INTRODUCTION:

An RCA Account of India’s Export Competitiveness:

The advent of globalisation coupled with the policies of liberalization and privatization have led to the whole world having become a huge manufacturing hub. The volume and composition of trade has significantly changed and made splendid efforts to make nations wealthy. The liberalization policies have changed the trend of trade flow from conventional western economies towards the newly developing countries in Asia that are now emerging as new hubs of production. It has challenged the set endowed countries, as far as exports of these Asian nations like China and India are concerned.

However, only limited commodities in the modern world are actually enjoying absolute and comparative advantage. ‘Comparative Advantage,’ in simpler terms, is the cost differential of the commodities in different regions that allow them to get traded, giving rise to the export performance and competitiveness of that region. Export competitiveness has, significantly, emerged as an important part of export strategy of any nation. Competitiveness has been defined as the set of institutions, policies and factors that determine the level of productivity (World Economic Forum, 2013-14). Export Competitiveness can thus be defined as the policies and factors of any nation that enable the economy to expand its exports in the world market efficiently than its rival counterparts. So, both spreading out exports due to more production and selling out in different markets of world should be kept in mind while talking about export competitiveness.

Indian export sector is worthwhile to be undertaken for analysis, to see which of the Indian commodity has been maintaining its hold in the world market and which of the commodities lost their competitive nature due to more global influence of high-tech goods and other rival nations having similar export material.

Various studies that have been carried out in India related to export performance and competitiveness include Batra and Khan (2005), who have compared India and China and concluded that there exists a competitive relationship in chemicals and mineral and metal manufactures. Burange and Chaddha (2008), elucidated that India had comparative advantage in labour intensive products like textile, and scale intensive like steel and iron and chemicals. They also classified products into Ricardian, Hecksher-Ohlin (HO) and product cycle goods and found that India is producing more of Ricardo and HO goods but has not been able to race in product cycle goods. Other studies include Sharma (1992), Bhattacharyya (2011), Pillania and Fetscherin (2012), Chinadurai and Kanaka (2012) and Kathuria (2013). Mostly, researchers have focused on selected sectors, like textiles, fish and garments. However, this study would select all the commodities selected at HS 6-digit classification that India is trading with the rest of the world.

A decisive role is played by the supply and demand conditions for changing the comparative advantage outline of any country. So, it becomes necessary to identify which of the products of Indian origin are trailing, getting hold of or maintaining their comparative advantage. To provide future directions, the analysis of the present study would guide us which commodities India should focus on and will provide us with the conditions, how to achieve competitiveness at both domestic as well as foreign market.

METHODOLOGY AND DATA:

The study is based on secondary data covering time period of 2001-2015, based on Harmonized Classification (HS) at 6-digit level to arrive at an RCA analysis – the method used for this paper, whose description is given as below.

Revealed Comparative Advantage (RCA) Index:

The concept of Comparative Advantage has been widely used in economic literature to discuss comparative advantageous products of nations in which they have competitive sharpness in the market. However, there is no direct method given by the creator of this term to measure such competitive edge. So, it was a keen interest of economists to develop a specific technique that could measure the comparative or competitive nature of commodities. Bella Balassa (1965), a Hungarian economist, developed such a technique that comes to be known as Revealed Comparative Advantage or RCA, sometimes also known as Balassa index. It shows us which commodity is comparatively advantageous and has the ability to compete in the market.

The RCA index is given by the formulae as,

Where; RCAcg = Revealed comparative advantage of country c in a product g.

= exports of commodity g by country c; = total exports of a country c.

= world exports of commodity g; = total world exports.

Accordingly, country c exhibits revealed comparative advantage in the export of good g if RCAcg is greater than one and vice-versa.

Based on RCA index some of the products may show comparative disadvantage but may show comparative advantage in the near future. Mahmood (2004) suggested a methodology to identify competitive, emerging and weekly positioned products and is followed in this study as:

Competitively Positioned Product Lines:

These product lines had RCA index greater than one and show reliable improvement over time due to constructive external as well as internal conditions. In this category fall the products that show:

· RCA index is greater than 1 in the average time period of 2015,

i.e., >1 for any product line

· And also, difference between RCA index of any product line in year 2015 and average of years 2012-2014 is positive or greater than zero,

i.e., - >0

Threatened Product Lines:

These product lines had RCA index greater than one but due to unfavourable interior and exterior conditions RCA index is now exhibiting a deteriorating trend. In this category fall the products that show as:

· >1 for the concerned product line

· However, difference between RCA in 2015 and average period of 2012-14 is negative for the concerned product line, i.e., - < 0.

