerial Conference, disciplines in
Domestic Regulations have to be concluded. Discussions on this are under way in the
Working Party on Domestic Regulation (WPDR). In this connection, India along with
some other countries had submitted a Room Document on 1.5.2006 on Disciplines on
Qualification Requirements and Procedures. Chairman of the WPDR has circulated a
Room document dated 20 March 2009 for the disciplining of domestic regulation for
discussions.
However, it has now emerged as a flexible and powerful approach to address even
tactical and strategic aims. There has been a movement up the value chain with India
emerging as the new hub for Research & Development activities in financial services,
engineering related services, medical and related services etc.. In Mode 1, India wants
developed countries to take binding commitments in various services sectors - health
services, R&D services, engineering & integrated engineering services, construction and
related services, consultancy services, audio-visual services, computer related services,
professional services, other business services like credit reporting services, collection agency
services, telephone-based support services, data processing services etc. . India has a fairly
large comparative advantage over other Member countries with regard to supply of
professional services in these service sectors. The major concern for India in the area of
services is that the markets for services in the larger economies are not sufficiently open,
particularly in respect of labour and labour-related services. Furthermore, in order to realise
effective access in the larger markets, there is a need to ensure that predictable and
transparent disciplines are put in place for Domestic Regulations so that they are not abused
to deny access or to create barriers.
In the recent past, Mode 3 is also becoming important for India because of
overseas expansion of a number of Indian companies (eg. banking (ICICI, State
Bank), Pharma (Dr Reddy’s, Ranbaxy), Non-Conventional Energy (Suzlon), Telecom
(VSNL, Reliance) and IT (Infosys, WIPRO).
The main issues in WTO Negotiations in Services Sector for India are the following:
• Harmonisation of accreditation and titles.
• Status of existing Mutual Recognition Agreements (MRAs) and MRAs under
which countries like India would like to be included.
• Orderly movement of professionals by more meaningful negotiations under
Mode-4.
• Removal of limitations like economic needs test, in state residency, citizenship,
etc. found in national schedules.
• Removal of subsidies given by developed members in services like shipping,
aviation, healthcare, etc.
• Extent of quantitative restrictions (QRs) on services, like quantitative limitations
on setting hospitals, educational institutions, etc.
• Issue of reimbursement of medical expenditure incurred overseas.
• Issue of social security contributions to be made by Indian professionals.
• Issue of the impact of extension of negotiations in maritime services to multi-
modal transport.
• Need to negotiate on trade barriers to services.
• The need for India to emphasise on supply of services not only through
temporary movement of natural persons and cross border mode, but also by
consumption abroad mode.
• Using FTAs/RTAs for coalition building in WTO while complementarities are
not lost sight of. Developed countries emphasise on improved commitments in
mode 3 i.e. commercial presence so that service suppliers can choose their
preferred form of doing business (e.g. as majority joint ventures, 100% foreign-
owned subsidiaries, or branches). They use the new WTO Accessions and
Regional Initiatives for immediate gains e.g. the strategy for gaining from regional
initiatives as in the case of USA like the Free Trade Areas of the Americas
(FTAAs), the Transatlantic Economic Partnership(TEP) with the European Union,
assisting the Japanese government's efforts in the financial services "Big Bang"
and major capacity-building component to help African nations, the Everything
But Arms (EBA) initiative by European Community (EC), and the recent Aid for
Trade for LDCs initiative by developed countries.
• Need for a special negotiating team for services. Developed countries like US
have made a head start proactive agenda and the US has set up a Special Services
Negotiating Committee. So, developing countries have to take quick actions, lest
they lose in sectors which they consider to have a potential in future.
• Consultation with state governments on issues related to services standards and
regulations. The US has worked out model schedules or templates for sectors and
held extensive consultations. There is greater involvement of State Governments as
service standards and regulations are established by State Governments or private
professional associations in US.
To better handle all the service trade issues there is need for more specialised
institutional set up with more trade economists and specialist working on major issues
relating to service trade barriers and facilitations. As the rising services trade
competitiveness relies more on substantial liberalization carried out through the removal
of trade and investment barriers. The removal of barriers to trade in services is likely to
result in lower prices, improved quality and higher competitiveness and hence calls for
more proactive role of WTO in removal of service trade barriers and also country
should be active in WTO service trade negotiations, making offers and placing
request in potential services of countries interest.
3. POLICY DEVELOPMENT BY INDIAN GOVERNMENT IN THE PAST DECADE TO FACILITATE GROWTH IN INDIAN SERVICES EXPORT
(A brief study)
Recognising the country’s potential in services export Government of India
has formulated various policies and programmes to further stimulate its growth and to
make Indian services accessible in world market. Different categories of services are
exported from India so the various policies made in support of these services are
represented under their heads.
Travel and Tourism services
We have already seen the growing importance of tourism in country’s export
so there is a need to further push its growth. India has the capacity to earn good
foreign exchange through this sector so with this prospectus following policies have
been drawn and implemented over period of time by the Government of India:
In 2002, National tourism policy was launched by ministry of
tourism to develop infrastructure, to market tourism product abroad
and to make Indian tourism more competitive.
Overseas initiative like Incredible India and Visit India 2009
campaign.
To boost tourism air service agreement has been revised and new
policy has been formed for foreign charter flights.
To promote growth of hotels a Hospitality Development and
Promotion Board has been set up at central level to monitor and
facilitate clearances/approvals for hotel projects both at central and
state government level. Its main activity is to review policies to
encourage the growth of hotel/hospitality infrastructure in the
country.
State government and agencies holding land are advised to set
aside land for hotel construction and get the credit at concessional
interest rates.
Tax incentive and tax holiday on construction of hotel under Delhi
NCR region and for hotels operating between 1st April 2007 and 1st
July 2010. Since 2010 capital expenditure in new hotels are fully
deductible for income tax purpose.
To strengthen the National Tourism Policy 2002’s critical pillar of
Suraksha (Safety), the Government has adopted the Code of
Conduct for ‘Safe and Honourable Tourism’ on 1 July 2010.
License is granted to eligible travel agents and tour operators on
voluntary basis after recommendation of committee consisting of
regional tourism director and member of the relevant business
association.
The Government has introduced the Visa-on-Arrival (VoA)
scheme for tourists from five countries, namely Singapore, Finland,
New Zealand, Luxembourg, and Japan on a pilot basis with effect
from 1 January 2010. The VoA scheme has been extended to the
nationals of Cambodia, Vietnam, Laos, and Philippines with effect
from 1 January 2011 and Myanmar and Indonesia from 25 January
2011.
Ministry of tourism has also opened various tourist offices in India
and abroad to help foreign visitors to India and to promote India
abroad.
The Government has taken initiative to develop quality tourism
infrastructure at tourist destinations and circuits. A scheme has
been launched for development of nationally and internationally
important destinations and circuits through mega projects. So far,
38 projects have been identified out of which 23 have been
sanctioned.
In cooperation with UN environment programme and UN World
Tourism Organisation, Ministry of Tourism has developed 37
quality standards to ensure sustainable development tourism.
Transportation services
Receipt through this service depends upon the merchandise trade, more the
demand for goods more would be the use of ship for transportation of goods and more
the receipt through transportation services so the government had made various
programmes and policies in support of developing Indian shipping.
Ministry of Shipping; introduced tonnage tax system during 2004-05;
formulating a Cruise Shipping Policy of India in June 2008; and establishing
the Indian Maritime University in November 2008.
The government has implemented the port community system as part of
paperless regime for transaction of business at ports.
