India’s Trade in 2020 Essay

IntroductionIndias occupation has generally grown at a faster rate comp ard to the process of GDP everyplace the agone two cristals. With the rest since 1991 in fragmentiseicular, the sizeableness of international transaction in Indias preservation has grown considerably. As a result the ratio of international disdain to GDP has bypast up from 14 per centime in 1980 to nearly 20 per cent towards the end of the decade of 1990s. give the trends of globalization and liberalization, the openness of Indian miserliness is expected to grow besides in the sexual climax two decades.The more exact magnitude of Indias muckle in 2020 and its proportion to Indias national income would be determined by a cast of factors. legion(predicate) of these factors argon in the nature of external shocks and ar beyond the go steady of national policy making. One illustration is the recent surge in the crude oil prices in the international market to unprecedented levels that earn impa cted the countrys imports in a signifi endt manner. In addition, the carrying out of various(a) WTO agreements are credibly to affect the Indias plow. Indias trade is in any case be fabricationvably to be affected by various symmetric/ regional preferential trade arrangements that father been concluded and those that cleverness shit shape in the climax old age.This paper attempts to provide a mapping of distinguishable factors that are belike to shape the patterns and magnitudes of Indias imports and tradeings oer the coming two decades. These factors are classified into terzetto, namely 1) factors bear on the supplicate for Indias exportations of goods and services 2) factors touch the add together of Indias exports of goods and services and 3) factors affecting the demand for Indias imports.The supply of imports may be assumed to be elastic and thus is not discussed.The building of the paper is as follows. sectionalisation 1 maps out various factors affec ting demand for Indias exports, incision 2, factors affecting supply of Indias exports. Section 3 lists the factors that are likely to affect demand for Indias imports. Section 4 briefly summarizes emergent patterns of Indias comparative improvement in exports of good and services. Section 5 makes some concluding remarks.1.Factors Affecting the Demand for ExportsThere is a phalanx of factors that are likely to affect the demand for Indias exports of goods and services as seen below.3 Growth Performance of gentleman Economy and Key calling RegionsThe maturation rates of the creation economy and manhood trade do influence the overall demand for Indias exports. For instance, the rates of stagnation in the harvest-time rate of world trade in the period since 1996 contain affected the produce of Indias exports. some(prenominal) broad correspondence between the growth rates of world trade and Indian exports is evident from human body 1. Depending upon the intensities of Indi as trade relations the growth prospects in these specific regions may also affect the demand for Indias exports. The regions which may be especially of the essence(p) for Indias exports intromit North America, the European Union, Middle due east, easterly and siemenseast Asia and South Asia. Therefore, it result be heavy to watch the growth outlook and projections for these regions.Figure 1 Growth Rates of World dole out and Indias Exports Over the 1990s Source RIS on the basis of WEO Database of the IMF1.1.1. World Output and change at the Turn of the Century and the Outlook The world economy in 2000 seems to shake fully recovered from the slow great deal of 1998-1999 on account of the East Asian crisis. The estimated world output growth of 4.8 percent in 2000 is highest since 1988 and of world trade at 12.4 percent is highest of the past 25 years (Table 1, Figure 1). The impressive recovery of the world economy and world trade in the early part of 2000 generated optimi sm all nigh as countries expected to benefit from favourable spillovers in the form of rhytidoplasty in demand for their exports. However, the optimism has proved to be short lived.It has been partly tarnished sensibly by the crude oil prices hitting the roof in the three quarter of 2000 and adversely affecting the outlook of many regions besides raise the threats of inflation in opposite split of the world. Furthermore and more importantly, the emergent trends confirm that a trend of slow down was set in the US economy in the third quarter of the 2000. Hence, fears of a labored landing of the US economy in 2001 have continued to grow. A scenario of hard landing of the US economy in 2001 is thus likely to short-circuit the rebound of the world economy of 1999-2000, even though the study European Union economies are improving their performance. The Japanese economy continues to live sluggish.The slow down of the US economy has a compounded assemble on the growth of the wo rld economy by adversely affecting the demand for the products of partner countries as well. As a result the growth rate of world output is likely to slow down in 2001 from the levels reached in 2000 to 3.2. The world economy is expected to pick up fair to 3.9 per cent in 2002. The effect of the impending slow down is more severe on the growth rate of world trade which is likely to reduce by nearly half from the rate achieved in 2000 to roughly 6.5 per cent in 2001 and 2001. In the light of recent trends, the outlook for the world economy and trade growth over the next ten years could be taken at 3 and 6 per cent respectively.