Abstract

Exports have played an increasingly important role in India’s economic growth in the last two
decades. This paper analyses the performance of India’s exports and the various economic
factors which have contributed to its growth. Since manufactured exports comprise a significant
share of India’s aggregate (merchandise) exports, the paper also provides an overview of
the export performance of three important commodities; namely, gems and jewelry, cotton
and electronic goods and concludes with key policy changes which could have a bearing
on the current trends seen in these sectors.

Keywords: export performance, manufacturing sector, export competitiveness, trade policy

reforms

1
1 Introduction

The Indian economy has gained considerable momentum over the last one decade, by achieving
and sustaining an annual GDP growth rate of over 7 percent. This high growth rate can be in part
attributed to the growing contribution of the export sector to the economy.

The Second World War severely impacted the economic stability of many countries, however,
India’s economic performance remained less affected as its GDP continued to grow at 3.5
percent per annum while the per capita income averaged at 1.3 percent per annum,
a phenomenon better known as the “Hindu rate of Economic growth” and this growth
rate
3
persisted till 1979-80 (Virmani 2004). India’s international trade policy following
her
independence in 1947 focused on being self-sufficient, which also implied minimal reliance on
international trade as a source of income. An alarming large number of people were living
in abject poverty and the central government sought to improve the well-being of people
by adopting the strategy of ‘import-substituting’ industrialization. To implement this,
the government developed a complex, extensive and often costly system of price controls
and quantitative restrictions.

It was during the eighties that the government undertook expansionary fiscal and
monetary policies. The growth surged at an average annual rate of 5.8 percent; well above the
Hindu rate of growth. But this rapid expansion was supported by a large current account deficit.
A mounting deficit, coupled with high inflation (at 13.5 percent) and the Gulf war led India to a
balance of payment crisis in 1991. Following the crisis, the Indian economy was opened
up to foreign participation for the first time, in an attempt to improve the efficiency and
competitiveness of Indian industries. Post 1991, the gradual liberalization of the Indian economy
characterized by such policy reforms created a conducive environment for India’s exports to
flourish and evolve into an engine of social and economic growth. Hence, the last two decades
have witnessed India
transform from a closed economy to a considerable player in the global market.

2
India’s susceptibility to international crises became evident when the financial crisis of 2008 had
an impact on India’s economic performance. The financial turmoil had a dampening effect on
global demand and slowed down capital inflows which affected India’s export sector. The impact
of the crisis was felt most acutely in job oriented sectors which experienced up to a 70 percent
fall in their growth rates and affected other segments as well. This had a cascading effect
on overall economic growth, as India’s GDP growth rate fell from 9 percent in 2007-08
to 7.1 percent in 2008-09. The impact of this crisis on the export sector was evident as India’s
exports which had previously grown at nearly 20 percent between 2002 and 2008
plummeted to a
4
negative 20.3 percent in 2009-10. Though India had previously experienced a negative growth
5
in its exports, such a prolonged period of decline had not been witnessed in over two decades.
It is evident from the preceding discussion that India’s export performance and economic growth
are closely inter-linked. Over time, the export sector has grown to be a significant earner
of foreign exchange and a major contributor to India’s national income. Further, the performance
of this sector is highly dependent on domestic as well as global factors. As a consequence of this,
domestic as well as international economic policies have a bearing on the overall export
performance of India.

This paper analyses India’s export performance and changes in its composition over time. The
paper also identifies India’s main export commodities and investigates the relevance and
competitiveness of these commodities in major export markets. It finally highlights key policy
changes which could impact local production as well as international demand for these exports.

The paper is organized as follows: Section 2 presents a discussion of India’s export performance,
including a discussion of the evolution in the structure of India’s exports over time, followed by
the sectoral composition and relative competitiveness of India’s exports. Section 3
analyses India’s manufacturing sector performance with special focus on three commodities and
related trade policies. Section 4 summarizes the main findings of the paper and concludes.

3
2 India’s export performance

2.1 India’s overall export trends

India’s aversion to international trade and reliance on domestic factors to fuel growth during the
fifties meant that exports played a smaller role and this is evident from the following
6
table, where India’s exports lost its world market share between 1951-1960 and 1961-70. Till
the mid seventies, India’s policy was restrictive and focused on developing the domestic industry,
while tightening control on foreign trade (using quantitative restrictions as a tool). High
levels of protection coupled with an overvalued domestic currency resulted in a growing
demand for
imports and discouraged exports. Moreover, India’s exports also suffered because export
incentives were only available to a limited number of manufacturing industries and
7
selected agricultural exports (which were subjected to export duties at varying rates).

The table below reveals that the period between 1961 and 1970 had higher imports (as a share of
GDP), compared to exports which may have contributed to a growing foreign exchange shortage.
Additionally, high levels of inflation and budget deficits coupled with the India-Pakistan
war severely affected foreign aid and led to a foreign exchange crisis, which resulted in
the devaluation of the rupee in 1966.8

4
 Table 1: India: Export and Import growth (%)
Average
annual Share of India’s
growth rate export in world
over period Percent of GDP export (%)
Period Export Import Export Import

5
 1951-60 0.7 8.6 6.3 8 1.4
1961-70 4.6 0.3 4.2 5.8 0.9
1971-80 6.8 8.7 5.8 6.7 0.5
1981-90 6.1 3.9 6.5 8.4 0.5
1991-97 11.4 14.4 9.9 10.6 0.6

Reproduced from Economic Policy reforms and the Indian Economy (2002), p. 13

Due to the occurrence of two major oil shocks in the seventies, India experienced a rise in the
import cost of oil and thus a shrinking foreign exchange reserve position. The pressure to earn
foreign currency led the government of India to adopt export promotion policies in the form of
9
export subsidies (such as duty drawback, subsidized credit and direct subsidies). During
this time, the end of the Bretton Woods system led to a depreciation of the floating pound
sterling. The Indian rupee, which was pegged to the British pound at the time also
depreciated, a fact which probably contributed to the rise in growth of Indian exports relative to
10
global exports.
This period was also characterized by a stronger import substitution strategy and greater
government control over economic activities, a strategy which was maintained even after
11
the occurrence of the India-Pakistan war in 1971 and the first oil price shock. India’s overall
trade, however, experienced a setback between 1979 and 1981, as the import cost of crude oil
more than doubled, following the oil-price shocks. The Indian rupee steadily appreciated by
almost 20 percent between 1979 and 1986 and had an adverse impact on its export
competitiveness.
However, the situation reversed in 1987 with a gradual decline in the value of the rupee,
12
though it remained overvalued till l991 (in terms of the real effective exchange rate).

It is interesting to note that in the early eighties, when world exports grew at 2.7 percent per year;
Indian exports grew at a higher rate of over 6 percent. Nonetheless, India’s share in
13
world merchandise exports fell to less than 1 percent from as much as 2.1 percent in 1951.

The liberalization of the Indian economy following the balance of payment crisis resulted
in major policy and exchange rate changes, which had a favourable impact on India’s trade, as
6
 14
seen in Figure 1. The figure reveals a sharp increase in the share of exports and imports
between
1990 and 2008. Share of exports in India’s GDP increased from 7.13 percent to 23.48 percent in
1990 and 2008, while the share of imports (in GDP) rose from 8 percent to 29 percent in the
15
same period.

Figure 1: Export and Import share (%) in India’s GDP

35
30
25
20
15
10
5
0

Export Import

Source: Author’s calculations based on World Development Indicators (WDI) and United Nations (UN) Comtrade
database
http://data.worldbank.org/data-catalog/world-development-indicators (last accessed on 5.9.2011)
http://comtrade.un.org/db (last accessed on 2.9.2011)

India’s export performance since 1991 has fluctuated. The East Asian Crisis of 1997 had
a serious impact on India’s exports, which registered a negative growth of 2.33 percent in the
same year. Since the ASEAN countries and Japan were most acutely affected by the
crisis, their respective currencies lost value, which also meant that the Indian rupee appreciated
against these currencies (due to interest rate differentials). In 1997, for the first time after
liberalization,
16
India’s exports registered a negative growth of 2.33 percent. The situation for India worsened
when its competitor countries (in ASEAN) devalued their currencies amidst the crisis,
which reduced the competitiveness of India’s exports in the international market for textile
and electronics commodities, where India directly competed with ASEAN exports in
17
overseas markets. India’s imports also suffered and reduced by 2.44 percent due to weak
18
domestic demand, lower industrial activity and a lower unit value of imports.
7
In 2001-02, India faced another 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 percent of US GDP and also had an impact on India’s exports, which
19
grew only at 5 percent that year. The slowdown of the US economy permeated to
other economies including the ASEAN countries, which were recovering from the 1997 crisis.

The next major setback for India’s exports was the global crisis of 2008. The collapse of large
investment banks around the world coupled with high oil prices and rising inflation led
to a global recession. India’s trade deficit dampened in 2009-10 with a negative import growth (-
0.78 percent) for the first time in more than two decades while exports were also impacted,
registering
a negative growth rate of 2.9 percent in 2008-09.

Figure 2: India: Merchandise exports share in world exports

1.60%

1.40%

1.20%
percentage share (%)

1.00%

0.80%

0.60%

0.40%

0.20%

0.00%
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009

Even though the export sector plays a significant role in the domestic economy by contributing
close to 25 percent to India’s GDP (in 2009), its contribution to world exports continues
to remain minimal, at a mere 1.5 percent of world exports in 2009 (however, this share
has improved since the economic reforms of 1991). Between 1991 and 2009, India’s share in
world exports rose from 0.56 to 1.52 percent. But overall, the economic reforms implemented in
India did not have a significant impact on India’s position in the world export market,
20
unlike the reforms implemented in countries like China, South Korea or Taiwan.
8
 This may be in part due to the unusual development model followed by India. The
transition phase for East-Asian economies was characterized by a reduced dependence of the
economy on the agriculture sector and increased emphasis on the labour-intensive
manufacturing sector. Economies have traditionally developed a strong manufacturing base
and over time moved towards a capital and skills- oriented services sector. However, Thirlwell
(2006) states that India has followed a different trajectory. Following the economic reforms in
1991, the Indian economy made a transition from being agriculture-driven to being
considerably service oriented. The manufacturing sector, which had been the prime engine of
growth for countries such as China or
South Korea, was not as strengthened in India and its development was constrained by a
combination of factors. As a consequence of this, the Indian economy was not able to
fully exploit its potential comparative advantage in the sector.