Emerging Products:

These products are exhibiting RCA indices that are less than one but achieved Comparative advantage due to approving internal as well external factors. In other words, their relative position in the world export market is improving. These products have been further sub-divided into two more options which are:

Tier I

· It includes those product lines where, < 1, but equals to 0.5 or > 0.5 in the average period of 2012-14.

· Difference between the RCA averages of 2015 and 2012-14 is positive for the concerned product lines, i.e., - > 0

Tier II

· It includes product lines where, < 0.5.

· Difference between the RCA averages of 2015 and 2012-14 is positive for the concerned product line, i.e., - > 0.

Weakly Positioned Products:

These products are showing RCA indices less than one and are declining due to non-conducive global and domestic factors. This group is also divided into 2 sub-groups viz.

Tier I

· It includes the product lines that exhibit as;

< 1, but equal to 0.5 or > 0.5 in the same period.

· Difference between the RCA averages of 2015 and 2012-14 is negative for the concerned product line, i.e., - < 0.

Tier II

· In this group are product lines that show:

< 0.5.

· Difference between the RCA averages of 2015and 2012-14 is negative for the concerned product line, i.e., - < 0.

Data for the study have been taken from UNCOMTRADE and WITS

This RCA approach has two main advantages here for Indian exports. First, it will recognize the potency and limitation of India’s exports profile. Second, it allows an appraisal of the extent of competitiveness of India’s exports in the world market.

The data set for the analysis are export data of India since 2001 onwards at HS 6-digit level drawn from UN Commodity Trade data. For detail, see Appendix.

Appendix:

COMMODITIES DESCRIPTION 2-DIGIT HARMONIZED SYSTEM CODE:

Code	Product label	Code	Product label
01	Live animals	51	Wool, animal hair, horsehair yarn and fabric thereof
02	Meat and edible meat offal	52	Cotton
03	Fish, crustaceans, molluscs, aquatic invertebrates nes	53	Vegetable textile fibres nes, paper yarn, woven fabric
04	Dairy products, eggs, honey, edible animal product nes	54	Manmade filaments
05	Products of animal origin, nes	55	Manmade staple fibres
06	Live trees, plants, bulbs, roots, cut flowers etc.	56	Wadding, felt, nonwovens, yarns, twine, cordage, etc.
07	Edible vegetables and certain roots and tubers	57	Carpets and other textile floor coverings
08	Edible fruit, nuts, peel of citrus fruit, melons	58	Special woven or tufted fabric, lace, tapestry etc.
09	Coffee, tea, mate and spices	59	Impregnated, coated or laminated textile fabric
10	Cereals	60	Knitted or crocheted fabric
11	Milling products, malt, starches, inulin, wheat gluten	61	Articles of apparel, accessories, knit or crochet
12	Oil seed, oleagic fruits, grain, seed, fruit, etc., nest	62	Articles of apparel, accessories, not knit or crochet
13	Lac, gums, resins, vegetable saps and extracts nes	63	Other made textile articles, sets, worn clothing etc.
14	Vegetable plaiting materials, vegetable products nes	64	Footwear, gaiters and the like, parts thereof
15	Animal, vegetable fats and oils, cleavage products, etc.	65	Headgear and parts thereof
16	Meat, fish and seafood food preparations nes	66	Umbrellas, walking-sticks, seat-sticks, whips, etc.
17	Sugars and sugar confectionery	67	Bird skin, feathers, artificial flowers, human hair
18	Cocoa and cocoa preparations	68	Stone, plaster, cement, asbestos, mica, etc. Articles
19	Cereal, flour, starch, milk preparations and products	69	Ceramic products
20	Vegetable, fruit, nut, etc. food preparations	70	Glass and glassware
21	Miscellaneous edible preparations	71	Pearls, precious stones, metals, coins, etc.
22	Beverages, spirits and vinegar	72	Iron and steel
23	Residues, wastes of food industry, animal fodder	73	Articles of iron or steel
24	Tobacco and manufactured tobacco substitutes	74	Copper and articles thereof
25	Salt, sulphur, earth, stone, plaster, lime and cement	75	Nickel and articles thereof
26	Ores, slag and ash	76	Aluminium and articles thereof
27	Mineral fuels, oils, distillation products, etc.	77	Reserved for possible future use
28	Inorganic chemicals, precious metal compound, isotopes	78	Lead and articles thereof
29	Organic chemicals	79	Zinc and articles thereof
30	Pharmaceutical products	80	Tin and articles thereof
31	Fertilizers	81	Other base metals, cermet’s, articles thereof
32	Tanning, dyeing extracts, tannins, derivs, pigments etc.	82	Tools, implements, cutlery, etc. of base metal
33	Essential oils, perfumes, cosmetics, toiletries	83	Miscellaneous articles of base metal
34	Soaps, lubricants, waxes, candles, modelling pastes	84	Machinery, nuclear reactors, boilers, etc.
35	Aluminides, modified starches, glues, enzymes	85	Electrical, electronic equipment
36	Explosives, pyrotechnics, matches, pyrophoric, etc.	86	Railway, tramway locomotives, rolling stock, equipment
37	Photographic or cinematographic goods	87	Vehicles other than railway, tramway
38	Miscellaneous chemical products	88	Aircraft, spacecraft, and parts thereof
39	Plastics and articles thereof	89	Ships, boats and other floating structures
40	Rubber and articles thereof	90	Optical, photo, technical, medical, etc. Apparatus
41	Raw hides and skins (other than fur skins) and leather	91	Clocks and watches and parts thereof
42	Articles of leather, animal gut, harness, travel goods	92	Musical instruments, parts and accessories
43	Fur skins and artificial fur, manufactures thereof	93	Arms and ammunition, parts and accessories thereof
44	Wood and articles of wood, wood charcoal	94	Furniture, lighting, signs, prefabricated buildings
45	Cork and articles of cork	95	Toys, games, sports requisites
46	Manufactures of plaiting material, basketwork, etc.	96	Miscellaneous manufactured articles
47	Pulp of wood, fibrous cellulosic material, waste etc.	97	Works of art, collectors pieces and antiques
48	Paper and paperboard, articles of pulp, paper and board	98	Project imports; Laboratory chemicals, passenger baggage; personal importation by air or post; ship stores
49	Printed books, newspapers, pictures etc.	99	Commodities not elsewhere specified
50	Silk