*Indonesia, South Korea, Malaysia, the Philippines, and Thailand. ASEAN-4. Source RIS establish on World Bank (2001), IMF (2001).1. WTO arrangementsSince the execution of instrument of the last(a) Act of the Uruguay Round in 1995, the WTO Agreements have become important factors in determining the patterns of world trade. Their full impact is not yet self -evident as many provisions of these agreements are yet to be apply because of the transition period provided. Most of the remaining provisions of the WTO agreements would be enforced in the coming five years. Therefore, the patterns of trade in 2020 would have to be speculated keeping in mind the impact of full implementation of the WTO agreements. Some of the agreements which are likely to affect Indias exports are the following.1. Agreement on Textiles and ClothingThe Agreement on Textiles and Clothing (ATC) proposes to anatomy out the MFA quotas obligate by the true countries on the imports of textiles and clothing from developing countries over a period of 10 years ending on 31st declination 2004. Given the fact that India has substantially fulfilled her quota for the products coming under MFA, it may appear that the phasing out of these quotas would help in the expansion of exports. However, the impact of the phase out is likely to be a mixed bag.This is because with MFA phase out, Indian exporters would be competing directly with separate exporters of textiles and invests much(prenominal) as china, Korea, Taiwan, Pakistan, Thailand, Turkey, Mexico, Hong Kong, Indonesia, Macau, Philippines, Sri Lanka, Bangladesh, among other(a)s. Therefore, while ATC provides an opportunity to Indian exporters to magnify their exports of textiles and garments by removing the quota restrictions, it also poses a challenge of increase international competition. Some of them will enjoy preferential access to the trade countries due to their least developed country (LDC) status such as Bangladesh.There are apprehensions on the full benefits of phase out organism available to developing countries. As such the schedule of the phase-out has been back-loaded over a ten-year long phase-out period. The industrialized countries may use other protectionist measures such as anti- bastarding to prevent market access after the phase-out of quotas. A large summate of text iles and clothing products already face tariffs in the range of 15 to 30 per cent in the Quad countries (World Bank, 2000). Some attempts of restricting them with anti-dumping duties have already been made against these exports including those from India.Another factor that will affect the scrap of Indian exports of textiles and garments in the post-MFA regime is the avail talent of trade preferences to emerging competitors of India. For instance, Mediterranean countries such as Turkey, Cyprus and Malta and interchange and Eastern European countries enjoy easy trade agreement with the European Union ahead of their full membership. The Caribbean countries enjoy a similar preferential access to the United States market under the Caribbean lavabo Initiative (CBI).Mexico enjoys a privileged access to the North American trade as a member of NAFTA. These trade preferences have already resulted into cheer of trade in textiles and clothing to these countries. For instance, Mexican ex ports of clothing to the United States have grown at the rate of 27 and 15 percent in 1998 and 1999, respectively with the growth rate of exports to Canada in these years existence 30 percent and 26 percent, respectively. Similarly, exports of clothing from Bulgaria, Hungary, Poland, Romania, Turkey to the European Union in 1998 have grown at 26 percent, 14 percent, 11 percent, 23 percent and 11 percent, respectively (WTO, 2000).The strength of Indian exporters to take advantage of phase out the MFA quotas by 2004 will depend upon a public figure of factors such as their ability to enhance overall international battle with productivity and efficiency improvements, quality control, ability to quickly come up with new designs, ability to respond to changes in consumer preferences fastly and the ability to inspire up the value chain by building brand name calling and acquiring channels of distribution to more than outweigh the advantages of her competitors. The reservation of the garment industry for small-scale sector has affected capital enthronization, modernization and mechanization in the sector in the country. Although the small sector operation has imparted flexibility, it has prevented using of economies of scale and scope by the Indian industry. The new Textiles Policy takes attention of some of the concerns. It remains to be seen if the Indian industry will be able to exploit the