2.2 Sectoral composition of Exports

Merchandise exports comprise a major portion of India’s exports to the world, as seen in Figure
3. However, a decline in its share and thus a rise in the contribution of services is visible post
1996. India has experienced a rapid growth in its services sector in the last decade and this is
likely to continue in the near future. A combination of demand and supply side factors
has influenced the growth of services in India. High income elasticity for final product
services fueled demand, whereas increased levels of foreign direct investment and constant
supply of technically skilled workforce ensured the necessary resources for the growth of
21
the services sector. Additionally, India was able to seize the opportunities offered by the
growth in foreign demand, arising from the Y2K-related requirement for IT skilled professionals
22
and later followed by large-scale off-shoring of business processes.

9
 Figure 3: India- Goods (merchandise) and Services share (%) in total exports

90
80
70
60
50
40
30
20
10
0
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

merchandise services

A comparison of India’s export composition with that of its competitors reveals a major point of
difference. While for India, services has grown to be a major contributor to its world exports,
some of its key competitors like China, Brazil and South Africa continue to earn close to
23
90 percent of their export revenue through merchandise exports alone. Therefore, the
merchandise component plays a bigger role in the exports of other emerging economies, a fact
which could explain why India’s share in world merchandise exports has remained low, as seen in
Figure 4. Figure 4 also reveals how China has become a leading market for merchandise exports
and also highlights the difference between India and China’s market positions. Between 1995 and
2009, China’s share in world merchandise exports has risen from 3.2 percent to 10.3 percent,
whereas India’s share rose from a mere 0.7 percent to 1.5 percent in the same period.

Figure 4: Share in world merchandise exports

12.0%
10.3%
10.0% 9.3%

7.7%
8.0%

6.0%
4.1%
4.0% 3.2%

2.0% 1.5%
1.1%
1.5%
0.5% 1.0%
0.7% 0.7%
0.0%

10
 1985 1995 2000 2005 2007 2009
INDIA CHINA

Source: Author’s calculations based on UNCTAD (United Nations Conference on Trade and Development) database
http://unctadstat.unctad.org/ReportFolders/reportFolders.aspx?sCS_referer=&sCS_ChosenLang=en\ (last accessed
on 27.8.2011)

Despite the growing contribution of services exports, merchandise exports continue to dominate
India’s exports and it is therefore important to understand the composition of the latter.
As Figure 5 reveals, a major portion of India’s merchandise exports is comprised of
manufactured exports. Though agriculture was a major component till the early years following
independence, a shift towards manufactured exports occurred due to the industrialization
which took place during that time. Figure 5 reveals that the contribution of manufactured
exports had already surpassed that of agriculture exports by over 7.5 percent by 1975 and that
the gap has widened over time.

The share of agriculture has fallen more rapidly post trade liberalization, which may, in part be
because an important goal of agricultural policy was to achieve self sufficiency in agriculture and
this limited the scope of trade. However, technological developments and macroeconomic policy
reforms (following the Uruguay Round agreement) have contributed to changes in international
24
trade of agriculture. In 2005, while India’s agricultural export was almost US$9.3 billion, the
import was US$ 5.5 billion, making India a net exporter of food.

Figure 5: Sectoral contribution of India’s total merchandise exports

120.0%
100.0%
25.3% 26.0% 26.8% 24.9% 22.8% 28.1%
80.0%
60.0%
50.1% 56.6%
40.0% 61.5% 66.8% 68.7% 64.6%
20.0%
24.6% 17.3%
0.0% 11.7% 8.3% 8.5% 7.3%

1985 1995 2000 2005 2007 2009

11
 AGRICULTURE MANUFACTURING OTHERS

In recent years, agricultural exports have annually grown by over 15 percent due to
higher exports of rice, cotton and soya bean, amongst other commodities. India’s agricultural
imports as a share of its total imports have also risen from 1.7 percent in 2000 to 2.6 percent in
2009, which could be partially attributed to a sharp increase in the imports of edible oil over the
same period.

The manufacturing sector contributes the largest share to India’s merchandise exports. In
particular, it is seen from Figure 5 that the sector’s share increased from 50 percent in 1985 to
over 64 percent in 2009. A closer look suggests that the annual growth in India’s manufactured
25
exports has been cyclical in nature. The economic reforms introduced in 1991 (following the
balance of payments crisis) had a significant impact in improving the efficiency of the sector.
Consequently, these reforms had a positive impact on manufactured exports which grew
by
19.13 percent between 1991 and 1992 and continued to grow consistently at a CAGR of nearly
13 percent till 1997.

Despite the importance of the manufacturing sector to the Indian economy, the sector’s exports
have had a minimal impact on the global scale, as seen in Figure 6. India’s share in
world manufacturing exports increased from 0.6 percent to 1.4 percent between 2000 and
2009, whereas China tripled its contribution from 3.2 percent to over 10 percent in the same
period.
Figure 6: Share of manufactured exports in world (manufacturing) exports
12.0%
10.2%
10.0%
8.9%

8.0% 7.2%

6.0%
4.0% 3.2%
2.3%
2.0% 1.4%
0.9% 0.9% 1.0%
0.4% 0.6%
0.5%
0.0%

12
 1995 1995 2000 2005 2007 2009

INDIA CHINA

Figure 6 reveals the magnitude of China’s market power in world manufactured exports. During
the reform period, India’s manufacturing sector was transformed from a non-competitive market
(which would operate on large margin but low sales) to a competitive one (with low margin but
high volumes), which gave India an advantage over China. However, compared to China, India
has made minor progress in exporting manufactured goods between 1990 and 2009.

Regardless of their unique socio-economic history, China and India are large economies
representing large populations. Though the difference between exports of these two
countries always existed, the gap was narrower in 1980, when China initiated the first set of
reforms. The years which followed witnessed China building a strong manufacturing base which
contributed significantly to the domestic GDP as well as global manufacturing exports, whereas
the Indian manufacturing sector made a less visible impression on the global scale. A
number of factors may explain this difference between the efficacies of the manufacturing
26
sectors of the two countries, and some of these are identified below.

The large share of manufacturing in a country’s GDP can be explained by a combination

of government policies which promote industrial growth and a high investment rate which
keeps the demand for materials and machineries high. Although India’s saving and investment
rate has improved over the years, it continues to considerably lag behind China.

The Chinese government liberated the agricultural sector in the early stages of their reform plan.
An example of this was a special programme named ‘Township and Village Enterprises’ (TVE),
which was primarily responsible for initial labour-intensive rural industrialization in China. As a
result of this, an important portion of labour was released from the agricultural sector
and channelized into the manufacturing domain. This meant higher rural incomes, which
stimulated the demand for consumer goods (met by rural enterprises). India’s approach, however,
has been different and it has been a policy priority of the Indian government in recent years to
address the need for higher levels of public investment in agriculture.

13
Moreover, the Chinese government had supported small and medium sized enterprises (SMEs)
and policies were designed to encourage firms to expand their operations. However, SMEs
in India had incentives to remain small as certain sectors had been exclusively reserved for these
categories. As these sectors were highly protected, there was little fear of competition
and minimal need to grow and realize economies of scale. Moreover, regulatory
frameworks, and labour laws, in particular, were often biased against larger firms. Access to
credit was yet another challenge for many SMEs which compounded the problem further
and they consequently depended on informal markets for resources.

Another advantage of the Chinese economy was in the form of labour reforms which reduced
rigidities and made the labour market flexible. This resulted in firms hiring labour
without worrying about the implications of an economic slowdown. The flexibility of the Chinese
market ensured that retrenched labour would secure similar jobs in other firms. In comparison to
China, India continues to have a rigid labour market which hampers efficient utilization of
human capital in the manufacturing sector. Additionally, unlike China, India has not been
able to effectively mobilize labour from rural areas, primarily due to low skills of the rural
population. China on the other hand, has succeeded in doing so due to a large number of
technical training institutes which provide a bulk of the labour force with the appropriate
technical education needed for small and medium scale firms in China’s manufacturing sector.
As a result of this, the manufacturing sector has employed a growing workforce over time.

The Chinese economy also opened up to foreign direct investment (FDI) in export
oriented sectors during the seventies, whereas the Indian economy liberalized two decades later.
Evidence also suggests that China adopted a more comprehensive and pro-active approach to
attract FDI and focused on export oriented FDI (which brought in better technological
knowledge) whereas India’s emphasis was on FDI in its domestic market rather than exports. As
a result of this, FDI gave an impetus to China’s exports and provided the manufacturing sector
with strong incentives to expand production.

14
Thus, a number of factors have contributed to the high productivity of China’s
manufacturing sector, whereas India has been relatively less successful in developing these key
features. 2.3 Competitiveness of Indian Exports

International competitiveness is the ability of an economy to compete in the global market by

either producing goods at a lower cost and/or selling them at a cheaper price than
competitor countries.

The Revealed Comparative Advantage (RCA) method developed by Balassa (1965) is a

commonly used measure of export competiveness. 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:
=( / )/( / )

Where,
= ‘i’ th country’s export of commodity ‘j’
= world export of commodity ‘j’
= total exports of country ‘i’
= total world export

An RCA (for a commodity) greater than unity implies that a country’s export of the commodity
has a larger share in world exports (of that commodity), relative to the country’s
(aggregate) export share in world exports and in this case, the country is said to have a revealed
comparative advantage in exports of the commodity.27

15
 Figure 7: India- RCA in goods (merchandise) and services exports
2

1.8

1.6

1.4

1.2

0.8

0.6

0.4

0.2

Services Merchandise

As Figure 7 reveals, India has a clear comparative advantage in services exports to the world and
its competitiveness has improved since 1996. For services in particular, India’s competitiveness
28
remains higher than that of many other emerging markets.