Source: UNCOMTRADE, United Nations Commodity Trade

Table 1.1

RCA PROFILE OF PRODUCT GROUPING, 2015

HS code

TPL

EP1

EP2

WP1

WP2

Animal and Animal Products

(01-05)

(2.79)

(3.56)

(2.90)

(4.49)

(5.19)

148

(8.80)

Vegetable Products

(06-14)

(5.97)

(4.99)

(3.43)

(5.83)

(4.72)

141

(8.0)

Animal and Vegetable Fats and oils

(15)

(0.67)

(0.71)

(0.79)

(1.42)

(0.0)

(0.79)

Food Stuffs

(16-24)

(2.12)

(1.66)

(3.69)

(5.09)

(1.42)

(4.88)

Mineral Products

(25-27)

(2.99)

(2.61)

(2.64)

(2.02)

(0.94)

(3.63)

Chemical Products

(28-38)

227

(21.87)

(19.71)

(16.36)

176

(13.16)

(12.74)

213

(12.09)

Plastics and rubber

(39-40)

(3.08)

(3.33)

(5.28)

(5.01)

(5.19)

(3.80)

Tides and Skins

(41-43)

(1.35)

(0.71)

(1.32)

(1.20)

(0.94)

(1.25)

Wood and wood products

(44-46)

(0.58)

(0.24)

(0.26)

(2.39)

(1.42)

(2.61)

Wood pulp products

(47-49)

(1.06)

(1.19)

(3.43)

(3.96)

(0.47)

(3.23)

Textiles and Textile Articles

(50-63)

290

(27.94)

111

(26.37)

(9.76)

130

(9.72)

(21.70)

179

(10.16)

Footwear and Headgear

(64-67)

(0.96)

(1.19)

(1.06)

(1.05)

(0.47)

(0.96)

Article of Stone, Plaster, Cement and Mica

(68-70)

(2.89)

(1.90)

(3.96)

(2.77)

(1.89)

(2.72)

Pearls, Precious or semi-Precious Stones, Metals

(71)

(0.87)

(1.66)

(0.26)

(0.37)

(0.94)

(1.53)

Base Metal and Articles

(72-83)

(8.96)

(14.01)

(13.72)

129

(9.65)

(19.81)

190

(10.78)

Machinery and Mechanical Appliances

(84-85)

120

(11.56)

(10.21)

(23.48)

267

(19.97)

(13.21)

226

(12.83)

Transportation Equipment

(86-89)

(2.02)

(2.85)

(1.58)

(2.84)

(2.36)

(2.67)

Measuring and Musical Instrument

(90-92)

(0.58)

(1.90)

(4.22)

(5.09)

(2.83)

114

(6.47)

Arms and Ammunition

(93)

(0.39)

(0.00)

(0.0)

(0.22)

(0.0)

(0.68)

Miscellaneous Products

(94-96)

(1.35)

(0.95)

(1.85)

(3.44)

(3.30)

(2.38)

Work of Art, Collector’s Piece and Antiques

(97-98)

(0.0)

(0.24)

(0.0)

(0.22)

(0.47)

(0.11)

Services

(99)

(0.0)

(0.07)

(0.0)

Total

1038

(100)

421

(100)

379

(100)

1337

(100)

212

(100)

1762

(100)

Source: UNCOMTRADE

Authors Calculations

Note; Numbers in parenthesis are percentage shares in the respective product line.