To provide depreciation of 3.34 % (assuming life 30 days) to drilling rigs,
granting exemption to ships falling under chapter 8901 from additional
custom duty and excise duty provided a general license under sec 406 of the
merchant shipping act 1958 is granted by the director general shipping.
The government has allocated more funds for the infrastructure development.
Also 100 % FDI in shipping and port sectors.
Exemption from import duty on spare parts and capital goods required by ship
owners in budget 2011-12.
Undertake PPP project to develop port capacity by developing additional
berths at major ports, deepening of channels, improved rail road connectivity,
establishment of more ports etc.
To protect merchant vessels from piracy government has deployed naval
vessels in the piracy affected areas.
Other commercial services
Establishment of Service Export Promotion Councils.
Participation in global trade shows/expositions and conferences, Market
research/studies and publicity, campaigns in overseas markets.
Government shall promote establishment of Common Facility Centres for use
by home-based service providers, particularly in areas like Engineering &
Architectural Design, Multi-media operations, Software developers etc., in
State and District level towns, to draw in a vast multitude of home-based
professionals into services export arena.
Business interface between Indian and foreign companies through Buyers –
Seller Meets, and locating new business partners for Indian computer
software and IT companies.
Government of India passed the IT Act 2000, which attempts to change out-
dated laws and provides ways to deal with cyber-crimes.
The Export Oriented Units (EOUs) and units under Electronic Hardware
Technology Parks (EHTPs), Software Technology Parks (STPs), Special
Economic Zones (SEZs) and Bio-Technology Parks (BTPs) schemes are
entitled to avail several facilities/benefits including exemption from payment
of income tax under Section 10A and 10B of the Income Tax Act.
In West Africa International Telecommunications Exhibition & Conference
2010 during 1st - 3rd June, 2010 in Nigeria, Participated in Communic Asia
2010 during • 15th-18th June 2010 in Singapore, Participated in GITEX
during 18th -21st October, 2010 in Dubai.
The Draft National Policy on Information Technology 2011 focuses on
deployment of information communication technology (ICT) in all sectors of
the economy and providing IT solutions to the world.
The national telecom policy 2011 has been drawn with the objective of
rationalising of the multiple levies and taxes.
It seeks to bring ICT within the reach of the whole of India while at the same
time harnessing the immense human resource potential in the country to
enable it to emerge as the global hub and destination for IT-ITeS Services by
2020.
In budget 2010-11, Government has increased its expenditure for improving
IT infrastructure and delivery mechanism, reduction in surcharge from 10 per
cent to 7.5 per cent for IT companies and Government’s E-Governance plan.
Government had created the market development assistance and market
access initiative schemes.
‘’ Consultancy Trade Market’’ CTM has been organized to target countries
where the ability of Indian consultants would be marketed.
Consultancy development fund has been created to support consultancy
services.
To ensure quality there would be appointment of regulator.
Liberal FDI policy in consultancy
For promoting legal services, The National Knowledge Commission
recommended establishing a separate body to regulate legal education and
setting up Centres for Advanced Legal Studies and Research.
The Planning Commission has taken initiatives in creating model engineering
procurement-construction (EPC) and PPP contract documents.
Thus it could be concluded that in the post-WTO period, India has emerged as
a leading services provider. A cross country analysis of services export performance
revealed that as compared to pre-WTO period in the post-WTO, India was better both
in terms of value and share of service export, then many developed countries and
among developing countries it ranked 2nd after China. The analysis of the growth,
composition and comparative advantage of India’s services exports in pre and post-
WTO period suggest that services exports in the post-WTO period have witnessed
tremendous growth in all the three categories i.e. travel, transportation and other
commercial services(like software services, business services, financial services,
communication services, construction services, royalties, copyrights and license fee,
news agency, personal, cultural and recreational services). But it is the OCS category
which has made India’s recognised as a foremost exporter of services.
India is amongst top 10 leading exporters of other commercial services, where
the software services; computer and information services (ITES) indicates the
supreme importance in India’s export basket. However, India needs to spruce up
exports in other categories as well, since computer services form a small portion of
world exports. Along with OCS, India has displayed a comparative advantage in
exports of Other Business Services, construction and insurance services as well.
Hence, these are the service categories where India needs to diversify its attention.
The tremendous development in the India’s services exports in the post WTO
period is the result of introduction of rule and discipline for trade in services under
WTO, which calls for greater liberalisation of trade in services and removal and
reduction of service trade barriers existing in countries. Beside it, the change in the
global scene, well-planned program or a policy in recent years and other economic
and political factors are responsible for thrusting the growth in India’s services
exports. This growth has made India as one of the emerging economies in the world
gaining confidence and respect at the international level. However it is imperative to
improvise and remain innovative to retain markets and maintain stability otherwise
India may lose this share.
In WTO service trade negotiations, India has varied opportunities and
challenges, so it’s crucial for country to grab prospects and face defies in more
intellectual way. India must develop marketability for higher-end services. India
needs to work for the recognition of its professional qualifications like, law, medicine
etc. at the international level. Better service trade negotiations and plurilateral request
and offer should be made with countries with potential market for India’s services.
India needs to be more transparent in its system with lesser and reduced bureaucracy.
Better infrastructure for all sectors should be a priority. Reforms in the Intellectual
Property Act, data security and privacy protection will prove advantageous. To
minimise the effect of the slowdown of developed economies on the service sector,
focused attention is required to develop other sectors of services.
Hence we analysed that the establishment of WTO has positively impacted
India’s services exports and in order to further augment this trend and export new
services in international market more focused effort is needed to remove existing
barriers in services export and introduce positive reforms in domestic policies.
REFERENCES
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Trading System. The WTO and Beyond, 3rd Edition, Oxford: Oxford
University Press, 2009, p. 317.
2. World Trade Organization, ‘Services: rules for growth and investment’, 2011.
3. Ghani, E. & Homi, K. ‘The Service Revolution’, PREM Economic Premise,
No. 14 (May), Washington D.C.: The World Bank, 2010, p. 2.
4. Mathur, Vibha (2005). WTO and India Development Agenda for 21st
Century,New Century Publication, New Delhi
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Analysis of Trade in Services, Remittances and Income”, Monthly Bulletin,
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2011), www.odi.org.uk/resources/download/482.pdf.
8. Sáez, S. Trade in Services Negotiations: A Guide for Developing Countries,
Washington D.C.: The World Bank, 2010, p. 3.
9. Adlung, R. & Roy, M., Turning Hills into Mountains: Current Commitments
under GATS and Prospects for Change, Geneva: World Trade Organization,
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10. Adlung, R. & Roy, M. Turning Hills into Mountains: Current Commitments
under GATS and Prospects for Change, Geneva: World Trade Organization,
Staff Working Paper ERSD-2005- 01, March, 2005
11. WTO, NEGOTIATIONS ON TRADE IN SERVICES, Report by the
Chairman, Ambassador Fernando de Mateo, to the Trade Negotiations
Committee, TN/S 36, 21 April 2011,p. 5)
CHAPTER IX
SUMMARY, CONCLUSIONS AND POLICY IMPLICATIONS
In the past two decades, India has emerged as one of the fastest growing major
economy among the developing economies of the world. International trade has
resulted into increased national income and employment and also the living standard
of people of India, where the role of exports have been indispensable in generating
investible surplus and financing imports by earning foreign exchange. India’s export
sector has observed much change in the past two decades and the creation of WTO
has significantly impacted its exports. The present chapter deals with the summary of
the elementary chapters and draw some general conclusions about the observed
performance of India’s exports under the WTO regime and also explores policy
direction to enhance India’s exports. The analysis of India's exports revealed that the
process of export growth was not only affected by WTO rule based trade system but
was also considerably influenced by domestic economic policy reforms and
international economic environment.