However, India’s RCA for merchandise exports has always stayed below unity, which suggests
that merchandise exports have remained low and not gained a larger share in world
exports (relative to total exports). The merchandise exports of emerging economies like
Brazil, China and South Africa perform better as they have higher RCAs and are thus more
competitive than
29
India’s merchandise exports.

2.4 Government Initiatives

Even though India’s manufacturing exports have resurged since 2001 and grown at a steady rate
of over 25 percent between 2002 and 2008, the manufacturing sector has not performed as well,
as seen in Figure 9 where the share of manufacturing (value added) in GDP has
remained stagnant. In contrast, the services sector has performed well and contributed
significantly towards India’s economic growth. Moreover, India’s performance in services
exports has been stronger than most other emerging economies for which their manufacturing
sector has been the main driver.

Between 1975 and 2004, the share of agriculture sector in GDP declined while that of
the industrial and services sectors rose. However, the contribution of the manufacturing
16
sector remained the same and increased marginally from 14 percent to 16 percent. This is
in stark contrast with China, which has a manufacturing sector contributing to 35 percent of its
GDP and
30
the figures are similar for many other countries. It is therefore important to examine the role of
government policy in shaping India’s manufacturing sector performance.

Figure 9: Sectoral shares (%) in India’s GDP

70
60
50
40
30
20
10
0
1975

1979

1983
1977

1981

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009
Agrriculture and allied services Manufacturing Construction and services

A historical review of government initiatives reveals that the policies designed by the
Indian government have been instrumental in shaping the development of international trade. As
India has progressively moved towards becoming a more open economy, policies have
evolved to support trade and increase the volume of exports. 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.

In recent years, the Indian government has acknowledged the severity of this issue and taken an
important policy initiative in 2011 by approving the New Manufacturing Policy. This policy is
aimed at building the capacity of the sector, strengthening its contribution to the GDP (from 16
percent to 25 percent) as well as improving the international competitiveness of
the manufacturing sector. The initial industry reactions to the NMP has been positive and
it is expected that a proper execution of the NMP will be beneficial for the Indian economy as it
can generate large-scale employment for nearly a hundred million workers in the next ten
years. The implementation of the policy will involve the establishment of a number of
17
National Manufacturing Investment Zones (NMIZ) which will have features such as a
progressive exit policy, strong physical infrastructure, investment incentives and business-
32
friendly approval mechanisms to support the production in these units. Though the
implementation of the NMP may take time, this policy is expected to provide a strong
impetus to India’s manufactured exports in the near future.

However, the policy environment in India was not as conducive to international trade in the past.
India’s foreign trade policy had been largely restrictive till the early eighties, in order to protect
the domestic market from international competition. However, several attempts were made in the
mid-eighties to break away from the restricted external sector regime. Export promotion policies
in the sixties and seventies were introduced in the form of compensatory support (CCS), duty
33
drawbacks (DDS) and market development assistance (MDA), among others. Additionally, a
few export promotion councils were established along with commodity boards and specialized
service institutions. This was also the time when the government allowed a 25 percent increase in
34
the capacity of manufacturers without any license. Further, the asset limit under the MRTP Act
was raised from Rs. 20 crores to Rs. 100 crores while the MRTP clearances were entirely waived
off for a few industries. During this period, the government also introduced several
export
incentives which included a reduction of foreign exchange controls to import raw material from

foreign countries and also a provision of Replenishment (REP) licenses to exporters,

which permitted the import of goods from the restricted list.

Medium and large firms were allowed in the eighties to invest in industries reserved for
the small-scale sectors (on the condition that 75 percent of their output would be exported) and
this provided an impetus to Indian exports. The EXIM (export-import) policy adopted by the
Indian government for the period 1985-88 focused on the abolition of automatic licensing
and the inclusion of 201 items of industrial machinery in the list of (permitted) imports
under open general license (OGL). The policy also increased the minimum limit for the
import of capital goods against import replenishment licenses (from the initial Rs. 1 lakh
35
to Rs. 2 lakh) for registered exporters.

18
The Indian economy, however, continued to be resistant towards imports and this was reflected
in the existing (import-weighted) tariff rates, which were at an average of 87 percent in 1990-
91(with rates on certain imports exceeding 300 percent). Domestic consumer goods,
in particular, were protected as tariff rates on imports of consumer goods were at a high of
164 percent. Additionally, the Indian government resorted to the use of non-tariff barriers
(NTB), which were applicable on 65 percent of all imports (90 percent of which were imported
by the manufacturing sector) in 1990. The government was also skeptical about the impact of
foreign investment and therefore limited FDI to specific areas of the economy and placed an
36
upper limit of 40 percent on (foreign) equity participation.

India reacted to the balance of payments crisis in 1991 with a series of reforms intended to open
up the economy to foreign participation. The current account was to be less influenced by the
balance of external payments and more by exchange rates. The list of (imported) commodities
which were subjected to quotas was shortened, though a number of consumer goods were still
bound by quantity restrictions. Further, the rupee was depreciated by 22.8 percent relative to a
basket of other currencies, a step which devalued the real effective exchange rate (REER)
by 16.3 percent. Additionally, temporary measures such as foreign exchange licensing, export-
based imports, import compression and a dual exchange rate system were introduced for a short
period of time in an attempt to increase export competitiveness.

There were also changes in the NTBs on imports. The monopoly of government agencies
for canalized imports of 50 commodities (except petroleum and agricultural products)
was abolished. A phased reduction in the maximum rate, the average rate as well as the
dispersion of tariff rates was implemented. The maximum tariff rate was reduced from 355
percent in 1990-91 to 45 percent in 1997-98 and the (imported-weighted) average tariff rate was
reduced from 87 percent in 1990-91 to 24.6 percent in 1996-97. Over time, the average
(weighted) share of imports for all sectors covered by NTBs has reduced from 95 percent in
1988-89 to 62 percent in1998-99 and further to 24 percent in 1999-00.

The restrictions were also eased on Indian exports, as the restricted export list was modified with
an abolition of taxes on certain mineral and agricultural exports. Further, the share under

19
quantitative restriction was reduced from 93 percent (of total tradable GDP) in the pre-reform
37
period to 66 percent 1995.

Thus, the trade policy reforms in India initiated in 1991 have been instrumental in orchestrating
the transition of the Indian economy from a protectionist approach to an open market conducive
for higher volumes of international trade.

3 India’s key manufactured exports

3.1 Composition of Manufactured exports

Since manufactured goods constitute a majority of India’s merchandise exports, it is important to

analyze the composition of manufactured exports to identify India’s key export commodities.

The following figure shows the distribution of top manufactured goods exports and
reveals certain changes in its composition over time.

Petroleum and related products have continued to be a major component of India’s manufactured
exports between 1990 and 2009 and their contribution has increased from 5.3 percent in 1990 to
over 14 percent in 2009. Other than petroleum, gems and jewelry has been an important export
commodity throughout the period, though its share in manufacturing exports has declined from
27.2 percent in 1990 to 15 percent in 2009. It is also seen that cotton, which was traditionally an
important export item for India, has declined in its contribution, from 5.7 percent in 1990
to under 1 percent in 2009.

Figure 10: Composition of India’s manufactured exports

1990 Gems and Jewellery

Cotton

27.2%
3.4% 3.6% 4.0%
42.1% a.

5.7%

5.2%
20
 Petroleum and related products Made up articles-
4.5% textiles

Others

2000 Gems and Jewellery

Textile yarn
Petroleum and related
products
26.5%
Made up articles-
textiles
48.0%
Cotton

7.0% Medicaments

5.3% Organic chemicals

4.2% Others
1.9% 4.0%
3.1%
b.

21
 2005 Gems and Jewellery

Petroleum and related

products

Textile-Made-up articles
18.4%

Medicaments
Textile Yarn
50.6% 15.1%

Organic chemicals

Iron and non-alloy steel

3.5%
3.3%
Others
2.8% 3.3%
1.9%
c.
2009
Petroleum and related
products
Gems and Jewellery

20.4% Medicaments

Telecommunications
equipment
48.5% Ship,s boats
14.9%
Motor cars and vehicles

Organic chemicals

4.0%
Others
3.6%
2.2% 2.6% 3.3%
d.
Source: Author’s calculations based on United Nations (UN) Comtrade database
http://comtrade.un.org/db (last accessed on 16.7.2011)

Overall, the figure depicts a structural shift in India manufactured exports, away from cotton and
textile oriented exports and towards more technique and technology-based items such as
pharmaceutical products (medicaments), telecommunication equipments etc.

The following discussion focuses on three commodities which have played an important role in
India’s manufactured exports between 1975 and 2009. The commodities identified are:

- Gems and jewelry which contribute over 16 percent to India’s exports and is a high
labour- intensive as well as an import-intensive industry;
- Ready-made Garments (RMG) Cotton which contributes nearly 6 percent to India’s exports and
is highly labour intensive;

22
-Electronic goods which is an upcoming industry and employs a large number of technically-
skilled workers.

In addition to contributing an important share to India’s exports, the selected industries

also represent a combination of traditional as well as contemporary exports of India. Moreover,
as the following discussion will reveal, there is a distinct variation in the structure of these
industries. While cotton and gems and jewelry are labour-intensive industries, electronic goods
production relies considerably on capital-intensive techniques. Other areas of divergence include
the import- intensity of production and the extent of policy intervention, both of which
vary across the selected industries. An analysis of these industries will consequently present
various facets of India’s manufactured exports.

3.2 Gems and Jewelry (with special reference to Diamond exports)

3.2.1 Industry and trade overview

Gems and jewelry has been an important industry for the Indian economy. It is one of the fastest
growing industries and a leading earner of foreign exchange for India. The gems and
jewelry sector covers a wide range of items which include diamonds, precious and semi-precious
38
stones, in addition to gold, silver, studded and costume jewelry. The gems and jewelry
industry in India is mostly concentrated in the unorganized sector and employs around 2 million
workers.
An important feature of this industry is that it contributes a large share to India’s total exports as
39
well as to the country’s imports (averaging over 9 percent of total imports since 1997). The
main component of India’s gems and jewelry export is cut and polished diamonds. Rough and
uncut diamonds are imported and processed in India and finally exported in the form of diamond
jewelry for final consumption. It is this feature that makes the industry highly import-intensive in
nature.