opportunities provided by the change magnitude market access with the MFA phase-out.2. Agreement on Agriculture (AoA)The AoA proposes to liberalize the international trade in gardening by restricting the agricultural subsidies provided by governments to the farmers, reduction in export subsidies in agriculture, removal of QRs and establishment of tariff rate quotas applicable to trade in agricultural commodities. In general Indias obligations under AoA are limited presumptuousness the low level of agricultural subsidies compared to EU and the US. It is believed that implementation of the AoA commitments by industrialized countries will benefit countries like India in damage of market access for some agricultural commodities. However, the implementation of the commitments on the part of industrialized countries so far does not provide any path for optimism. The extent of subsidies given by industrialized countries have actually increase over the past few years as acknowledged by OECD reports. It is possible that in the coming years the provisions of the Agreement are implemented in the letter and spirit.The likely effect of the full implementation on Indias trade is difficult to be speculated. However, one can have an idea about the likely scenario from efficiency indicators and incentive structure. Given lower than world prices of rice, wheat, maize, sorghum, chickpea and cotton in India, their exports may expand under the liberalised trade in agriculture. Hence the area under civilization for these crops may increase since profitability and effective incentives will get tip in favour of these crops. The same is true for pearl millet, pigeonpea and soyabean. However, production of oilseeds e.g. groundnut, rapeseed, leaf mustard and sunflower, and pulses may be adversely affected in a free-trade scenario given the lower world prices. Thus, the import dependence in edible oils and pulses may increase.3. Anti-dumping RegulationsThe Indian exports of a add of commodities have been subjected to anti-dumping regulations by some of our important trading partners such as the United States and the European Union. The onslaught of the anti-dumping measures on Indian exports is likely to increase in early with the growing combat of Indian products. In order to minimize their disruptive effect of these regulations on Indias exports, the industry and government will have to strengthen the machinery to antagonistic such actions (Panchamukhi, 2000).1.2.4. tax Negotiations and New Trade RoundAlthough the average tariff rates in the industrialized countries are low, they have high period tariffs for certain products, some of which are of export interest to India such as textiles and garments, and agricultural commodities (see Table 3). Market access for these products could be facilitated by our ability to secure reduction in these tariffs in the industrialized countries through future tariff negotiations in the WTO framework.N.B. HS Chapters are given in parentheses.Source RIS based on UNCTAD/WTO (2000) The Post-Uruguay Round Tariff Environment For Developing Country Exports Tariff Peaks and Tariff Escalation, UNCTAD, Geneva (TD/B/COM.1/14/Rev.1 28 January 2000)1.2.5.Trade Preferences for the Least highly-developed CountriesOne emerging development in the WTO system has been the tendency to sort out the developing countries with the offer of special trade preferences for the least developed countries. A sizeable proportion of Indias exports still comprise labour and alternative intensive goods that are also exported by some of the least developed countries. If successful these preferences have the prospects of diverting trade from India to the least developed countries. The capability of these trade preferences for adversely affecting Indias exports needs to be unbroken in mind.2. Chinas Accession to WTOOne of the important events of the coming years for the world trade may be the submission of China into the WTO regime. China signed an agreement with the US for its entry into the WTO in November 1999. It has afterward been negotiating such agreements with other WTO members. The ingress of China to the WTO and hence the MFN status that it will receive from other WTO countries may have some implications for the competitiveness of Indias exports. This is because India and China compete in the international market for a round of labour intensive and matured applied science goods such as textiles and garments, lash goods, light engineering products, chemicals and pharmaceuti cals, among others. China has already been giving tough competition to Indian exports in many commodities and markets.There is a view that the accession to WTO may further strengthen Chinas competitiveness and hence may affect the Indian exports adversely. There is another view that the accession of China to WTO would force it to follow WTO norms and procedures, etc. and will bring their trade policy under international surveillance. State subsidies will be set and hence it will make it more difficult for the Chinese exporters to dump their products in the world market. The exact impact of the accession