Emergence of Importance of Exports and Role of WTO in India’s Foreign Trade Policy
International trade bestows all kinds of trade advantages upon the country as it
decidedly increases the exchangeable value of possession, means of enjoyment and
wealth of the country concerned that is why trade and economic growth are always
positively correlated. Over periods many trade theories have been developed by
several economists like; Absolute cost advantage theory of Adam Smith, Comparative
cost advantage theory of David Ricardo etc. to highlight the cause and significance of
international trade. Those countries, which adopted outward-strategy in their trade
policies, have grown at a faster pace than those with an inward looking approach. In
past two decades, the developing countries of East Asia has shown rapid growth in
their economy as compared to many African and Latin American countries and the
reason was that the former were more open to trade and the later adopted conservative
and protective attitude towards the trade besides other structural complexities. It has
been further observed that the role of exports is more crucial in developing countries,
which plays detrimental role in building countries import capacity and also by
contributing in GDP and employment increases efficiency in the economy, which
stimulates growth process within the country. India too moved towards more
outwards oriented economy primarily moving away from the import substitution
towards export promotion since 1990s, whereby export expansion came to be
regarded as a critical factor in India’s economic development. As a result, number of
important trade policy reforms was implemented since 1991 with the objective to
eliminate discretionary controls on international trade transactions, reducing the
nominal as well as the effective protection available to domestic industry, and
bringing domestic prices closer to world prices. The process of liberal foreign trade
policy adopted by the Government of India resulted into greater trade openness of the
country in past two decades from 13.28 per cent in 1990-91 to 34.5 per cent in 2010-
11. One of the major and prominent components of reforms relates to globalisation or
progressive integration of the Indian economy with the global economy by reducing
the tariff and non-tariff barriers to trade. The process gathered further momentum
with India signing the Marrakesh Treaty, which brought into existence the World
Trade Organisation (WTO) on January 1, 1995.
After seven years of prolonged negotiations, called Uruguay Round of trade
negotiations, a new rule-based trading system with new apex body, the World Trade
Organisation (WTO) with authority to enforce an open, equitable and non-
discriminatory multilateral trading system came into existence. It included in its scope
of liberalisation, non-tariff barriers (NTBs) along with tariffs, and conceived many
new norms and disciplines such as sanitary and phytosanitary measures, anti-dumping
measures, dispute settlement procedures, safeguard measures, etc. with a view to
ensuring liberalised effective market access and rule-based trade (V.R. Panchamukhi,
2001). The creation of WTO has resulted into expansion of trade of developing
countries and their share in world merchandise trade has increased from 29 to 41 per
cent from 1995 to 2010.
India’s participation in the multilateral trade negotiations of Uruguay Round
and the WTO had significant impact on its foreign trade policy. It was observed that
India used to impose quantitative restrictions on its imports and exports but under the
WTO regime, the tariff protection was reduced, relaxed and simplified. India removed
all quantitative restrictions maintained on imports earlier on account of BOP measures
by 2001. Import restrictions on 488 tariff lines were removed in 1996-97, 391 in
1997-98, 894 in 1998-99 and 714 in 1999-2000. The import restrictions on 894 items
of consumer goods, agricultural products and textiles was liberalised and by March
2001 Import licensing was totally abolished with respect to imports of most of
machinery, equipments and manufactured intermediate products. In some sectors,
controls were reduced on administrative prices. The policy focus was primarily on
liberalization of capital goods and inputs for industry so as to encourage domestic and
export-oriented growth. However, imports of consumer goods remained regulated.
The simple average MFN tariff rate declined from 15.1 per cent in 2006-07, to 12 per
cent in 2010-11. Both the average agricultural and industrial average tariffs declined
over time. The tariffs on 71 per cent of over tariff lines were between 5 and 10 per
cent. The widening gap between over bound and applied tariff rates reflects India’s
gradual movement towards a lower tariff regime as required by WTO commitments.
Not only this, under WTO opened and liberalised system of trade, India
undertook various measures for procedural simplification and export promotion. The
income tax exemption to 100 per cent EOUs and to STPI units continued until March
31, 2011. In order to reduce transaction time and cost, a provision of self-assessment
both for imported and export goods, was introduced by amending the custom act 1962
in the budget of 2011-12. India has also simplified its foreign investment regime and
opened up a number of sectors to foreign direct investment. India is also one of the
most active users of anti-dumping measures among the WTO members, as of the end
of 2010, India has imposed 436 anti-dumping measures; 373 of these measures were
imposed in the last decade.
In the past decade, India has emerged as a major player in the world economy,
which has made many developed and developing countries to build more strong trade
relations with India, as it is considered as one of the potential and enormous market
for their products. This growing attention of the world in India has made it an
important player even in the WTO negotiations. Initially India exhibited its mere
presence in the ministerial meeting, but after opposing the inclusion of Singapore
issues, it ultimately played significant role in Doha (2001) negotiations, where it
established itself as a tough negotiating counterpart. This brought India to the
attention and has been branded a hardliner with ‘defensive strategy’.
At the WTO negotiations, India adopted the strategy of constituting coalition
to bring in greater bargaining power. So far India has been part of many group formed
in different Ministerial Conference like G20, G33, G4, NAMA-11, and ‘Friends
Group’ etc. for agriculture, non-agricultural market access and services. These
coalitions had range of interest both offensive and defensive and it provided voice to
many developing countries to safeguard their interest in the negotiations. Initially the
US and EU use to easily drive the WTO agenda due to its strong bargaining power,
but later on it was difficult to suppress the voice of developing countries formed into
groups where India played the leading role. India’s aim is to secure individual interest
and also those of other developing countries in coalitions with India. It was observed
that there was large overlap between India’s domestic interest and the interest of the
developing world especially on food security, livelihood and market access. So far, in
the ministerial meeting India has been insisting on the special and differential
treatment for developing countries and also on Special Products and Special
Safeguard Mechanism. India has also constantly emphasised on the reduction and
elimination of domestic support and farm subsidies in the developed countries. On the
other hand there is no need for India to reduce its bound rates.
In NAMA, India has asserted developed countries to reduce their tariffs
through Swiss Formula to provide greater market access to the developing countries.
India has received request in few services and made request for liberalised mode 1
and mode 4 form of supply of services in EU and US. Before meeting the demand of
the developed countries, India wants commitment too from them in areas of their
interest.
The growing contradiction between the developing and the developed
countries on many trade issues in the various negotiations round had ultimately
resulted into the incompletion of the Doha Development Agenda so far and the recent
discussions in eighth ministerial meeting too ended without any substantial
conclusions.
With the realisation of growing significance of export in country’s growth and
development, the Government of India had initiated the various programme and
measures to promote the export of the country apart from the multilateral approach of
the various international trade institutions like WTO.
In order to overcome the various obstacles in the expansion of exports, the
Government of India has adopted various export promotion measures which involves
on the one hand the government individual efforts like; institutional set up, improving
export infrastructure, Export Oriented Units, SEZs, some product specific and market
specific incentives, devaluation of currency, various promotional measures under
foreign trade policy announced from time to time and other programmes etc. and on
the other hand the multilateral or bilateral or various regional groupings, where the
government enters into different agreements and negotiations with different country in
order to promote its export, like SAARC, SAPTA, etc.
In India, since independence many committees and commission has been
constituted from time to time like Gorwala Committee, the Murdaliar Committee, the
Tandon Committee, Abid Hussain Committee etc. and all of them have given
important recommendation on measures to promote export. The first Tandon
Committee (1980), which was set up to recommend export strategy for the 1980s,
explicitly recognized the anti-export bias and recommend provision of cash subsidies
to exporters to offset the same. Taking their recommendations into consideration and
recognising the other requirement of India’s export sector the Government of India
has adopted the series of export promotion measures.