Where; CP= Competitive Positioned Products; TPL= Threatened Product lines; EP1= Emerging Product Tier I; EP2= Emerging Product Tier II; WP1= Weakly Positioned Product (Tier I) and WP2= Weakly Positioned Product (Tier II)

Emerging Products: Tier II:

In this category fall 1337 product groups, that holds a percentage of 25.96 out of a total of 5149 product lines. This particular product group constitutes a higher percentage of product lines from Machinery and Mechanical Appliances (HS84-85) followed by Chemical Products (HS 28-38), both show percentages of 19.97 and 13.16 respectively (Table 1.1). Others that follow the order are shown in the table. As these product lines are included in both Tier I as well as in Tier II, thus gives an indication of an emerging scope of such commodity export competitiveness in the near future which ought to be cautiously investigated to have high potential and competency in coming years.

Weakly Positioned Products: Tier I:

Owing to methodology, two sub groups Tier I and Tier II for Weakly Positioned Products are where RCA indices are less than but greater or equal to zero, and have also experienced negative growth.

In the Tier I category, there are a total of 212 product lines that represent only 4.11 percent of the total reported product lines. The highest share in this particular group is for Textiles and textile articles (HS 50-63) which is 21.70 percent, followed by Base Metals and Articles (HS 72-83), holding a share of 19.81 percent and other product categories follow respectively as shown in table 1.1. The highest share of textiles in this category is an alarming situation for the Indian textile industry as it faces tough competition in the world market by its rivals like Bangladesh, Pakistan and China, thus losing its competitive edge.

Weakly Positioned Products: Tier II:

In this category, there are a total of 1762 product lines which represent 34.22 percent of the total reported product lines. Out of this particular group the highest percentage is for Machinery and Mechanical Appliances (HS 84-85), constituting 12.83 percent, followed by Chemical Products (HS 28-38) having a share of 12.09 percent. Others that follow the trend are shown in table 1.1. The high percentage of chemicals and machinery appliances may be due to the inter industry and intra industry variation in the degree of comparative advantage.

Therefore, it follows that Indian export sector comprises mainly of four product lines, including Textiles, Chemicals, Machinery and Mechanical Appliances and Base Metals, which exhibit a competitive advantage and needs to be examined due to changing behaviour of modern economic scenario. As such a further detailed description would be necessary for such product groups where change of these said product lines would be analysed.

Competitive Position of Indian Exports:

A Sectorial Analysis:

Textile Products (HS 50-63):

The textile products have been a major exporting group to the Indian exports but its share has declined since 2001. The total number of product lines in 2001 were 796 which have reduced to 684 in 2015 showing a decline of 14 percent (Table 2.1). The overall competitive products in 2001 were 455 holding a share of 57 percent that also declined to 385 product lines in 2015, i.e., 56 percent share. Overall decline in the competitive products is shown in table 2.1 and comes out to be minus 15 percent approximately.

Table 2.1 (HS 50-63)

Description	2001	2015	Change (2001-2015)
Total No. of Product Lines	796	684	-14.07%
RCA>1	455 (57%)	385 (56%)	-15.38%
RCA<1	341 (43%)	299 (44%)	-12.32%

Source: Authors Calculation based on UNCOMTRADE Data

Note: Figures in parenthesis are percentage share in that product line

The textile sector is one notable sector that has a huge share in competitive positioned products as shown in Table 1.1. However, there has been a large share in threatened product lines as well as weakly positioned product lines, which is an indication, that this sector is losing its competitiveness in the global market. Thus, to improve the nature of this sector, there is a need of production planning, design as well as global marketing to boost its lost competitiveness.

Chemical Products (HS 28-38):

The chemical products, however, have not shown a tremendous rise in the total product lines. However, there has been a rise in the competitive positioned products from 246 in year 2001 to 310 in 2015 (Table 2.2). The percentage increments have been also on rise from 34 percent in 2001 to 42 percent in 2015 which is an indication of gaining advantage in high value-added products. Overall change in these comparative advantageous products showing an increment of positive 26 percent and a negative percentage of almost 13 percent in the products that show RCA less than one during the same phase is a good indication that India is gaining advantage in high value-added products.

