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Make in India: Which exports can drive the next wave of growth?

Saurabh Mishra's picture
Structural transformation depends not only on how much countries export but also on what they export and with whom they trade. In my new IMF working paper with Rahul Anand and Kalpana Kochhar, we break new grounds in analyzing India’s exports by the technological content, quality, sophistication, and complexity of India’s export basket. The paper can be found here. Here are few key pieces of evidence from our paper:
 
Technological content of India’s exports   

The evolution of Indian exports has not followed a “textbook” pattern. The pattern of evolution points to a dichotomy in the Indian economy – a well integrated, technologically advanced services sector and a relatively lagging manufacturing sector. The share of service exports in total exports has grown to over 32 percent in 2013 from 28 percent in 2000. On the other hand, the share of manufacturing exports in total export has declined to 67 percent from nearly 80 percent during 1990-2013.
 
The growth in service exports has been more rapid, resulting in the share of services exports in total exports to increase rapidly over the last decade. This can be explained by technological changes. Many services do not require face-to-face interaction, and can be stored and traded digitally. These services are called modern services. Modern services are the fastest growing sector of the global economy. This is particularly evident in India, where modern services exports account for nearly 70 percent of the total commercial services exports (compared to around 35 percent in EMs) (see Figure 1). 
      
Figure 1. Rapid Growth in Modern Services from India

Within manufacturing exports, there is a clear shift away from traditional exports, such as textiles, gems, and leather products, towards high-tech and medium-tech manufacturing products. The relative share of high-tech manufacturing exports has been increasing (however lower when compared to China or other EMs); Resource based production and low-tech manufacturing dominate the goods export basket (Figure 2).        

Manufactured machinery accounts for almost 10 percent, while textile and garments account for more than 15 percent of India’s merchandise exports. In resource-based products – refined petroleum oil, cotton, jewelry of precious metals, and rice – constitute majority of export. In low-tech manufacturing exports – jewelry, textile and apparel based exports constitute the majority of India’s exports. In medium-tech manufacturing – the automotive industry dominates the basket, with machinery, various motor vehicle intermediary inputs for cars, bikes, construction, mining equipment and cosmetics making up the major portion. In the high technology export basket – veterinary and pharmaceutical products, television, telecommunication transistors, aircraft components, X-ray equipment and electronic R&D in electro-medical, power and automotive industry are key elements of the export basket. The main contribution of our work is to comprehensively document Indian exports, which has not been done over the past decade.
 

Figure 2. Technological Composition of India’s manufacturing export

Direction of India’s exports 

In line with global trends, Indian exports exhibit a shift toward emerging and developing economies. The share of exports to the EU and the USA fell to around 29 percent in 2013 from over 45 percent in 2000. East Asia and the Middle East have emerged as the top two regional destinations. Exports from India to the Middle East have grown rapidly in the last decade, though some of these exports may be re-routed to other countries (in particular to Pakistan).
 
Figure 3. India’s growing trade with Emerging Markets, Potential to Scale Regional Trade

Quality of India’s exports    

Figure 4 compares the quality of selected exports from India with peer-EMs. Indian exports of diamonds, nuclear reactors, tin and alloys are of better quality than peer-EMs; however, on most other goods, including its highest quality exports, India does not fare as well when compared to its peers.
 
Figure 4. Quality of Indian Exports

Relatedness and Complexity of India’s Exports

As countries change their export mix, there is a strong tendency to move towards goods that are more closely related to ones already being produced rather than to goods that are less closely related. We use the product space network to study the evolution of India’s export structure by observing the location of products in which India has revealed comparative advantage (Revealed Comparative Advantage > 1 are denoted with colors).  Figure 5 presents India’s product space network of merchandise exports in 2013. 
Two clear trends are visible: the number of products in which India has comparative advantage has increased and the core of the product space has become more populated (blue nodes) which include hi-tech manufactured products. The network exhibits heterogeneity with the core of the network consisting of metal products, machinery, and chemicals, whereas the periphery is formed by fishing, tropical, and cereal agriculture. It also shows that apparels and textiles have lead to comparative advantages in related products such as fabrics, leather, fashion, garment technology exports (green nodes).  
 
Figure 5. The Product Space, India, 2013 
In Figure 6 we plot the ubiquity of a country’s overall service export against diversity of service exports. The chart is divided into four quadrants (explained in the accompanying table). India falls in the quadrant of relatively non-diversified countries exporting exclusive services. This reflects high-value computer exports make up the majority of India’s service exports. So, even though India’s service exports are of high-value, there is room to diversify service exports and improve complexity of service exports. 
 
Figure 6. Quantifying Countries’ Service Economic Complexity
Empirically observed average diversification of a country and ubiquity

Policy Considerations          

Based on our comprehensive analysis on the evolution of India’s export and its future prospects, there are five priority areas for policies that we identify: (1) reduction of trade costs, at and behind the border; (2) further liberalization of FDI including through simplification of regulations and procedures; (3) improving infrastructure including in urban areas to enhance manufacturing and services in cities; (4) preparing labor resources (skills) and markets (flexibility) for the technological progress that will shape jobs in the years ahead; and (5) creating an enabling environment for innovation and entrepreneurship to draw the economy into higher productivity activities.
 
References    

Anand, Rahul, Kalpana Kochhar, and Saurabh Mishra, 2015, “Make in India: Which Exports Can Drive the Next Wave of Growth?” IMF Working Paper No. 15/119. (Washington: International Monetary Fund).

Comments

Submitted by Aniruddha on

I didn't really read the full article but glanced through the charts you have shown. Several of them have data till year 2011 while we are entering FY 17. That sort of makes me lose interest because it gives an impression that you have used those data points to draw conclusions.

Submitted by Saurabh on

Thank you for your comment. I wish the detailed trade statistics could be released more rapidly but unfortunately this detailed data comes with a big delay. The paper was out in 2015 and we used all the latest data available at that time. We have automated all the analysis in our upcoming work for public use which will be released soon. Our paper focuses on structural trends which don't really change in 1-2 years. If you are interested to read more on this issue, you can refer to this recent Bloomberg article which is quoting our paper:

Submitted by Saurabh on

http://www.bloomberg.com/news/articles/2016-03-16/back-office-blues-hit-india-as-services-exports-start-to-slow

Submitted by Rajesh Narang on

The details which u have thrown up is clear on only one aspect the revenue growth of IT industry is declining! Actually, the business models has changed. The customers are now buying software licenses on tap, they are moving to cloud requiring less capital spends but more opex spends. Its only 20% of the market which has shifted, more will follow. This model has its own advantages & weaknesses! It will normalise in 2 yrs. Indian Manufacturing is high quality, but low on customer centricity & integrity! It falls in value buy basket of customers! I am from IIFT & have about 25 yrs experience in exports.

Submitted by Dilip Kumar on

This is a great initiative for making India as a manufacturing hub for many countries. Well said in this blog that how much we are exporting is not important, how we are exporting good quality product. Companies like Megamax also exports good quality products.

Submitted by Ashish Kumar on

I have read your blog really great information sharing about export trade. Export trade data help your improve business and sale. View detail about export trade data, rice export data form India visit here: https://www.seair.co.in/rice-export-data.aspx

Submitted by The Jewelry Magazine on

Thanks for sharing, Very useful information about business growth.

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