In order to boost the export of the country, the Government of India has
announced and implemented trade policies from time to time. These trade policies
were designed in manner to provide all possible form of incentives and facilities to the
exporters and to remove bottlenecks in the export production. The government
formulate trade policies in response to domestic political forces and variety of interest
group, specially trading partners and those with whom the country has entered into
some regional or bilateral trade agreement. Since the establishment of WTO India is
committed to different agreements under WTO as per member obligation and hence
has devised its EXIM policy since 1997 accordingly.
Until 1975-76, the trade policy was successful in restricting imports and
promoting exports. From 1975-76 onwards government adopted import liberalization
policy with the objective to promote exports. The policy included schemes like Open
General Licence (OGL), import replenishment, simplified procedure, EOUs, FTZ,
duty free import, canalisation, joint ventures etc. The government, for the first time,
announced the Export-Import policy on a three-year basis in April, 1985 which aimed
at strengthening export production base and facilitating technological up gradation,
apart from initiating some new scheme and strengthen the old one. The Export-Import
Policy announced again in March 1988 for three years basis was based on the
realization of the planners on time-tested import substitution strategy for self-reliance
under the policy, and export promotion got greater emphasis. The new trade policy
was initiated in 1991 with the objective of liberalisation, that is, reduction in the
government control and removing all the barriers that acts as obstacles in the way of
free flow of exports and imports.
The EXIM Policy was made valid for the period of five years from March
1992 with the announcement of the Export-Import Policy 1992-97, which aimed at
accelerating country’s export, providing new incentives for export promotion,
improving the quality image of product abroad, improving R&D and technological
capabilities, streamlining EXIM procedures etc. The EXIM Policy announced in the
ninth five year plan 1997-2002 aimed at capturing at least 1 per cent share in the
world trade and set the export target of US$ 100 billion to be achieved by 2002.
However, the 1 per cent share could not be achieved in the 9th plan. The EXIM Policy
2002-07 announced by the NDA government was replaced by EXIM Policy 2004 -09
announced by the UPA government when it came into power after elections. The
EXIM Policy aimed at doubling India’s percentage share of global trade within 5
years. The key strategies to achieve various objectives include: unshackling of
controls and creating an atmosphere of trust and transparency, simplifying procedures
and bringing down transaction costs, neutralizing incidence of all levies on inputs
used in export products, facilitating development of India as a global hub for
manufacturing, trading and services, identifying and nurturing special focus areas,
facilitating technological and infrastructural up gradation of all sectors of the Indian
economy and activating our embassies as key players in our export strategy. The
Foreign Trade Policy 2009-14 came into force with effect from 27th August, 2009 and
shall remain in force up to 31st March 2014. The main objective of this policy was to
have annual export growth of 15% with an annual export target of US$ 200 billion by
March 2011; to come back on the high export growth path of around 25% per annum
in the remaining three years of this Foreign Trade Policy i.e. up to 2014; to double
India’s exports of goods and services by 2014; to double India’s share in global trade
by 2020. However India’s exports crossed the target of exports of US$200 billions by
March 2011 and registered value of exports of US$251 billion in 2010-11.
India gives priority to multilateral negotiations at the World Trade
Organisation but entering into regional trading agreements is also an important step to
increase its export market. So far India has entered into many bilateral and regional
groupings both with developed and developing economies which includes; India Sri
Lanka Free Trade Agreement, Preferential Trade Agreement (PTA) with
MERCOSUR, India-Korea Comprehensive Economic and Cooperation Partnership
Agreement (CECPA), India-Japan EPA/CEPA Negotiations, India-EU and
Investment Agreement Negotiations, India-European Free Trade Association (EFTA)
BTIA (Iceland, Norway, Liechtenstein, and Switzerland) etc. In forming bilateral and
regional groupings India has given due consideration to WTO rules regarding regional
trade agreements. These rules basically aimed at preventing trade interest of those not
being the part of the regional groupings.
An Overview of India’s Exports in Post WTO.
The establishment of WTO has led to the significant expansion in world
merchandise exports generally, at a rate faster than global output, with more than
double the value of exports in past 16 years period. The proactive development
strategies of developed and developing countries along with committed efforts of
WTO had led to the expansion and diversification in world trade. The study revealed
that the opening and liberalisation of economy has enabled India to achieve an
increased export orientation of the economy as shown by the increased ratio of
exports to GDP in the post-WTO period compared to the pre-WTO period. Exports as
percentage of national GDP (at market price) increased from 6.90 per cent in 1991-92
to 13.00 per cent in 2005-06 and 14.2 in 2010-11, which indicates increasing
openness of trade under WTO regime.
In the present work, India’s export performance was compared with that of
few developed and developing nations in the post WTO era, where the performance of
India was not satisfactory during late 90’s, which reflected countries internal policy
flaws and other domestic factors and also the weak role of WTO in stimulating
country’s export but in recent years India has performed better than few developing
countries like Indonesia, Malaysia, Thailand and Brazil, which were once ahead India
in export performance. India’s share in world merchandise exports had reached to 1.6
per cent in 2011 and was better than that of; Malaysia (1.1 per cent), Indonesia (1.1
per cent), Thailand (1.3 per cent) and Brazil (1.4 per cent) in 2011. In terms of year of
year growth rate, India performed better than many developed and developing
countries. Thus the hypothesis that India’s exports performed well in relation to
exports of many other developing countries has been accepted, as growth rate of
India's exports was found to be much higher than that of the export growth of the
major exporters (both developing and developed countries) in world market except
China. It clearly highlights that India’s exports growth was satisfactory and could be
considered that the membership of WTO has opened market share for India.
India’s exports in absolute terms have increased sharply from US$ 31797
million in 1995-96 to US$ 217664 million in 2011-12. Under WTO regime, India’s
exports grew at compound annual growth rate of 12.7 per cent (1995-2012). In
comparison to the compound annual growth rate of world exports (8.2 per cent), this
growth rate of India’s exports was relatively higher and India’s share in world
merchandise exports reached to 1 per cent in 2005-06 from 0.8 per cent in 2002-03
and 0.6 per cent in 1995-96. In the year 2011-12, the share has reached to 1.67 per
cent. India’s rank in world export was 26th in 2007 slipped to 27th in 2008 again
improved to 21st in 2009 and 20th in 2010. It was a distinct break from the past
stagnation in India’s export earnings.
In terms of year of year growth rate, India’s exports during the second half of
1990s (1996-2000) declined mainly due to East Asian crisis, which placed a strain on
India's exports not only by shrinking world demand but by also adversely affecting
international competitiveness of India's exports due to sharp depreciation of East
Asian currencies. The tremendous growth of India's exports during the period 2001-
2006 was primarily been attributed to their competitiveness. However, in 2009-10,
India’s exports registered negative growth rate of -3.5 per cent due to global economic
and financial crises. In the year 2010-11, India’s export showed robust performance
and surpassed the pre-crisis trend with value of exports of US$ 251136 million and
year of year export growth rate of 40.5 per cent.