The importance of this industry for Indian exports is evident from Figure 11. Its contribution to
Indian exports has steadily grown since 1975 and is responsible for nearly 15 percent of India’s

38 The ICRA industry report on the Indian Gems and Jewelry Industry (last accessed on 15.8.2011).
23
39 Refer to Figure 6 in the Appendix.

24
total exports since 1986. As a commodity, it has the (single) highest share in Indian merchandise
exports and is therefore, one of the most significant industries for India.

The diamond segment contributes a major share of nearly 70 percent of the total (gems
and jewelry) export and thus the remainder of the analysis focuses on the performance of
Indian diamond exports. However, the latter’s share has declined since 2008, in part, due
to the economic meltdown which reduced the import demand from USA and other trading
partners of India.

Figure 11: Gems and Jewelry share (%) in India’s total exports

25.00%
share in total exports(%)

20.00%

15.00%

10.00%

5.00%

0.00%

Source: Author’s calculations based on United Nations (UN) Comtrade database

http://comtrade.un.org/db (last accessed on 20.9.2011)

Major producers of diamonds in the world are Southern Africa, Canada, Australia and Russia.
Around 10 percent of the world’s total diamonds belong to the gemstones category, which are
processed and set in diamond jewelry. A unique feature of diamonds is that, unlike gold, silver or
platinum, they do not have an internationally set standard price. The price is determined based of
physical attributes (such as cut, color, clarity and carat (weight)). Like other forms of (valuable)
jewelry, diamonds are a luxury item and consequently have a highly elastic demand in
the market. In this industry, India has a comparative advantage in labour-intensive
activities like gem cutting and polishing. Therefore, Indian companies operate at a beneficial
level in the value chain where they import rough diamonds, which are processed and

25
exported for final consumption as diamond jewelry. The Indian Gems and Jewelry industry
plays an important role

26
in the value chain as it contributes 60 percent to the value share and 85 percent to the volume
share.

3.2.2 India’s position in the world export market

India’s position in the world market for gems and jewelry exports is seen in Figure 12.
The figure reveals that India has always been an important source market for gems and jewelry
and its significance has grown considerably over time. Indian exports performed particularly well
in
2009 and India became a leading exporter of gems and jewelry, with a market share exceeding
23 percent. India’s diamond exports, which form the major share of aggregate (sector) exports,
too have an important share in the world market (diamond exports), which has grown from 13.4
percent in 2000, to 20.1 percent in 2009, as seen in Table 2.

Figure 12: India’s share in World exports of Gems and Jewelry

25.0%

20.0%

15.0%

10.0%

5.0%
0.0%
1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

Source: Author’s calculations based on United Nations (UN) Comtrade database

http://comtrade.un.org/db (last accessed on 20.9.2011)

27
 Table 2: Major exporters of Diamonds and their share in world exports (%)

2000 2005 2009

Exporting country market share Exporting country market share Exporting country market
share Belgium 25.9% Belgium 18.7% India
20.1% Israel 19.3% Israel 18.5% Israel
14.0% India 13.4% India 13.9% Belgium
13.4% UK 13.1% UK 10.7% USA
12.1% USA 8.5% USA 10.0% Hong Kong
9.8% Botswana 4.6% Hong Kong 5.2% UAE
9.3% Hong Kong 3.8% Botswana 3.8% UK
6.7% South Africa 3.5% UAE 3.6% Botswana
2.6% Switzerland 1.9% South Africa 3.1% Canada
2.1% China 1.1% Singapore 2.0% China
1.8%
Source: Author’s calculations based on United Nations (UN) Comtrade database
http://comtrade.un.org/db (last accessed on 22.9.2011)

India’s main competitors in the diamond industry are Israel and Belgium, and both these
countries have a technological advantage in the processing of raw diamonds. India has
traditionally specialized in the processing of small diamonds, whereas Belgium and Israel have
had the advanced technology to work with larger diamonds. Since the market for small-
sized diamonds is relatively small, India’s share in the world market has usually been lower than
that of Israel and Belgium.

Table 2 reveals the change in market share since 2000. It is seen that India’s market
share remained unchanged and well below Israel and Belgium’s share between 2000 and
2005. In
2009, however, India’s share rose considerably above that of Belgium and Israel, which could
partly be due to the stronger impact of the sub-prime crisis of 2008 on the demand for large sized
diamonds, which resulted in a decline in market share for Israel and Belgium.

3.2.3 Direction of Trade

a. The Unites States

The US has been the largest importer of diamonds for a long time and accounts for more than 18
percent of world diamond imports. Therefore, it has always been a key trading partner for India in

28
this sector. The US has a two tier market for diamond jewelry which consists of a potentially
growing market for (low value) diamond jewelry and the older market for large-diamond

29
jewelry. Large-sized diamonds (or solitaires) are considerably expensive and thus this segment of
diamond jewelry is highly priced.

Table 3 shows a disaggregation of the two segments of the US diamond market. Israel is
evidently the most important source market for all diamond imports by the US, though its share
has declined over the years, from 52.7 percent in 2005 to 44.6 percent in 2009. India is
the second most important exporter of diamonds for the US, and its share in the US
market has steadily risen from 20 percent in 2005 to 24.8 percent in 2009. The table also reveals
that India is the only country which has consistently exported a higher value of diamonds
or registered a positive growth every year since 2005.

Table 3: US imports of cut and polished diamonds from the World

Value Growth Volume Growth
2005 2006 2007 2008 2009 2010 2009 2010 2005 2006 2007 2008 2009 2010 2009
2010
< 0.5 carats 2,651 2,690 2,460 1,996 1,654 1,367 -17.1% 31.7% 11,020 11.275 9.539 7,959 7,164 5.853 -10%
33%
India 1,817 1,776 1,655 1,427 1,150 1,056 -19.4% 49.8% 8780 8,563 7,392 6,521 5,762 5,075 -
11.60%
Israel 425 426 380 267 198 141 -25.7% 5.9% 843 843 696 512 400 278 -21% 3%
Belgium 197 203 204 118 127 63 7.4% -25.8% 530 526 494 295 344 157 16.5% -30.20%
UAE 23 35 25 18 30 11 64.7% -56.0% 92 131 122 69 153 49 121% -57.30%
Hogn Kong 58 70 33 25 24 12 -5.0% -21.3% 228 390 132 157 239 100 52.3% -19.20%
Switzerland 18 25 1 1 3 0 406.5% -34.3% 34 54 2 1 1 1 10.4% 1521%
Russia 1 5 2 3 3 1 -5.1% -62.1% 2 5 3 5 3 2 -40.40% -25.00%
South Africa 2 2 2 4 10 9 139.7% 43.2% 5 3 4 12 2 0 -85.70% -79.30%
China 13 16 36 34 18 12 -46.7% -5.6% 79 63 68 110 26 20 -76.50% 22.00%
Others 95 130 122 82 92 62 11.2% 19.1% 426 696 625 276 233 170 -16% 23%
> 0.5 carats 12,724 13.759 15,657 16.996 10,791 10,422 -36.5% 61.6% 5.977 5.791 5.944 4,957 3,675 3.287 -25.90%
46.70% India 1,262 1,480 2,031 2,450 1,934 2,389 -21.0% 111.4% 1,340 1,385 1,691 1.442 1,114 1.305 -
22.7% 92.5% Israel 7,672 8,141 9,101 9,116 5,354 4,982 -41.3% 51.4% 3,069 2,863 2,846 2,209 1,666
1,355 -24.60% 28% Belgium 2,623 2,601 2,800 3,125 2,131 1,913 -31.8% 54.3% 1,161 1,121 982 929 640
432 -31.10% 17.6% UAE 64 111 79 124 60 28 -51.5% -13.2% 50 83 54 33 34
8 2.5% -57% Hogn Kong 162 154 87 361 76 69 -79.0% 27.8% 83 66 31 77 27 31
-65.20% 99% Switzerland 138 191 238 383 238 200 -38.0% 77.9% 17 11 13 19 23 9
22.3% -24% Russia 126 132 185 178 137 55 -23.0% -9.5% 58 54 73 58 58 14
0.3% -10.10% South Africa 336 559 712 759 533 498 -29.8% 62.0% 46 78 85 55 35 42 -
37.10% 152% China 29 61 94 103 33 38 -68.4% 67.2% 12 30 41 51 13 13 -
74.00% 43% Others 314 329 330 396 295 252 -25.6% 15.8% 142 93 130 84 66 57 -
21.80% 38% Total 15.375 16,449 18,117 18,992 12,445 11,789 -34.50% 57.40% 16,997 17,065 15,483 12,916 10838
9.140 -16.10% 37.60% India 3,080 3,256 3,686 3,876 3,084 3,445 -20.4% 89% 10,120 9,949 9,083 7,963 6,876
6,379 -13.70% 52% Israel 8,097 8,567 9,482 9,383 5,552 5,123 -40.80% 50% 3,912 3,708 3,542 2,720 2,066
1,634 -24.10% 23% Belgium 2,820 2,804 3,003 3,243 2,258 1,976 -30.40% 49.10% 1.691 1,647 1,476 1,224 984
610 -19.60% -0.10% UAE 87 146 104 143 90 39 -36.70% -31.30% 142 213 175 102 187
57 82.70% -57.80% Hogn Kong 220 224 120 386 100 81 -74.10% 17.4% 311 456 163 234 266
131 13.7% -6.10% Switzerland 156 217 239 384 241 200 -37.20% 77% 50 65 15 20 24
10 21.8% 1.8% Russia 127 137 187 182 140 56 -22.60% -12.10% 60 58 76 63 61
17 -3.00% -12.40% South Africa 338 561 714 764 543 506 -20.90% 62% 52 82 89 68 36
42 -46% 134% China 41 76 130 137 51 50 -63.10% 40.30% 91 93 109 161 39
32 -75.80% 29.60% Others 409 460 451 495 386 314 -21.90% 16.40% 432 568 794 755 361
160 -52.20% -17.30%

Reproduced from an ICRA Report on the Indian Gems and Jewelry Industry (October 2010), p. 30

30
Large diamonds comprise a major share of the US market and the concentration has intensified
from 82.7 percent in 2005 to 86.7 percent in 2009. It is therefore seen that the import of smaller
diamonds by the US is increasingly phasing out.

