Export growth may hinge on specialisation in items of comparative advantage

Amiti Sen New Delhi | Updated on January 29, 2021

India’s top revealed comparative advantage export commodities are mainly labour-intensive   -  REUTERS

Disruption in global value chains due to Covid-19 provides opportunities, suggests Survey


India can improve its export performance by building specialisation in products in which it has comparative advantage such as cotton, carpets and other textiles, rather than spreading its exports thinly over many products and partners.

Bangladesh has managed a much higher export growth than India in the last decade by excelling in items where it has a revealed comparative advantage (RCA), the Economic Survey 2020-21 observed. It suggested that India should do the same.

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“The top five export commodities, account for more than 90 per cent of total exports of Bangladesh since 2015. These five commodities mainly pertain to textiles & apparels and footwear industry, which are highly labour-intensive and employs unskilled and semi-skilled labour. In case of India, on the other hand, export performance is more broadbased as the top five export commodities jointly contribute around 40 per cent of total exports and these commodities are capital and technology-intensive,” the Survey observed.

Bangladesh pips India

Bangladesh’s export growth has been accelerating over the last decade with a compound annual growth rate of 8.6 per cent during 2011-2019, higher than 0.9 per cent for India, and 0.4 per cent for the world.

Four of the top five exports of Bangladesh, from 2017- to 2019, are of commodities where it has the largest RCA, implying that Bangladesh exports those commodities where it has a comparative advantage. In case of India, however, none of the export commodities in which it has highest RCA is among the top export commodities, it noted.

Top export commodities

India’s top RCA export commodities are mainly labour-intensive such as cotton, carpets and other textiles while it exports more of capital-intensive products such as transport equipment, machinery and mechanical appliances (fourth quadrant), etc.

“The above evidence holds lessons for India to build specialisation in products in which it is competitive,” the survey advised. It added that the pattern was also examined in last year’s survey where it was shown that low specialisation implied that India is spreading its exports thinly over many products and partners.

Positive side

On the positive side, the survey pointed out that the disruption of global manufacturing value chains due to the Covid-19 pandemic presented a big opportunity for India to become one of the key nodes in the chain.

In pharmaceutical exports, India held the potential to be the pharmacy of the world with improvement also witnessed in exports of software and agriculture and allied products, it observed. Exports of gems and jewellery, engineering goods, textile and allied products had, however, witnessed a slide.

Improving trends in India’s merchandise trade have been supplemented by equity capital inflows, robust FDI inflows and sustained build-up of foreign exchange reserves. The comfortable foreign exchange reserves (which touched an all-time high of $586.1 billion as on January 8, 2021) give the much-needed space for enhanced domestic investments, the Survey added.

Published on January 29, 2021

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