The manufactured exports and petroleum exports experienced higher growth
as compared to primary exports under the WTO regime. The share of primary exports
in post WTO period in overall exports has steeply declined from 22.8 per cent in
1995-96 to 16.2 per cent in 2004-05 and recently to 14.9 per cent in 2011-12. This
decline was due to fall in the share of agriculture and allied from 19.9 per cent in
1995-96 to 10.5 per cent in 2004-05 to 12.3 per cent in 2011-12. The export growth
rate of agricultural products was also low which highlights the weak role of WTO in
reduction of agricultural subsidies in developed countries and also market
accessibility of Indian agricultural products. The share of ores and minerals increased
moderately from 2.7 per cent in 1996-97 to 3.4 per cent in 2010-11 and again falls to
2.6 per cent in 2011-12. The share of manufactured goods was 74.7 per cent in 1995-
96 which rose to 80.7 per cent in 1999-00, and then declined to 70.3 per cent in 2005-
06 and to 61.3 per cent in 2011-12. This decline in share in recent years was due to
emergence of petroleum products as an important item of exports from the country
with significant share of 18.25 per cent in 2011-12 and 11.3 per cent in 2005-06 from
0.1 per cent in 1999-00 and 1.4 per cent in 1995-96.
Leather and Textile exports experienced low growth amongst manufactured
exports and thus there was a rapid decline in their relative shares in overall export
earnings. Textile and clothing too registered declining share in total exports. It is held
that the elimination of the MFA quota as per WTO agreement has not proved much
gainful to India’s textile exports. On the other hand engineering goods showed
relative better performance. Thus it could be analysed that the performance of India’s
primary exports (except iron and ores) has been quite poor in comparison to
manufactured exports and the increasing share of petroleum products in India’s
exports is a tremendous achievement for India’s export sector.
The analysis further revealed that the share of OECD countries, except North
America, in India's overall export earnings declined continuously over the period
under the study. EU has lost its respectable share in India’s export earnings. In the
year 1995-96, the share of OECD countries in India’s total exports was 55.7 per cent,
which rose to 57.3 per cent in 1999-00. Amongst OECD countries, the share of EU
and Asia and Oceania declined from 26.5 and 7.3 per cent in 1995-96 to 24.7 and 5.8
per cent in 1999-00 so the above given growth in share was due to increase in the
share of North America in India’s export from 18.3 per cent in 1995-00 to 24.4 per
cent in 1999-00. The period from 2001 to 2011 had witnessed radical changes in
India’s export market. In the year 2000-01, the share of OECD countries in India’s
exports was 52.7 per cent, which declined by significant percentage to 46.4 per cent in
2003-04, to 39.5 per cent in 2007-08 and to 33.3 per cent in 2010-11, a difference of
19 percentage points in 10 years. This performance was due to marginal decline in
share of EU countries from 22.7 per cent in 2000-01 to 21.2 per cent in 2006-07 to
18.4 per cent in 2010-11 and greater decline of North American countries from 22.4
per cent in 2000-01 to 17.8 per cent in 2005-06 to 10.6 in 2010-11. The decline in
share of OECD countries was basically due to sluggish and depressed demand in EU
and Japan and also global depression in the year 2008 which continued for two
consecutive years. Similarly, the share of formerly East-European countries also
registered a quick decline during the post WTO period. The share of Eastern Europe
declined to 1.2 per cent in 2010-11 from 2.4 per cent in 2000-01, due to fall in the
share of Russia to 0.6 per cent from 2.0 per cent in the same period.
Developing countries and OPEC countries both emerged as the potential
markets for Indian exports with their increasing shares. OPEC countries share in
country’s exports has increased from 10.9 per cent in 2000-01 to 21.5 per cent in
2010-11. In the last 10 to 15 years the developing countries have become the most
promising export destination of Indian products with share of 26.7 per cent in 2000-
01and 41.6 per cent in 2010-11. Among its, Asian countries are the leading
destinations due to ‘Look East Policy’ of India and then was followed by Africa and
Latin American countries with share of 30.9 per cent (Asia), 6.5 per cent (Africa) and
4.1 per cent (Latin America) in 2010-11.
Under WTO era, India's export growth to developing countries has been found
to be much higher than that of the export growth to developed countries. In pre WTO
period, Germany, U.K, Japan, and Russia were respectable destinations for India’s
exports, but they lose their place with their continuously decreasing shares in India’s
total export earnings. Though the relative share of U.S.A declined during the last
couple of years, yet it remained number one destination for Indian exports prior to
2008-09 but now ranks second. On top is U.A.E. replacing U.S.A and on third
position is China since 2003-04. In past two years on fourth position is Hong Kong
replacing Singapore which is on fifth position and on sixth rank is U.K. Directional
change toward developing countries may be attributed to India’s involvement in
regional trading agreements particularly with developing countries, liberalization of
economies in Asia and Africa and simultaneous impact of WTO commitments on
trade policies of member countries. From the study, it emerged that there has been a
compositional change and geographical change during the post-WTO period. Hence,
the hypothesis that India's exports recorded diversification in terms of commodities
and markets during the study period has been accepted.
Sector Specific Export Performance in Post WTO era
Agriculture
The importance of agriculture sector is evident from the fact that it continues
to be the backbone of the Indian economy due to its significant contribution in
country’s GDP that is about 14 per cent in 2011-12. In India, the share of agriculture
sector in employment is much higher in comparison to other nations. In the era of
liberalization and globalization, Indian agriculture has fully integrated with the world
economy and plays strategic role in meeting foreign markets demand.
From the analysis, it is quite clear that WTO has not played any significant
part in the agricultural growth scenario in India. The reform policies have not focused
sufficiently on what needs to be done for this sector. Significant levels of fall in the
growth rates of food grains export have been noticed from the pre to post WTO
period. During the pre WTO period, the performance was more remarkable than the
post WTO era. In post-WTO, the share of agricultural and allied exports in the total
exports was 20.50 per cent in 1996-97, there after the share continuously declined and
in 2000-01 went down to 13.5 per cent, in 2003-04 it constituted only 11.8 per cent of
total exports. Between the year 2006-07 and 2007-08 there was an increase in share
by 1.1 per cent. With a fall in share in 2008-09 to 9.5 per cent, it has seen a growth by
0.4 per cent in 2009-10. However, in 2011-12, it recorded share of 14.9 per cent in
total exports. The changing scenario of Global agriculture, especially agricultural
trade in the post-WTO regime is much challenging for developing countries like
India. The removals of tariff and trade barriers to trade lead to imperfect market
distribution after liberalization. There has been fluctuation in the export prices of
agricultural exports.
The rice, spices, sugarcane, vegetables and fruits are the key production items
for India with significant share in India’s total agricultural exports whereas coffee and
coffee substitutes, tea and mate registered declining share. In 2011-12 share of
respective commodities in total exports were as follow; tea (0.3 per cent), coffee (0.3
per cent), unmanufactured tobacco (0.3 per cent), cashew (0.3 per cent), rice (1.6 per
cent), raw cotton (1.5 per cent), marine products (1.1 per cent), oil meals (0.8 per
cent) and spices (0.9 per cent). The annual export growth rate of most of the
agricultural commodities recorded negative growth rate in 1997-98, 1998-99 and
1999-00 due to fall in demand in Asian countries and again in 2009-10 due to global
recession. However, agricultural trade is directly affected by domestic support, tariff
and non-tariff barriers. Thus, the tariff reduction commitments made under Doha
Round negotiations in agriculture had more impact on Indian agriculture.
The analysis further revealed that total agricultural exports diversified in
particular triennium during post-WTO period and among the selected agricultural
commodities, almost all the products have shown comparative advantage in the post
WTO period except for meat and meat preparations, fruits and vegetables and
Oilseeds and oleaginous fruit. Spices, rice and tea and mate have registered high
comparative advantage in recent years. Overall, India’s comparative advantage was
found still lying in the traditional commodities, however at declining trend so this
calls for governments’ attention in this direction.