India was predominantly an exporter of small diamonds and supplied as much as 59 percent of all
small diamonds imports of the US in 2005 and this increased to 69.5 percent by 2009. In
recent years, however, India has identified the potential in the large diamonds segment and has
focused on increasing large diamond exports to the US. This is evident from the fact that its large
diamond exports constitute 69.6 percent of its total diamond exports to the US in 2009,
compared to 62.7 percent in 2005. Moreover, India’s share in the US market for large diamonds
has risen substantially from 9.9 percent in 2005 to 17.9 percent in 2009. It is also seen that India
has succeeded in capturing some of Israel’s market share in this segment, which has
declined from 60.3 percent in 2005 to 49.6 percent in 2009.

Being a luxury good, the 2008 economic crisis had a severe impact on the imports of diamonds.
Though imports from all trading partners fell, India experienced a drop of the least magnitude in
2009 (of 20.4 percent). In particular, the price sensitive segment of large diamonds experienced a
steep fall of over 36 percent in 2009, though imports from India were again least
affected, relative to Israel or Belgium.

The overall evidence suggests that India is a considerably strong player in the US
diamond market. Not only has it successfully exported higher volumes ( and values) of large
diamonds, the relatively small impact of the 2008 crisis on India’s diamond exports suggests that
India has a strong foothold in this market and has performed more consistently than its
competitors (Israel and Belgium) in recent years.

Indian exports of gems and jewelry (including diamonds) have performed well in the US market.
The annual growth in India’s gems and jewelry exports to the US has more often been higher
40
than its competitors.

b. Hong Kong Special Administrative Region (SAR) and China

40 For the annual growth in India’s Gems and Jewelry exports to the US, refer to Figure 8 in the Appendix.
31
It is seen from Table 4 that Hong Kong has become a significant importer of diamonds
since
2000. Though its share remained unchanged between 2000 and 2005 (at 6 percent of
world diamond imports), this rose significantly to 10 percent in 2009 amidst the economic crisis,
thus making Hong Kong the third largest importer of diamonds. Additionally, Hong Kong
has succeeded the US as the main importer of cut and polished diamonds from India, with 31
percent
41
of its import share.

Table 4: Main World Importers of Diamonds

2000 2005
2009
Importing Country Market share Importing Country Market share Importing Country Market
share USA 22.8% USA 18.7% India
16.8% Belgium 14.1% India 11.8% USA
14.5% UK 10.7% Belgium 11.2% Hong Kong
10.2% India 8.2% UK 8.4% UAE
10.1% Israel 7.5% Hong Kong 7.7% Belgium
6.3% Hong Kong 6.3% Israel 6.9% UK
5.9% Switzerland 4.7% UAE 6.1% Switzerland
4.2% Japan 4.7% Switzerland 3.4% Germany
3.5% Italy 3.4% Japan 3.4% Israel
3.2% Germany 2.6% Germany 2.5% Australia
2.7%

Source: Author’s calculations based on United Nations (UN) Comtrade database

http://comtrade.un.org/db (last accessed on 23.9.2011)

Table 5 reveals that India is clearly the key partner for Hong Kong’s diamonds imports and over
44 percent of all diamond imports have been sourced by Hong Kong since 2000. India also has a
dominant position in gems and jewelry exports, which account for over 44 percent of
Hong
Kong’s total imports for the sector.

32
41 Page 31, ICRA Report on the Indian Gems and Jewelry Industry(October 2010)(last accessed on
15.8.2011).

33
Table 5: Market share of main trading partners in Hong Kong’s Diamonds and Gems and
Jewelry imports

Market Share in Diamond Imports Market Share in Gems and Jewelry Imports
Belgium Israel India Belgium Israel India
2000 11.3% 16.7% 47.5% 10.2% 15.0% 43.4%
2005 12.3% 15.7% 44.1% 11.4% 14.5% 41.1%
2007 13.5% 15.3% 44.6% 12.5% 14.2% 41.8%
2009 14.0% 11.9% 47.6% 13.2% 11.2% 45.1%
Source: Author’s calculations based on United Nations (UN) Comtrade database http://comtrade.un.org/db (last
accessed on 23.9.2011)

Other than the US and Hong Kong, Indian gems and jewelry are also exported to China. Chinese
imports of cut and polished diamonds have increased by 87 percent between 2000 and 2009 and
India is the largest exporter to this market with a share of 2 percent. A few Indian companies
have also planned to begin retailing operations in collaboration with manufacturing units
in China. India is also the leading exporter to EU countries, though EU imports of gems
and jewelry from India have fluctuated over the years.

3.2.4 Competitiveness of Gems and Jewelry exports

The RCA for India’s gems and jewelry exports has remained considerably above unity indicating
that this is a competitive export item for India. This can be attributed partially to India’s growing
exports of large-sized diamonds to markets such as the US. Additionally, introduction of
the Diamond Dollar Account and Green card for exporters of polished diamonds have
facilitated
42
trade competitiveness.

31
42 Under this scheme dollar transaction is allowed for purchase of rough diamonds by exporters. For more
information on this scheme, refer to Burange, L.G. & Chaddha, Sheetal J. (2008).

32
 Figure 12: RCA for India’s Gems and Jewelry exports (to the World)

25.000

20.000

15.000
RCA

10.000

5.000
0.000
1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

Source: Author’s calculations based on United Nations (UN) Comtrade database

http://comtrade.un.org/db (last accessed on 20.9.2011)

A comparison of India’s RCA with its competitors suggests that Israel and Belgium’s exports are
more competitive in the US market, as they contribute a larger share to US imports of gems and
jewelry. However, in the case of gems and jewelry exports to Hong Kong, India is more
competitive than Israel or Belgium, owing to the fact that over 40 percent of Hong Kong’s gems
43
and jewelry imports are sourced from India.

3.2.5 Key issues - Gems and Jewelry Sector

There are some persistent issues that the Indian Gems and Jewelry sector has faced for a long
time. One of the main factors has been the large-scale presence of the unorganized sector in this
industry. In the future, India can possibly face competition from China, as an increasing number
of Indian, Belgian and Israeli diamond processors are setting up branches in China, to capitalize
on cheap labour. This could pose a threat for the large-scale processing of diamonds in India. A
similar threat can be expected from African countries in the near future, which have invested in
developing the domestic (diamond) processing industry, in order to create better
employment
44
possibilities.

43 Refer to Table 3 in the Appendix.

44ICRA Industry report on the Indian Gems and Jewelry Industry. (last accessed on 15.8.2011).
33
3.2.6 Government Initiatives

Government policies have been supportive of the gems and jewelry sector. The
government introduced the replenishment (REP) license in the sixties under which producers
could import the relevant raw materials without an upper limit on foreign exchange. Additionally,
the 1997-2002
Foreign Trade Policy simplified a number of procedures to export diamond jewelry. Branded or
partially processed jewelry could now be exported by India. Further, the customs duty (of
45 percent) on rough gemstones and semi-processed diamonds was abolished by the Union
budget of 2003-04. The import tariff on cut and polished diamonds and gemstones was also
reduced from 15 percent to 5 percent.

Further reforms were implemented in 2005, which included an exemption on the service
tax levied on the production related to the manufacturing of cut and polished diamonds,
gemstones, and other forms of (gold and other precious metal) jewelry. The EXIM policy (2002-
07) reduced value addition norms on exports of plain jewelry from 10 percent to 7 percent and
the subsequent policy for the period of 2004-09, allowed the import of precious metal scrap and
used jewelry for melting, refining and re-export of jewelry, in order to increase the
production capacity. Additionally, jewelry export was allowed on a consignment basis,
which permitted domestic exporters with unsold inventory (in foreign markets) to re-import.
Foreign direct investment up to 74 percent (under the automatic route) was approved by the
government, for the exploration and mining of gemstones and diamonds. More recently, the
Union Budget of 2008-09 reduced the net profit rate from 8 percent to 6 percent for institutions
which were engaged in the diamond manufacturing and trading sector (under Benign Assessment
procedure). The most recent foreign trade policy (2009-14) has implemented a new facility to
permit the import of cut and polished
45
diamonds (on a consignment basis) for the purpose of grading and certification. The
recent
National Manufacturing Policy has identified the gems and jewelry sector as one of the thrust
areas given its potential for employment creation.

34
45 ICRA Industry report on the Indian Gems and Jewelry Industry. (last accessed on 15.8.2011).

35
3.3 Ready Made Garments (RMG), Cotton

3.3.1 Industry and Trade Overview

Cotton, textiles and garments are traditional export items and an important industry for
India. India’s textile industry, in particular, is the second largest textile industry in the
world after China. Over time, a number of changes in the domestic and global
environment have had a bearing on this industry. The Indian textile industry contributes nearly
14 percent to industrial output and 17 percent to aggregate export earnings. This industry
also contributes to about 4 percent of GDP along with 9 percent of total excise collections.

It is a highly labour-intensive industry and therefore of chief importance to the Indian economy.
This industry employs the largest number of workers after agriculture, around 35 million
workers, and an additional 50 million people who are typically engaged in allied activities. Large
scale employment of this magnitude stems from the fact that many segments of this
industry operate on a very high scale. For instance, India is the largest producer of jute, the
second largest producer of Silk and the third largest producer of cotton (and
Cellulosic Fibre/Yarn). Consequently, this industry is visible in global trade, and
contributes to 12 percent of world exports of textile fiber and yarn, and up to 25 percent of
world trade in cotton yarn. The apparel industry is one of largest foreign revenue earners and
in aggregate, contributes 12 percent of
46
India’s total exports. The textile industry comprises of unorganized firms and manufacturers
who sell the products to organized firms in India, which are in turn responsible for
exporting these items. Further, the industry comprises of small as well as large-scale firms,
and smaller firms have an advantage in that they have the flexibility to undertake a wider
range of production.

