Estimates of India’s Export Potential in China

6.1. Estimates of India’s Export Potential in China

India is struggling to be one of the top ten importers of China but with the moderate growth of the bilateral exports, it would be difficult to improve its ranking as a major exporting partner. Though India’s present exports to China constitute a small proportion of China’s overall imports, the total bilateral export potential of India

was estimated at US$ 28.4 billion in 2008 48 and it reached to US$ 53.3 billion in

2012 (see Table 6.1). This is a very conservative estimation that can easily be achieved in the medium term. The export potential of India was nearly 3 times than that of actual bilateral export with China in 2008 and increased further to 3½ times in 2012 due to the decline of bilateral exports in 2012. The potential exports are not likely to be distributed equitably among the sectors as India has developed competitiveness in different lines of products.

Table 6.1: Export Potential of India in China during 2004-12

(million US$)

CAGR Sec

Export Potential

1 Live Animals and Animal Products

0.4 0.3 0.8 31.7 2 Vegetable Products

3.8 0.3 0.6 -28.2 3 Animal or Vegetable Fats & Oils

0.0 0.4 0.9 23.5 4 Prepared Foodstuff, Beverages, etc.

0.8 0.6 1.2 24.3 5 Mineral Products

7.6 9.7 36.6 14.9 6 Products of Chemicals

9.1 5.8 7.4 11.1 7 Plastics & Articles thereof

7.0 5.4 5.0 9.7 8 Raw Hides & Skins, Leather, etc.

0.7 0.3 0.4 17.7 9 Wood & Articles of Wood

0.3 0.5 1.0 47.9 10 Pulp of wood or of other Fibers

0.9 0.7 0.5 4.8 11 Textile & Textile Articles

4.9 2.3 2.8 18.6 12 Footwear, Headgear and Umbrella

90.6 0.1 0.1 0.2 19.3 13 Articles of Stone, Plaster, Cement

0.9 0.7 0.7 15.4 14 Natural or cultured pearls, Jewelry

0.5 0.8 0.5 5.3 15 Base Metals & Articles of Base Metal

7.8 7.0 4.4 2.8 16 Machinery & Mechanical Appliances

43.2 55.9 25.9 -3.8 17 Vehicles, Aircraft and Vessels

5.4 4.3 6.4 16.7 18 Optical, Photograph & Cinematography

48 For estimation of the export potential of member countries and the group as a whole, the PCTAS 2010 database is used where consistent data series (at 6-digit HS) is available at the bilateral level for imports

and exports separately over a period of time, and data for the year 2010 is used for the estimation of export potential. The estimated potential exports have been kept at a conservative level by assumption in order to achieve the target at the medium term. Otherwise, the actual potential in Viner’s sense could be many times higher than what is presented in the study. It is assumed in the present study that in case of detection of an inefficient supplier in a member country’s market with respect to a potential member exporter, only 5 per cent of the current supplies of the inefficient supplier would be treated as export potential of the exporting country, whereas Viner assumed that 100 per cent of inefficient supplier’s export would be treated as export potential of the member exporter.

19 Arms and Ammunition 0.2 0.0 0.0 0.0 39.1 20 Miscellaneous Manufactured Articles

0.6 0.4 0.4 15.2 21 Works of Art Collectors' Pieces

Source: RIS estimation based on Comtrade, online [Accessed on October 25, 2013, United Nations] Note: Export potential and export potential are used interchangeably. Export potential is in million US$, and growth and share in percentage. Export potential is estimated using the model presented in Appendix III. It is estimated at 6-digit HS, using bilateral trade flow.

In the Indian context, some studies (ADB, 2005; Mohanty and Arockiasamy, 2010) have observed that the volume of exports is important for a country to provide stability to domestic growth, but the most important aspect of export has been its level of margin from the business (UNCTAD, 2002). In order to improve the return of exports, the exportable products need to be more technology intensive and consistent with the global dynamic exports. Often, it is observed that the technology intensity of product composition in the export basket improves as a country progresses in terms of its economic and technological accomplishment. India has been restructuring it export basket to include more technology-intensive products, particularly, globally dynamic products (Mohanty, 2010) since beginning of its

second generation of reforms. India is still way behind China 49 in terms of restructuring its exports basket.

The Changing pattern in distribution of export potential across the sectors is important for India. It is clearly evident from the sectoral distribution that mineral export potential is likely to dominate the future trade of India and the sector could have shared 36.6 per cent of the total export potential existed in 2012 (see Table 6.1). Surging demand for industrial raw material/intermediates in the Chinese domestic market will be the determining factor for the expected growth of exports from the sector. Moreover, India is strongly endowed with natural resources as well as technology to harness such rich reserves. Apart from minerals, others important potential sectors are mostly driven by the technology, for example: machinery and mechanical appliances, chemicals and pharmaceutical products, plastics, and the auto sector, among others. Other than the mining sector, the largest potential demand for export is in the machinery and mechanical appliances sector. More than one fourth of India’s bilateral export potential falls within this sector. There are several low technology sectors that are likely to get a significant market share in China such as chemicals, base metals and plastics. Some products of the agricultural sector can have some opportunities in the proposed market including vegetable products, and prepared food. The combined share of the agricultural export potential could be more than 3.5 per cent of the potential exports and these sectors could jointly have access to additional export of US$ 1861 million in 2012. However, the Indian export potential is highly concentrated in certain sectors. Nearly seven major sectors are likely to share 90.2 per cent of India’s total potential exports in the

49 Export sector of China is changing very fast in the direction of skilled intensive and high-technology products. Using different methodology, Qureshi and Wan (2008) have examined changing export structure

of China in recent years. In this study, different methodology is used for estimation of export potential and detailed discussions are presented in Appendix VI.

medium term and most of them are in the manufacturing sector except mineral sector.

The bilateral export potential of India expanded at a CAGR of 23.3 per cent during 2004-08 and moderated to 6.9 per cent during 2008-12. During 2008-12, export potential in the mining sector grew at a CAGR of 14.9 per cent which is considered high as compared to other major sectors with significant export potential. On the contrary, machinery and mechanical appliances sector, potentially

a major sector, witnessed negative growth in export potential during 2008-12. However, recession had the dampening effect on the bilateral export potential of India. The CAGR of bilateral export potential of India declined from 23.3 per cent during global buoyancy to just 6.9 per cent during global recession. The sectoral performance to a large extent was skewed during the period of recession. While some major sectors exhibited the possibility of posting high growth in bilateral export potential, others showed pessimism in this regard. Sectors like textile, automobiles, optical, photograph & cinematography products and chemicals and plastics showed moderate to high growth rate in exports during 2008-12. Worrying factor has been sectors having poor performance like base metals and machinery & mechanical appliances where growth of bilateral export potential was either low or negative during 2008-12. Such capital goods sectors need to be supported to regain their momentum as these sectors need more time to pick up despite return of buoyancy in the global and domestic markets.