It was observed that the major export destination for Indian agricultural
exports was EU, US, UAE and Saudi Arab. Country wise export diversification
showed that significant diversification was achieved in case of tea, rice, oil meals and
marine products, while slight diversification was achieved in case of cashew incl.
CSNL, whereas not much diversification was achieved in case of tobacco, spices and
coffee in recent years.
At global front, India agriculture has shown some improvement by capturing
decent share in world export of agricultural products in recent years. The share of
India’s agricultural exports in world agricultural exports was recorded as 0.8 per cent
in 1990, 1.3 per cent in 2006, 1.5 per cent in 2008, 1.69 per cent in 2010 and 2.06 in
2011. This increase in share in recent years has enabled India to fall among the
leading exporters of agricultural exports and also signifies that the end of transition
period and complete implementation of WTO’s Agreement of Agriculture by 2001(in
case of developed countries) and 2005(in case of developing countries) has proved
beneficial to India in capturing global market share.
In case of domestic support, India has no obligation to reduce domestic
support under the Agreement on Agriculture sector. The product specific subsidy was
negative for all crops except sugarcane. However, the picture is totally different in
developed nation. USA, Japan and EU are providing support to agriculture sector
through Amber box, whereas in case of India, the AMS is below the de minims level.
In these countries, the product specific support is highly concentrated on few
products. High support given to agriculture sector by developed nation creates
distortion in international trade. Despite the WTO and the Agreement on Agriculture
(which focuses primarily on reduction of tariffs, increased market access, reduction in
Aggregate Measure of Support in the form of subsidies) subsidies continue to be high
in developed countries as a result of which the expected gains have eluded developing
countries like India.
Not only this, India faces tariff and non-tariff barriers against its agricultural
exports in major developed countries market. Imposition of non-tariff barriers like
sanitary and phytosanitary (SPS) conditions on imports from India and lack of
awareness and knowledge about the SPS measures and quality standards required to
be adopted by the processing industry and exporters had hampered India’s agricultural
exports and the role of WTO remained marginal in tackling these issues.
Indian Agricultural products have been facing stiff competition from Asian
countries for quite some times. Due to globalisation and liberalised regime, this
competition is likely to increase further and new initiatives in agriculture development
shall have to meet the emerging challenges. The performance of agriculture after
integration with the world markets are linked to the success of exports. The problems
of downward trend in exports, sharp year to year fluctuations in net trade etc. raise
questions about the future of WTO in India and also for the other developing
countries and seek further discussion or policy prescription on this subject at the
international level and at the domestic level, the Government of India has decided to
achieve overall exports growth by giving a push to production and export of
agricultural commodities.
Manufacture
It is concluded that Indian manufacturing sector is imperative in country’s
economy; it has contributed significantly to India’s GDP and generated large scale
employment for low and medium skilled workers. In country’s total merchandise
exports, this sector has a significant share. The creation of WTO has resulted into
faster growth in world exports and has helped India too in expanding her
manufactured exports.
From foregoing analysis, it has been observed that in India, manufactured
products have contributed maximum in total merchandise exports. However, its share
has varied a lot over time. In pre-WTO period, share of manufactured goods was low
compared to post-WTO period as this sector was not much developed, however with
further growth and development of the country the share of manufacturing products in
total exports rose steadily from 50 per cent in 1985 to almost 80 per cent in 1999-
2000. However the past decade has shown a decline in the share of manufactured
products in total merchandise exports with the share coming down to 74 per cent in
2004-05 and further to 68 per cent in 2006-07 and 61.3 per cent in 2011-12. In spite
of this Indian manufacture still has a large share in India’s total exports.
Although the manufacturing sector has great importance and share in India’s
merchandise exports but this sector’s export has a minimal impact on the global scale.
India’s share in world manufacturing exports has increased constantly in the post-
WTO period but is still not at much significant level as compared to many other
developing countries and registered share of 0.6 per cent in 1995 and 0.7 per cent in
2000. In past decade, the share has increased almost by 1 percentage point that is to,
1.63 per cent in 2011 from 0.72 per cent in 2001. In value terms, India has made
minor progress in exporting manufactured goods between 1990 and 2004 and made a
less visible impression on the global scale. In 2011, a better performance with value
of exports of US$ 187812 million as compared to US$ 70864 million in 2005. India’s
foreign trade in manufacturing underwent limited structural changes over the last
twenty years or so but it is still based on traditional complementarities. Exports are
still heavily dominated by labour-intensive products, characterized by a slow growing
international demand and protected markets.
In the post- WTO period, among the total manufactured goods export,
engineering goods has registered the sturdiest growth rate in exports in past decade,
however in the global market its presence was not significantly felt as compared to
many other developing Asian countries especially like China, iron & steel is the only
product where India has not only revealed comparative advantage constantly but also
shown substantial share of 2.5 per cent in 2011 in global export market. The share of
engineering products in total exports has increased substantially from 13.8 per cent in
1995-96 to 20.7 per cent in 2004-05 and 22 per cent in 2011-12. The share of leather
and leather manufactures declined from 5.2 per cent in 1995-96 to 2.3 per cent in
2002-03 and ultimately to 1.5 per cent in 2011-12. Indian gems and jewellery is the
another important export item of the country that constituted a significant share of the
country’s aggregate exports and have also performed well worldwide, thereby making
India a key player in this product, its share in manufacturing exports has registered a
mixed trend declined from 16.6 per cent in 1995-96 to 12.6 per cent in 2006-07 and
then increased to 18.25 per cent in 2011-12. Textile and cotton exports which are a
traditional export item for India have shown declined performance with a falling
contribution to Indian exports as well as to the global market, the share of cotton in
India’s total exports has declined from 8.1 per cent in 1995-96 to 2.2 per cent in 2011-
12. With the formation of WTO and phasing out of quota regime under MFA in 2005,
the share of Indian textile and clothing in world market has not increased significantly
and recorded share of 4.3 per cent in 2006 from 3.0 per cent in 1999 and in 2011 it
was 5.1 per cent, in case of textile and for clothing share of 2.6 per cent in 1999, 3.3
per cent in 2006 and 3.5 per cent in 2011. Lastly, the chemical and allied product is a
major sector which has shown cumulative performance throughout the period and has
strong potential to contribute to India’s exports in the near future.
In the post-WTO period, within manufacturing, the engineering goods have
shown a constant export growth in recent years except for year 2009-10 due to global
recession. Gems and jewellery, a major foreign exchange earner for India, suffered an
absolute decline in growth for the first time in year 1996-97 and 2001-02, basically
due to South East nation crisis in 1997 and terrorist attack in US in 2001. Leather and
manufacture has witnessed a significant decline in its growth rates in recent years.
Basic chemicals (Drug, Permutes & Fine Chemicals and other basic chemicals
combined) are an area in which India is consistently doing well as far as exports are
concerned. However, global recession has led to decelerated export growth in 2008-
09 and 2009-10. In recent years, basic chemicals have replaced textile and textile
products from the third most important source of foreign exchange earner among
manufactured products. Textile, textile products, is another other key industries
showing signs of export deceleration. However, it still continues to be the fourth
largest foreign exchange earner for the country. Handicrafts too have shown a very
poor export growth in post-WTO period.
The analysis examined that India enjoys comparative advantage in most of the
selected commodities in major categories of manufactured goods like gems and
jewellery, leather and manufactures, textile and textile products and chemical and
related products. However, in case of selected engineering goods marginal RCA has
been registered.
The major export destinations for Indian manufactured exports in post WTO
period are European Union, United States, United Arab Emirates, China and Hong
Kong, China.