A segment of the textile industry which has been a significant contributor to India’s exports is
the cotton industry. Therefore, the following section analyses the performance of Indian cotton
exports.

46
http://www.indialawoffices.com/pdf/textileindustry.pdf (last accessed on 3.9.2011).
34
Though international trade is an important aspect of the world cotton market, there has been a
decline over time, as the export-to-production ratio has fallen since the seventies. India is
the

46
http://www.indialawoffices.com/pdf/textileindustry.pdf (last accessed on 3.9.2011).
35
second largest producer of cotton after China, and accounted for nearly 20 percent of
47
world production in 2007. Annual growth in cotton production in India has surged since 2002,
mostly due to the introduction of a new variety (Bt (Bacillus thuringiensis)) of cotton.

Figure 13: Share of cotton exports in India’s total exports (%)

6.00%
share in total exports(%)

5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
1975

1977

1979

1981

1987

1989
1983

1985

1991

1993

1995

1997

1999

2001

2003

2005

2007
Source: Author’s calculations based on United Nations (UN) Comtrade database
http://comtrade.un.org/db (last accessed on 1.9.2011)

Figure 14: India’s share (%) in the world Cotton exports

7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Source: Author’s calculations based on United Nations (UN) Comtrade database

http://comtrade.un.org/db (last accessed on 1.9.2011)

It is seen from Figure 13 that the share of cotton in India’s total exports has declined from over 5
percent in 1976 to under 1 percent in 2008. Similarly, India’s share in world exports of cotton
has declined from a high of 6.5 percent in 1.97 to 3.2 percent in 2008. Over time, the quality
inconsistency prevalent in the textile industry, in addition to an appreciating U.S. dollar have had

47 For World cotton production between 1970 and 2007, refer to Table 1 in the Appendix.
35
an unfavourable impact on the competitiveness on India’s cotton exports (Ananthakrishna
48
2005).

The Multifibre Agreement (MFA) of 1973-74 enabled developed countries to bilaterally

negotiate quotas with supplier countries, taking into account their competitiveness and the
perceived threat to the domestic market (of the importing countries). 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 included a time table
for phasing-out the quota system within a ten-year period (starting on 1 January 1995). The MFA
49
was phased out and textiles trade was integrated into GATT provisions by 2005. The purpose
of the ATC was to provide developing countries more access to markets of developed countries.
But 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. Smaller countries like Pakistan and Bangladesh, however, used the quota system as an
opportunity to develop their industry. The elimination of the ATC brought a structural change in
the pattern of textile and clothing trade. Since 1994, the export of clothing has exceeded textiles
exports.

3.3.3. Direction of Trade

a. The United States

Figure 15: India and China’s share (%) in the U.S. Cotton import market
15.00% 40.00%

30.00%
10.00%
India

20.00%
5.00%
10.00%

0.00% 0.00%
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

India China

48 http://commerce.nic.in/publications/anualreport_chapter3.asp
49 Adhikari, Ratnakar & Yamamoto, Yumiko.
36
Source: Author’s calculations based on United Nations (UN) Comtrade database
http://comtrade.un.org/db (last accessed on 1.9.2011)
Note: Secondary (Y) Axis- China’s Share in the US RMG Cotton Import Market

Over the last few years, there has been a shift in the US imports of RMG cotton products from
the relatively higher cost Central American and Latin American countries towards lower- priced
Asian suppliers like India, China, Vietnam, Bangladesh, Cambodia and Indonesia.

Till the implementation of the ATC, 12 percent of US imports were from India. However, this
share fell sharply during the quota regime. After the elimination of the MFA, India recovered
marginally, but in 2006, the rupee appreciation against the US dollar made Indian exports less
50
competitive. Since 2007, India’s share has increased only marginally. China’s performance in
the same period however, has been phenomenal, as it has grown to contribute 30 percent of US
cotton imports. Unlike India, China’s cotton exports remained competitive even during the quota
period. An important feature of China’s (textile) sector has been its vertically integrated structure
which can simultaneously execute all stages of production. Additionally, though the cost
of labour is higher in China than in India, the higher productivity in this sector often converts to a
51
better quality to price ratio. These factors could have cumulatively contributed to the growing
share of China in US imports of cotton.

b. The United Kingdom

Figure 16: India and China’s Share (%) in the UK’s Cotton import market

20.00%
share in UK's cotton

15.00%
imports(%)

10.00%

5.00%

0.00%
1981
1975

1977

1979

1985

1989
1987
1983

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

India China

50 Economic Survey, 2008

51 ICRA industry report on the Indian Textiles and Clothing Industry, (last accessed on 3.9.2011).
37
Source: Author’s calculations based on United Nations (UN) Comtrade database
http://comtrade.un.org/db (last accessed on 3.9.2011)

India’s cotton exports experienced a declining share in the UK market (from 1995 onwards) and
in recent years, have converged with that of China at close to 8 percent. Similar to its
performance in the US market, Indian cotton export share has gradually declined, while that of
China’s has consistently risen in the same period. China’s performance was aided by the fact that
Chinese firms had prepared for the end of the restrictions through substantial investment
to improve infrastructure, which enabled China in raising its exports volume once the quotas
were removed. Thus, the evidence suggests that China was better equipped to capitalize
on the removal of the quota system and were therefore prepared to secure a stronger hold in
important markets in the post- MFA period.

3.3.4 Competitiveness of RMG Cotton exports

Figure 17: RCA- India’s Cotton Exports (to the world)

14.000
12.000
10.000
8.000
RCA

6.000
4.000
2.000
0.000
1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

Source: Author’s calculations based on United Nations (UN) Comtrade database

http://comtrade.un.org/db (last accessed on 1.9.2011)

Figure 17 reveals that India has been competitive in world exports of cotton. However, there has
been a downward trend since 1995 which could be due to a possible negative impact of the ATC
on India’s share of cotton exports in total exports. The RCA for Indian cotton exports compared
to China further suggests that Indian cotton exports have been competitive in important markets
52
like the US and the UK.

52 Refer to Table 4 in the Appendix.

38
3.3.5 Government Initiatives- RMG Cotton

The Indian textile industry has traditionally comprised of several small and medium scale
enterprises (SME). In the years following independence, the government used this sector
to provide large scale employment opportunities. Thus, a few labour-intensive segments of
this industry were reserved for small smaller enterprises. At the time, large scale production was
not possible due to the existing restrictions on total capacity and low levels of mechanization.
This
53
constrained the production of this industry and discouraged capital investment.

However, in an attempt to improve the efficiency and productivity of this sector, the
Indian government reduced the reservation of textile products from 1997. Additionally, the
Technology upgradation Fund Scheme (TUFS) was launched in 1999 which enabled firms
to access low- interest loans for technology upgradation. The TUFS scheme has been continued
and is part of the Eleventh Plan where its allocation has been raised. The Indian government has
also approved special schemes for Integrated Textile and Apparel parks (SITP). Under this
Scheme, up to 26 parks have been approved and the budget provision is also widened by
the government. The government adopted a cluster approach for the handloom sector in 2005-
06, where 120 clusters were selected for the provision of technical assistance and were
provided subsidies for
54
technology upgradation, in addition to marketing support.

Foreign Direct Investment (FDI) of up to 100 percent is permitted (under the automatic route) in
the Indian textile industry. The Textile Ministry has also set up an FDI cell to provide assistance
and advisory support, sort out operational impediments, in addition to designing schemes
to attract more FDI in this sector. In 2000, the textile policy was designed to remove the bias in
policy towards the small and medium sized firms and promote modernization.

Over time, the government has made provisions for incentives by reducing the excise duty and
the basic custom duty on importing of raw materials. The Union Budget of 2004-05 in particular,
made changes to the CENVAT schemes for the textile sector. Every manufacturer in the textile
industry had the option of choosing between the exemption route (in which no excise duty would

39
53 http://www.cci.in/pdf/surveys_reports/indias_textile_sector.pdf (last accessed on 5.9.2011)
54http://www.legalpundits.com/Content_folder/THETEXTILEINDUSTRYREPORT290710.pdf

(last accessed on 11.9.2011)

40
be payable at any stage) or the CENVAT route (in which credit could be taken for all
55
excise duties at earlier stages).

Though this sector has benefitted from an increased allocation of funds through various schemes,
its profitability has suffered due to increased costs of raw materials (especially cotton) and
a sharp depreciation of the Indian Rupee against the US Dollar. However, a conscious reduction
in the protectionist attitude is expected to have a positive impact on the cotton textile
sector. Policies are designed and implemented in a way to ensure the modernization of
weaving machineries. Further, as the sector becomes more competitive and driven by market
forces, the overall productivity of the textile industry will be enhanced. More investment in the
form of FDI will further support capital-intensive production and thereby boost the efficiency by
helping to realize economies of scale. The Indian Government has provided incentives to
manufacturers for establishing export zones or export parks, in the form of exemption
from certain labour
56
regulations and through provisions for land purchases, credit and taxes. As in the case of gems
and jewelry exports, this sector too is one of the thrust areas for the National
Manufacturing
Policy given its high employment intensity and implications for growth of the SME sector.

3.4 Electronic goods and IT hardware sector of India

The electronic industry in India has emerged as an important manufacturing sector in

recent years and has contributed positively to the growth trajectory of the Indian
economy. This industry has registered strong growth in the last ten years and has increased its
contribution to India’s exports, as seen in Figure 18. Although the share of the electronics
industry (relative to textile or gems and jewelry) is low, its performance at the domestic
level has revealed the industry’s strong potential to cater to international markets.
Consequently, this sector is expected
to play a greater role in India’s manufactured exports in the years to come.