The chemical sector includes pharmaceuticals as well as petro-chemicals that are both capital and technological intensive and thus this sector takes India towards technological intensive exports. There are also almost 30 percent products in this sector as emerging products as shown in Table 1.1. As such more focus ought to be given to the interlinked firms of this sector to get more advantage as well as economies of scale in the world market as this sector has a rising future in the globe.

Table 2.2 (HS 28-38)

Description	2001	2015	Change (2001-2015)
Total No. of Product Lines	730	732	0.27%
RCA>1	246 (34%)	310 (42%)	26%
RCA<1	484 (66%)	422 (58%)	-12.81%

Source: Authors Calculation based on UNCOMTRADE Data

Note: Figures in parenthesis are percentage share in that product line

Machinery and Mechanical Appliances (HS 84-85):

The sector HS 84-85, however, has shown a slight decline of 2 percent in the overall product lines from 2001 to 2015 (Table 2.3), but a huge incremental percentage of 47 almost is for the comparative advantageous products as well as a decline of 10 percent to those products that are comparatively disadvantageous as shown in table.

There are various items like freezers, refrigerators and other electronic appliances that come under this sector which are high value added and technical intensive in nature. So, a rise in such products again gives India an edge in world market in gaining competitiveness in high value-added products. Also, there are almost 43 percent items shown in table 1.1 as emerging products both tier I and tier II, thus an indication for the allied industries to get momentum in gaining competitiveness in world market.

Table 2.3 (HS 84-85)

Description	2001	2015	Change (2001-2015)
Total No. of Product Lines	780	764	-2%
RCA>1	111 (14%)	163 (21%)	46.85%
RCA<1	669 (86%)	601 (79%)	-10.16%

Source: Authors Calculation based on UNCOMTRADE Data

Note: Figures in parenthesis are percentage share in that product line

Base Metals and Articles (HS 72-83):

The sector has shown a zero percent change in overall product lines from 2001 to 2015 (Table 2.4). Besides, there is a negative growth for the products that are competitive advantageous and a rise of almost 4 percent in those products that are comparatively disadvantageous. There is also a good percentage of almost 30 percent in weakly positioned products as shown in Table 1.1 that gives an indication that this product group is not matching up with the ongoing competitiveness in the world market.

Table 2.4 (HS 72-83)

Description	2001	2015	Change (2001-2015)
Total No. of Product Lines	545	545	0%
RCA>1	165 (30.27%)	152 (28%)	-6%
RCA<1	380 (69.72%)	393 (72%)	3.82%

Source: Author’s Calculation based on UNCOMTRADE Data

Note: Figures in parenthesis are percentage share in that product line

However, there are also some 23 percent products items in the emerging product lines, which may be an indication towards gaining momentum in competitive positioned lines if handled with care and new techniques and methods. So, the industries associated with these product lines shall benefit only when they can reap out the all possible methods to get back what is lost in the world market if they work more on the techniques and give more focus on the emerging product lines.

SUMMARY AND CONCLUSION:

The study is an attempt to measure export competitiveness of India at the sectoral level using the basic technique of Revealed Comparative Advantage index. The results reveal that the major product sectors of India like Textile, Base Metals and Mineral Products are all showing a declining trend with regard to their competitiveness in the world market. The Textile Sector that contributes about 15 percent to the total reported product lines at HS 6-digit level has to be guarded, as increasing competitive pressure from the other producers of similar product category like China, Pakistan and Bangladesh could be detrimental in future for this export industry of India. However, there has been a positive change in some sectors like Chemicals and Mechanical Equipment, which means that Indian export sector is gaining advantage in the more value-added products which is a good sign for future to be in the competition in the world market. But, within the overall export profile of India, there is no uniform trend in the ‘Competitive Positioned Product’ line and more obvious is that there has been a significant decline in such products for most of the dominant sectors. Simultaneously emerging products are showing momentum in product categories of chemicals, machinery and mechanical appliances; thus, focus should be given to such product lines as future could be prosperous in these exported products in the world market. To remain in the competitiveness, India should look upon those products that are gaining comparative advantage during the study period and also products with higher percentage of emerging product lines should be keenly held, as a competitive threat is always there from low wage neighbouring economies like China that surely could be the threat for Indian export competitive structure in near future. Thus, to achieve competitiveness in this rapidly globalizing world, India would require much efforts at micro as well as macro levels.

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Received on 22.07.2017 Modified on 28.03.2018

Res. J. Humanities and Social Sciences. 2020; 11(2):104-110.

DOI: 10.5958/2321-5828.2020.00018.2