The world-manufactured exports grew at a compound annual growth rate of
7.31 per cent in post-WTO period and India showed a comparative better growth with
CAGR of 13.96 per cent for the same period. The reduction and subsequent removal
of export and import barriers under WTO regime have resulted into better export
performance. Beside it, government manufactured export policies, global economic
conditions, costs, market structure, and WTO agreement has been an important factor
in India’s better export performance. However in spite of these it has been observed
that there exists lack of consistency in expansion of India’s manufactured exports and
is below its potential. The share of India’s manufactured exports in world exports is
still lower as compared to many developed countries especially China. India’s export
performance has been affected by huge number of internal and external factors such
as domestic infrastructure bottlenecks, procedural bottlenecks, inflation, world
demand (or GDP), tariff and non-tariff barriers and also exchange rates.
In manufacturing, the persistence of protectionist attitude in India’s major
markets like tariff peaks and escalation had affected disproportionately the exports of
country especially in areas where India has a comparative advantage. In addition,
some less transparent barriers are becoming more prevalent, especially antidumping
and requirements related to technical and health standards. The growing number of
regional trading arrangements and preference schemes has also led to increasing
discrimination in international trade, complex rules of origin, and other administrative
procedures had hampered trade. All the above factors have unfavourably affected
India’s manufactured exports as a result country’s share of manufactured exports in
total merchandise exports showed substantial decline and the exclusion of them
through appropriate policy measures and negotiations is imperative for countries
manufactured export growth.
Services
It has been examined that India has emerged as a leading services provider
under the WTO regime with value of exports of US$ 137 billion in 2011 and share of
3.3 per cent in world export of services. Throughout the post WTO period (1995-
2011), the Indian services has registered compound annual growth rate of 20.35 per
cent. As compared to merchandise export India’s; services exports has performed
better in post WTO period India’s share in world export of services has constantly
improved and had reached to 3.23 per cent in 2011 from 2.05 per cent in 2005, 1.10
per cent in 2000 and 0.55 per cent in 1995 while India’s merchandise exports has
share of 0.6 per cent in 1995 and 1.6 per cent in 2011 in world merchandise exports.
Thus the hypothesis that India’s services exports performed better than merchandise
exports in post WTO period has been accepted. A cross country analysis of services
export performance revealed that in the post-WTO, India was better both in terms of
value and share of service export in world, then many developed countries with 8 th
rank in world export and among developing countries it ranked 2nd after China in
2011. The analysis of the growth, composition and comparative advantage of India’s
services exports in pre and post-WTO period suggest that services exports in the post-
WTO period have witnessed tremendous growth in all the three categories i.e. travel,
transportation and other commercial services (like software services, business
services, financial services, communication services, construction services, royalties,
copyrights and license fee, news agency, personal, cultural and recreational services).
But it is the OCS category which has made India recognised as a foremost exporter of
services. In post-WTO period, travel receipts has increased from US$ 2712 million in
1995-96 to US$ 3497 million in 2000-01 and then to US$ 7853 million in 2005-06 to
US$ 18462 in 2011-12. However, the share in total export of services was 36.93 per
cent in 1995-96, which fall to 21.50 per cent in 2000-01 and 12.97 per cent in 2011-
12. The value of export of transportation services was US$ 2011 million in 1995-96,
US$ 2046 million in 2000-01, US$ 6325 million in 2005-06 and US$ 18241 million
in 2011-12. The share in total export of services declined from 27.3 per cent in 1995-
96 to 12.8 per cent in 2011-12 because of rise in share of other prospective services.
Among the other commercial services, the value of export of insurance services was
US$ 179 million in 1995-96, which increased to US$ 2632 million in 2011-12. In
miscellaneous services, the value of exports in 1995-96 was US$ 2430 million it
reached to US$ 9804 million in 2000-01 and then to US$ 42105 million in 2005-06
and to US$ 102513 million in 2011-12 and the share in total export of services was
33.08 per cent, 60.26 per cent, 73.02 per cent and 75.02 per cent in the same years.
Under miscellaneous services, software services constituted the largest share of 43.7
per cent in 2011-12 followed by business services (18.20 per cent), financial services
(4.19 per cent) etc.
Many of the Indian services registered negative export growth rate in 1998-99,
in 2000-01, 2001-02 and in 2009-10 due to South East Asian countries crisis in 1997
causing to fall in demand, then the terrorist attacks in September 2001 in US one of
the major market for Indian services export and then the Global and financial crisis of
2008-09 resulted into decline in demand for goods and thereby causing decline in
demand and fall in services exports.
Both in pre and post WTO period, U.K. and U.S.A. remained the major
service export destination for India but however in post WTO, some export market
diversification has been achieved like many developing countries and South-East
Asian countries have become important market for Indian services.
India is amongst the top 10 leading exporters of other commercial services,
where the software services; computer and information services (ITES) indicates the
supreme importance in India’s export basket. World liberalisation in service trade and
opening of the world economy has resulted into India’s services exports penetrating
into global market. Due to large pool of talents in the country, it is able to produce
quality services and so being recognised in global market. The analysis showed that
India enjoys high comparative advantage in many of the services like communication,
software, business services etc. due to skilled manpower & low cost labour in the
world market. However, India needs to spruce up exports in other categories as well,
since computer services form a small portion of world exports. India has displayed
some comparative advantage in exports of Other Business Services, construction and
insurance services as well. Hence, these are the service categories where India needs
to diversify its attention.
The tremendous development in the India’s services export under WTO
regime is the result of introduction of rule and discipline for trade in services under
WTO, which calls for greater liberalisation of trade in services and removal and
reduction of services trade barriers existing in countries. Beside it, the change in the
global scene, well-planned program or a policy in recent years and other economic
and political factors are responsible for thrusting the growth in India’s services
exports. This growth has made India as one of the emerging economies in the world
gaining confidence and respect at the international level. However it is imperative to
improvise and remain innovative to retain markets and maintain stability otherwise
India may lose this share.
The hypothesis that WTO had desirable affect on various aspects of India’s
exports could not be accepted precisely as the Indian agricultural and manufactured
goods exports have faced various constraints in its major markets mostly consisting of
developed countries in the form of tariff and non-tariff barriers which limits its
accessibility in those markets and also leads to small share in total world exports and
this proves weak role of WTO in removing trade barriers in markets of India’s
interest, not only this WTO has also failed in removing trade distorting domestic
support provided by the developed countries to their agricultural products and has also
been incapable in successful completion of Doha Development Agenda. In recent
years, significant decline in Indian export of textile products has posted qualm on gain
of agreement on textile under WTO for India. India’s direction of exports have
revealed the declined share of developed countries of EU and North America in
India’s exports which shows that the formation of WTO has not opened up market of
EU for India. The Indian services exports too have faced trade barriers and have not
received much response to request made in advanced countries with respect to
liberalised Mode 1 and Mode 4 form of supply of services. In practice WTO policies
has been biased and discriminating especially against developing countries, which has
led to a marked extent slow growth in India’s exports in contrast to its potential.
However, this does not totally negates the role of WTO in India’s exports as there has
been significant growth in its value of exports in past few years especially the recent
trade developments and diversification achieved in export markets and basket is the
result of opened and liberalised rule based trading system offered by the WTO, apart
from government’s own export promotional effort. The Indian services export has
grown at a high pace in past decade where the role of WTO has been crucial.