41
55 ICRA report (January, 2009) on the Indian Textiles and Clothing Industry. (last accessed on 3.9.2011)
56 ICRA report (January, 2009) on the Indian Textiles and Clothing Industry. (last accessed on 3.9.2011)

42
 Figure 18: Share of electronic goods exports in India’s total exports (%)

6.00%
share in total exports(%)

5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009
Source: Author’s calculations based on United Nations (UN) Comtrade database
http://comtrade.un.org/db (last accessed on 17.9.2011)

India has made a serious effort to develop this sector since 1960. In the first two decades, the
focus was on developing space and defense technologies, which gradually moved towards
consumer goods like transistor radios, Black and White television sets, calculators and
other audio products. An impetus to this industry came in 1982, when the Indian government
ordered thousands of color TV sets to be imported on the eve of Asian games. The growth of this
sector was further aided by the introduction of computers in various government organizations in
57
1985 and the sector remained buoyant even during the economic crisis in the nineties. The
economic reforms, however, hampered the growth of the electronics industry. The steep
fall in custom tariff made the sector vulnerable to international competition. In 1997,
India signed a trade agreement with the WTO where India would lift all custom duties on IT
hardware by 2005. In subsequent years, a few companies turned sick and had to be closed down,
but others survived
58
the competition and successfully established an identity in the international market.

The key segments of the Indian electronics sector include consumer electronics and
telecom equipment which are the largest and cumulatively represent nearly 27 percent of total
production.

41
57 http://www.cci.in/pdf/surveys_reports/electronics-industry.pdf(last accessed on 17.10.2011)
58 http://www.cci.in/pdf/surveys_reports/electronics-industry.pdf(last accessed on 17.10.2011)

42
 59
IT hardware is the fastest growing segment, with a CAGR of 21 percent. Other
important segments of the electronics industry include electronic components and strategic
electronics.

Even though the Indian electronics market has grown at a remarkable CAGR of 25 percent in the
last five years and was estimated at $45 billion in 2010, it has a minor share in the
global electronics market, accounting for just over 0.6 percent of global exports of electronic
goods in
60
2009. This may in part be explained by the fact that the Indian electronics industry exports only
61
5 percent of total production and the majority is intended for domestic consumption. In fact,
the growing consumption demand of the Indian market has attracted global attention, despite the
industry’s low share in world market. As income levels rise, more people in India are able
to afford better lifestyles and this raises the demand for durables like television sets, mobile
phones, computers, etc. Foreign players have realized this immense potential and are thus
seeking investment opportunities in the Indian electronics market. The electronics industry,
therefore, attracts considerable foreign investment and comprises of major multinational
companies like LG, Phillips and Samsung among other international players.

Figure 19: India’s share in world export of electronics goods

0.7%
0.6%
0.5%
0.4%
0.3%
0.2%
0.1%
0.0%
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009

59 As per the NSDC report titled, “Human resource and skill requirements in the Electronics and IT hardware
sector (2002)”.

43
60 Frost and Sullivan Report on the Indian Electronics Industry (2010).
http://electronicsb2b.com/wp-content/uploads/2011/02/Part-2_Indian-Electronics-Industry.pdf
( last accessed on 20.11.2011)
61 IBEF Report on the Indian Electronics Sector (2006).

http://www.ibef.org/download/ibefreportelectronics_june06.pdf (last accessed on 20.11.2011)

44
Source: Author’s calculations based on United Nations (UN) Comtrade database http://comtrade.un.org/db
(last accessed on 17.9.2011)

India’s electronic exports have grown steadily over the years, largely fueled by contract
62
manufacturing. In particular, the electronic components segment contributes the largest share
to the sector’s exports [the export items include passive components such as capacitors
and resistors; wound components; CD-ROMS; connectors; color picture tubes and
computer components/assemblies, such as head stacks, memory modules and RFID products].
The other important export segments are industrial and consumer and computer electronics.

The major export markets for Indian electronic goods are the US, UK and Singapore. The share
of Indian exports in these markets, however, continues to be under 1 percent, though this has
improved since 1995. China remains the dominant player in the global market for
electronic exports. It has more than tripled its share in the above markets between 1999
and 2009 and
63
supplied over 34 percent of US imports of electronic goods in 2009.

Overall, India’s electronics exports have remained uncompetitive (compared to world exports), as
seen in the Figure below. However, the upward trend in the RCA (for electronic exports) since
2000 is indicative of an improvement in global competitiveness over time. Factors which have
contributed to this include the growing presence of global multinational companies in India and
increased outsourcing of manufacturing by Indian as well as global equipment manufacturers.
An important resource which has contributed and can further improve India’s competitive
advantage is the availability of skilled manpower at competitive costs in India. Being an industry
which crucially relies on technical knowledge, this industry has the potential to absorb
high quality labour from the large pool of technologically skilled workforce in India. The
National Skill Development Corporation has estimated that the industry will employ
between 3-3.2
million skilled workers by 2022 and 70 percent of them are likely to be absorbed into
the

45
62 IBEF Report on the Indian Electronics Sector (2006).
http://www.ibef.org/download/ibefreportelectronics_june06.pdf (last accessed on 20.11.2011)
63 Refer to Table 2 In the Appendix.

46
 64
manufacturing and servicing support. This industry can exploit this advantage of skilled human
capital to fuel its productivity and thereby maximize exports of this sector.

Figure 20: RCA- Indian (World) exports of electronics goods

0.450
0.400
0.350
0.300
0.250
RCA

0.200
0.150
0.100
0.050
0.000
1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Source: Author’s calculations based on United Nations (UN) Comtrade database

http://comtrade.un.org/db (last accessed on 17.9.2011)

Economic reforms and regulatory policies have also played an important role in supporting the
electronics industry. Following the economic crisis in the early nineties, industrial licensing has
been virtually abolished from the electronics and IT hardware sector (excluding manufacturing
electronic aerospace and defense equipment). Additionally, the Indian government signed
the ITA-I agreement (as imposed by WTO and effective from March 2005) which abolished all
the custom duties to facilitate trade in this sector. Under this agreement, there was no reservation
for PSU’s in this industry and private investments were allowed in every segment. This sector
also opened up to foreign participation and allowed foreign companies to establish operations in
India
65
under the Indian companies Act, 1956, in addition to wholly owned subsidiaries.

The state-level governments have continued to encourage joint ventures as they provide
the advantage of established contracts, financial support and a distribution-marketing network for
the Indian partner. In general, the foreign trade policy permits the import of all electronics and
IT products, with the exception of some defense related items. The schemes provided for
setting
up Export Oriented Units for the electronics industry provide drawbacks on duties and
are

44
64 http://articles.economictimes.indiatimes.com/2011-03-25/news/29188550_1_hardware-industry-
electronics-telecom-equipment (last accessed on 15.10.2011)
65 Foreign equity shares in such Indian companies could be up to a 100 percent.

45
designed to also attract foreign participation. The Software Technology Parks of India
(STPI) Scheme in particular has been a major success.

The challenges which afflict this sector result from the broader difficulties faced by the Indian
66
manufacturing sector. The policies are designed to improve the overall efficiency by attracting
the most competitive firms and skilled human capital, but higher investments in research
and development (R&D) can improve the productivity of this sector and subsequently its
contribution to India’s manufacturing exports. In this regard, the electronics sector is likely to
benefit from the New Manufacturing Policy (2011). While it is expected that electronics will
possibly account
for a major share of India’s total manufacturing by 2022, the various investment and tax
incentives provided (under the NMP) for electronics, LED and semi-conductor industries
can succeed in attracting many more multinational companies to India, thereby making
67
India an important part of the global electronics supply chain.

4 Conclusion and scope for future work

It is evident from the preceding discussion that India has followed a development model unlike
that of the East Asian Economies. While the services sector has registered remarkable growth
and contributed significantly to India’s GDP, the manufacturing sector has grown at
a comparatively slower pace. The overall performance of the Indian manufacturing sector
has widespread implications for various aspects of the economy; employment, being one of the
chief areas of impact. Since this sector generates large scale employment for low and medium
skilled workers, it is imperative to develop features which will create a conducive
environment for industries to grow further. The paper identifies the various inadequacies which
prevail within the sector. In particular, the presence of the unorganized component within
industries reduces the benefits that can be derived from economies of scale. Such constraints
cumulatively prevent the
manufacturing sector from achieving its potential.

46
66 The Ministry of Commerce Report on the Electronics Industry in India
http://www.cci.in/pdf/surveys_reports/electronics-industry.pdf (last accessed on 22.11.2011)
67 http://www.displaysearchblog.com/2011/11/indian-government-approves-new-manufacturing-policy/

(last accessed on 7.2.2012)

47
4.1 Summary of discussion

The paper summarizes the export performance of three unique industries which comprise India’s
manufacturing sector and thereby reveals the heterogeneity that exists among industries within
the sector. Indian gems and jewelry exports constitute a significant share of the country’s
aggregate exports and have also performed well internationally, thereby making India an
indispensable player in this market. On the other hand, cotton exports which are a
traditional export item for India have declined in importance with a falling contribution to Indian
exports as well as to the global cotton market. Finally, the electronic goods industry is an
upcoming sector which has grown at an impressive rate domestically and has strong
potential to contribute to India’s exports in the near future. In general, these sectors have
performed better since trade liberalization was undertaken in 1991. The reduction and
subsequent removal of export and import barriers have further supported exports and
contributed towards a stronger performance.

The paper also provides a summary of changes in government policies which could explain the
emerging patterns in India’s exports of select manufactured products. It clearly highlights
the fact that the export performance of an industry is shaped by a number of factors, including
global and partner country economic conditions, costs, market structure, domestic
regulations and policy incentives. While the paper addresses the industry related features
stated above, India’s export performance is equally likely to be affected by macroeconomic
variables such as inflation, world demand (or GDP), tariff and non-tariff barriers and also
exchange rates. Industry reports often discuss export competitiveness in the light of exchange
rate movements, amongst other variables, and therefore suggest that this variable may be
relevant in the Indian context. In particular, 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
jewelry were expected to perform better during
68
the same period, due to lower import costs. Similarly, other industry reports suggested
that

48
68 Annual Report (2007-08) of the Ministry of Commerce and Industry: Impact of Rupee Appreciation on
India’s Exports http://commerce.nic.in/publications/anualreport_chapter3.asp (last accessed on 9.12.2011)

49
high import-intensive sectors were more exposed to international price volatility, which affected
69
their profitability.