Overall, India's export performance in recent years was satisfactory however,
India has the potential for enlarged growth which need to be exploited by appropriate
export promotional policies and strategies. During the initial years of WTO
establishment, India’s export growth was not satisfactory but consequently in some
years it improved especially in recent years and also after global recession. India has
been able to diversify its exports as well as export destinations in recent years. The
analysis also revealed that India has a competitive advantage in a broader range of
export commodities. The commodities like; Rice, spices, Organic chemicals ,
Synthetic organic dyestuffs, natural industries, Textile yarn and thread, Made-up
articles, wholly or chiefly, Pearls, precious and semi-precious , Iron and steel and
Jewellery and gold/silver have emerged as leading export sectors as export growth of
these commodities has been very high and has revealed comparative advantage. These
commodities incorporate price competitiveness as their absolute prices have been
consistently declining and share in world exports has been tremendously increasing.
The rapidly increasing world demand for India's exports had played a significant role
in the satisfactory export performance. Apart from expanding world demand, India's
export performance benefited from the competitiveness and market-wise distribution.
Export promotion measures, adopted by Government of India, had significant impact
on its export competitiveness as it would be difficult for exports to sustain
competitiveness in this era of global competition and flexible exchange rate. No
doubt, speedily rising world demand for Indian exports has been the outcome of
various regional trade arrangements with other countries and strong negotiation
position at WTO forum. Hence, export friendly environment, provided by export
policy reforms with their focus on liberalization, openness, transparency and
globalization, as well as creation of WTO, is crucial determinant of export
performance during the period. Developing countries of Asia and Africa have been
found to be prospective markets for Indian exports in post WTO period as export
growth to these countries has been recorded very high, but the growing issue of
unsteadiness needs to be handled quite consciously. India’s Services exports
performed outstandingly under the WTO regime.
In spite of gain in export trade, in recent years India’s trade deficit could not
be controlled as there is lack of consistency in expansion of export growth as
observed in few years. It is believed that India’s is still underperforming in terms of
export and has got much potential. Along with domestic bottlenecks like supply
constraints, lack of infrastructure, flaws in export promotion strategy and policies
external factors too has contributed to this deficit. The major challenges face by the
Indian exports is the existence of tariff and non tariff barriers in its major markets
which has to be removed through appropriate negotiation strategy with WTO member
countries. In addition, some reforms have to be brought in domestic policy to augment
export growth to new heights of recognition.
POLICY IMPLICATIONS
Export growth is significant for country’s development and India can compete
to gain strategic advantage by focussing on the area of its potential competitive
advantage. All required is to focus on policies and strategies that could lead India’s
export to new heights of growth. For this various suggestions and measures becomes
imperative, which has been taken up in brief in this section.
Given the internal and external economic environment, growing integration with
world economy in various forms would prove advantageous for India’s exports.
Opening of domestic capital market will bring in increased investment in country
some of them would be cater by export-oriented units thereby decreasing supply
bottlenecks. FDI policy should also be further liberalised by the government.
In past two decades, global market has become more and more competition based. So
steadiness and consistency in long-term export policy is essential. Provision of export
subsidies, tax concessions, tax holidays, duty refund, removal of the restrictions from
import technology and raw materials used in export based industries and
establishment of Special Economic Zones (SEZs) in India has benefited export by
various ways. For maintaining quality and cost competitiveness of exports in global
market appropriate domestic policy reforms would be essential.
India basically carries image of high cost country and without any significant brand or
quality products so, it is imperative that all stakeholders (and not just the government)
should strive for making India emerge as competitive economy both in terms of cost
and quality.
India also suffers from infrastructure bottlenecks, which hinder its export growth, and
many times creates undue delays in fulfilling her trade commitments. Rapid growth in
a globalized environment requires well-functioning infrastructure, especially
electricity, road and rail connectivity, air transport, efficient ports, and logistics
management including modern storage and warehousing facilities. Though the
government has made significant effort in overcoming it but still it is inadequate. The
government should encourage increased private participation through privilege of
augmented incentives.
Entering into regional trade agreements has turned out to be the one of the more
viable alternative for developing countries like India to expand their market access.
So effort should be made to evaluate the impact of various existing trade agreements
of which India is part of and accordingly it should enter into further agreements.
Maintaining exchange rate stability is another important area where the government
needs attention and as constant fluctuations in the exchange especially the over-
valuation of Indian rupee vis-à-vis major trading currencies (as measured by
appreciation of the real effective exchange rate – REER of the rupee) has not been
conducive for increased export efforts.
The products with export potential should be identified on continuous basis so that
timely and required incentives could be offered for their enhanced production and
trade.
Some of the important export items operate within the medium and small scale
industries which face various constraints relating to production, quality and marketing
so here government should play strategic role in removing these obstacles.
India has realized significant swing in export market especially as outcome of its
policy of Look East (Asia) or Look West (Africa & Latin America) but effort should
also be made to see that the share of dominant export markets of USA, EU, Russia,
Eastern Europe and Japan does not fall by significant level as these countries still
account for over one half of global export markets.
India’s faces stiff competition from developing countries in exports of few
manufactured and agricultural products which dissuade export expansion in those
products, so effort should be made by the government to form some kind of
understanding with developing countries may be in form of cartelization to avoid
wasteful competition.
Many times, it is observed that increased domestic demand also limits exports of the
country so effort should be made to control domestic demand, however it is not a
viable method as is against social welfare so progressive effort should be made by the
government to increase production level that would generate sufficient export surplus.
Indian agricultural exports has a significant share in country’s total exports but to
make it more competitive in international market there is need to have more viable
agricultural policy that would focus on all aspects of agricultural growth, mere
formation of policy is not sufficient but its proper implementation is more obligatory,
as there still exists many loopholes in this part placing Indian farmers at distress.
Agricultural products should also be accorded augmented concentration on
promotional aspects of the product abroad. Some of the food products like fresh fruits,
tropical fruit juices, preserved mushrooms, rice and spices have high export potential
as revealed by export trend. In recent year’s export of tea and coffee has declined so
need to adopt appropriate measure to check this. Hence there is need for further
strengthening their export growth while concentrating on few other food products.
India’s manufactured export performance under post-WTO period reveals that India
need to focus on boosting its manufactured exports and has to take advantage of the
WTO liberalised system by strengthening its negotiation under the WTO for removal
and reduction of trade distortion and market access barriers that exists in major
markets of developed countries by especially focussing on the issue of tariff peaks
and tariff escalation and non-tariff barriers. The improved dispute settlement system
under WTO is rule based that ensures member countries that their issues would not be
ignored and be given due consideration. India should concurrently improve the
internal disorder of the country; it should strengthen its export competitiveness by
improving and developing infrastructural facilities and through removal and reduction
of complex domestic procedures and state interventions.
Various debatable issues in WTO framework (especially TRIPs, labour standards,
environment standards, SPS-TBT measures, contingency trade policy measures) have
put a strain on growth of exports. So there is a need for more practical approach
towards the process of global liberalization launched by the WTO and India should be
more focussed in at WTO negotiate forum. India’s negotiating strategy should focus
on peak tariff reductions and other non-tariff barriers in sectors of interest to it and
should work towards the success of the Doha round.
In WTO service trade negotiations India has varied opportunities and challenges, so
it’s crucial for country to grab prospects and face defies in more intellectual way.
India must develop marketability for higher-end services. India needs to work for the
recognition of its professional qualifications like, law, medicine etc. at the
international level. Better service trade negotiations and plurilateral request and offer
should be made with countries with potential market for India’s services. Focused
effort is needed to remove existing barriers in services exports and introduce positive
reforms in domestic policies. India needs to be more transparent in its system with
lesser and reduced bureaucracy. Better infrastructure for all sectors should be a
priority. Reforms in the Intellectual Property Act, data security and privacy protection
will prove advantageous. To minimise the effect of the slowdown of developed
economies on the service sector, focused attention is required to develop other sectors
of services.
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