4.2 Directions for future work

Clearly, the determinants of export performance are numerous and the complexity of this issue
requires an empirical investigation. This relationship needs to be explored in greater detail
in future work which takes into account the various industry-specific factors discussed
above alongside important macroeconomic factors such as the state of the world economy,
the exchange rate, and the policy environment. In particular, it would be interesting to examine
the role of exchange rate movements in influencing India’s export competitiveness given
the periodic bouts of appreciation of the Indian Rupee typically on account of rapid
inflows of foreign capital and the concerns such movement typically raises in exporting
sectors of the economy. For instance, during 2007, driven by a surge in FII inflows, the
Indian Rupee appreciated significantly against the US dollar, reaching the Rs 40/dollar threshold.
This led to demands from Indian industry to prevent further appreciation and calls for
intervention by the RBI to prevent an adverse impact on their exports. Again, more recently, in
the aftermath of the
2008 global financial crisis, similar concerns about the adverse effects on exports were voiced
when the rupee temporarily appreciated against the dollar.

Hence, in a future study which delves deeper into the micro as well as macro level factors that
shape export competitiveness for Indian manufactures, it would be worth testing through
rigorous empirical analysis whether and to what extent exchange rate movements really affect
India’s export competitiveness. To date, empirical evidence in this regard is limited and
there seems to be a presupposed conclusion that a depreciated rupee is good for India’s
exports. However, given the diverse nature of India’s exports, the various structural, regulatory,
industry- specific and other factors that influence competitiveness, as highlighted in this
paper, can one expect such a clear cut relationship between exchange rates and export
competitiveness to hold for India? How important are these other factors compared to the
exchange rate? Are the
implications similar across manufacturing and services, across different manufacturing

47
69 The Dun and Bradstreet report on the Indian Gems and Jewelry Sector (2010)
http://www.dnb.co.in/IndianGemsandJewellerySector/ForeignTrade.asp (last accessed on 29.10.2011)

48
industries, and for import-intensive exports which might benefit from cheaper imports following
appreciation? A subsequent working paper under this same research project will
empirically examine these issues and attempt to arrive at some firm conclusions on the relative
importance of industry-specific versus macroeconomic factors in shaping India’s export
competitiveness and specifically on the role of exchange rate movements in this context.

49
 Appendix
A. Overall trend

Figure 1: India- Import and Export Growth

40

30

20

10

-10
-20

Export Import

Source: Author’s calculations based on World Development Indicators (WDI)

http://data.worldbank.org/data-catalog/world-development-indicators

Figure 2: Share of merchandise exports in total exports of emerging economies (%)

100
90
share in total exports(%)

80
70
60
50
40
30
20
10
0
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Brazil China India South Africa

Source: Author’s calculations based on UNCTAD (United Nations Conference on Trade and Development) database
http://unctadstat.unctad.org/ReportFolders/reportFolders.aspx?sCS_referer=&sCS_ChosenLang=en\

50
 Figure 3: RCA- Services exports

2.000

1.500
RCA

1.000

0.500
0.000
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Brazil China South Africa India

Source: Author’s calculations based on UNCTAD (United Nations Conference on Trade and Development) database
http://unctadstat.unctad.org/ReportFolders/reportFolders.aspx?sCS_referer=&sCS_ChosenLang=en\

Figure 4: RCA- Merchandise exports

1.400
1.200
1.000
0.800
RCA

0.600
0.400
0.200
0.000
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Brazil China South Africa India

Source: Author’s calculations based on UNCTAD (United Nations Conference on Trade and Development) database
http://unctadstat.unctad.org/ReportFolders/reportFolders.aspx?sCS_referer=&sCS_ChosenLang=en\

51
 Figure 5: India- Growth in manufactured exports (%)

40.00

30.00

20.00

10.00

0.00
1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008
-10.00

-20.00

-30.00

Source: Author’s calculations based on United Nations (UN) Comtrade database

http://comtrade.un.org/db

52
B. Commodity-specific trends

B.1 Gems and Jewelry

Figure 6: India’s gems and jewelry imports as a share of total imports

16.00%
14.00%
share in total exports(%)

12.00%
10.00%
8.00%
6.00%
4.00%
2.00%
0.00%

Source: Author’s calculations based on United Nations (UN) Comtrade database

http://comtrade.un.org/db

Note: The missing data point for the period 1982-83 is due to the import data (for the year 1982) which is
not available and therefore not reported

Figure 7: India- Diamond exports as share of gems and jewelry exports

100.0%
90.0%
80.0%
70.0%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009

share of diamonds in gems and jewelry exports

Source: Author’s calculations based on United Nations (UN) Comtrade database

http://comtrade.un.org/db

53
 Figure 8: Growth in U.S. Imports of Gems and Jewelry from India (and other countries)

80.0%

60.0%
year on year growth(%)

40.0%

20.0%

0.0%
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
-20.0%

-40.0%
-60.0%

India Others

Source: Author’s calculations based on United Nations (UN) Comtrade database

http://comtrade.un.org/db

B.2 Cotton

Table 1: Major sources of World cotton production (% share)

Source: http://www.ifpri.org/sites/default/files/publications/ifpridp00801.pdf

54
 Table 2: India and China’s market share in important (import) markets for Electronic goods

1995 2000 2005 2007 2009

Country China India China India China India China India China India
Singapore 702 2.4% 0.2% 4.6% 0.1% 12.7% 0.1% 16.2% 0.5% 14.5%
0.6% UK 826 1.2% 0.2% 5.5% 0.2% 10.3% 0.3% 14.7% 0.5% 18.5%
0.4% USA 842 7.0% 0.1% 10.8% 0.1% 25.9% 0.4% 31.1% 0.5% 34.3%
0.5%
Source: Author’s calculations based on United Nations (UN) Comtrade database
http://comtrade.un.org/db

Table 3: RCA- Gems and jewelry exports to important markets

Export
India Market/Year 1985 1990 1995 2000 2005 2007 2009
Hong Kong 240.92 150.32 134.39 127.40 86.65
UK 0.48 0.35 0.38 0.53 0.36 0.55 0.63
USA 81.20 33.17 24.52 16.53 6.83 5.48 4.99

Export
Belgium Market/Year 1985 1990 1995 2000 2005 2007 2009
Hong Kong 62.05 39.32 60.04 36.90 28.20 24.08 19.06
UK 6.55 5.40 3.29 1.35 0.49 0.61 0.34
USA 80.99 52.67 62.79 42.22 9.22 7.78 2.97

Export
Israel Market/Year 1985 1990 1995 2000 2005 2007 2009
Hong Kong 92.24 60.23 107.01 67.90 48.74 39.16 30.97
UK 2.28 2.86 10.60 4.14 5.54 8.20 6.82
USA 118.79 74.64 86.88 77.72 51.59 44.03 29.22

Source: Author’s calculations based on United Nations (UN) Comtrade database

http://comtrade.un.org/db

55
 Table 4: RCA- Cotton exports (India and China)
Export
India Market/Year 1985 1990 1995 2000 2005 2007 2009
UK 29.52 32.60 32.35 32.41 8.09 5.75 3.81
USA 23.65 21.98 20.91 6.82 2.65 3.80 3.46

Export
China Market/Year 1985 1990 1995 2000 2005 2007 2009
UK 48.43 19.51 8.59 2.48 1.01 0.74 0.94
USA 51.45 18.11 4.26 1.40 0.86 1.28 1.69

Source: Author’s calculations based on United Nations (UN) Comtrade database

http://comtrade.un.org/db

56
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Data Sources:

The data used in this paper has been sourced from the following databases:

1. COMTRADE Database: Annual data on aggregate and commodity-wise exports and

imports
http://comtrade.un.org/db/dqQuickQuery.aspx

Note: The calculations for each of the sectors and commodities are based on the
following classification and codes:

Sectors:

Agricultural goods and manufactured goods

Sectoral Classification - SITC

Sectors Categories aggregated (SITC)

Agricultural goods 0–Food and Live Animals, 1- Beverages and

Tobacco

Manufactured goods 3 – Mineral fuels, lubricants,

5– Chemicals,
6 – Manufactured goods classified by material,
7 – Machinery and Transport equipment

Others 2- Crude materials, except fuels,

4- Animal and vegetable oils, fats and waxes,
8- Miscellaneous manufactured articles, 9-
Commodities and transactions not classified
elsewhere in the SITC

66
Commodities:

Cotton, Gems and Jewelry and Electronic goods

Commodity Classification - SITC

Commodity Commodity code (SITC)

Cotton 652 - Cotton fabrics, woven (not including

narrow or special fabrics)
70
Gems and Jewelry 667 – Pearls and precious and semi-precious
stones, unworked or worked
71
Electronic goods 716, 737, 761, 762, 763, 764, 771, 772, 773,
(aggregated) 775, 776, 778

2. United Nations National Accounts Main Aggregates: Sectoral Composition of GDP (for
India and other countries)
http://unstats.un.org/unsd/snaama/selbasicFast.asp

3. World Development Indicators: Share of Exports in GDP

http://data.worldbank.org/data-catalog/world-development-indicators

4. UNCTAD (United Nations Conference on Trade and Development) database: Share of

merchandise and services in aggregate exports (for India and other countries)

http://unctadstat.unctad.org/ReportFolders/reportFolders.aspx?sCS_referer=&sCS_Chose
nLang=en\

5. Reserve Bank of India- Handbook of Statistics: Annual data on the Real and Nominal
Effective Exchange Rate (REER and NEER)

http://dbie.rbi.org.in/InfoViewApp/listing/main.do?appKind=InfoView&service=%2FInf
oViewApp%2Fcommon%2FappService.do

70 This category of gems and jewelry does not include gold and metal jewelry.
71 Electronic goods include components of industrial and electrical machinery, telecommunications and
related apparatus and equipments.

67