of China to the WTO on the Indias export prospects will depend upon these counteracting effectuate. It is important to analyze the effects of Chinese accession to WTO on the competitiveness of Indian exports.1.4. Preferential Trade Arrangements/ forgive Trade Arrangements in Rest of the World The last decade and a half has seen the proliferation of regional trading arrangements in different parts of the world. The major trading blocks that have emerged over the years include the European Union, NAFTA, Mercosur, AFTA, COMESA, among others. Besides, these free trade and common market agreements, a number of other countries have become integrated with the trading blocks through a variety of preferential or free trade arrangements. For instance, European Union has protracted free trade agreement treatment to a number of Central Eastern European Union and Mediterranean countries in anticipation of full membership to these countries in the EU. These arrangements could also act to divert trade external from India especially in the labour intensive goods, as indicated earlier in the case of textiles and clothing.1.5.Regional/Bilateral Free Trade ArrangementsIndia has taken several move to liberalize trade with her trading partners in the South Asia region on regional as well as bilateral basis. These steps include participation to SAARC Preferential Trading Arrang ements (SAPTA) that came into being in December 1995. at a lower place this Agreement, India has exchanged trade concessions with the SAARC member countries for nearly 3000 commodities in the first three rounds of negotiations. The fourth round of these negotiations is in the process. It is expected that the process of trade liberalization in the framework of SAARC will culminate into a South Asia Free Trade Agreement (SAFTA), although, it may take some time to take shape given the current impasse in the SAARC process. Besides SAPTA, India has of late signed a bilateral free trade agreement with Sri Lanka.India already has bilateral free trade agreement with Nepal and Bhutan. A bilateral free trade agreement is being contemplated with Bangladesh as well. There are other attempts of regional/sub-regional economic integration which may also come into being in the coming decade, for instance, BIMST-EC (Bangladesh, India, Myanmar, Sri Lanka and Thailand Economic Cooperation) which has been formed recently may submit a preferential trading arrangement between the member countries. Although India is also a founder member of the Indian Ocean Rim connection for Regional Cooperation (IOR-ARC), a preferential trading arrangement is not contemplated as the Association has adopted the concept of open regionalism on the lines of APEC.All these attempts at free trade with the regional partners may open the markets for Indian goods further in the countries concerned. It is evident that the share of South Asian countries in Indias exports has increased from 2.73 to 4.9 over the period 1990 to 1999. The recent initiatives in regional/ bilateral trade liberalization may help to divert some trade of the countries concerned from their other trading partners in favour of India given the supply capabilities.2. Factors Affecting the Supply of ExportsIt is widely believed that the major factors reduceing Indias exports lie not in the lack of demand but more in the supply side co nstraints. Most of the supply side factors need to be addressed as a part of the policy towards trade. Some of the factors that constrain the volume and composition of Indias exports are as follows1. Infrastructural BottlenecksIt is widely genuine that Indias export potential remains considerably unfulfilled because of infrastructure bottlenecks such as power shortages, port handling facilities, delays in loony toons which in turn are due to poor transport colligate within the country and poor communication facilities. The inability of Indian exporters in meeting supply schedules costs dearly in terms of persona of India as a reliable source of supply. Not only that the approachability of the infrastructure services is inadequate but the efficiency and quality of the voice communication of what is available is highly uneven. The ability of the government in removing these constraints in the coming years will also determine the supply side of Indian exports.2. Growth of Domest ic DemandA speedy growth of internal demand may also affect Indias ability to export at least in certain products, for instance, in tea where the rapid growth of domestic demand is expected to reduce the export supererogatory in the coming years. It may also apply to a number of other agricultural commodities such as rice, cotton, among others.2.3 Inflows of Export-oriented Foreign Direct enthronementMultinational enterprises (MNEs) have played an important role in the rapid growth of manufactured exports from the East and South-East Asian countries. This is because the South East and East Asian countries were able to attract export broadcast investments from US and Japanese MNEs in the 1970s and 1980s. The export platform or export-oriented investment arises in the process of relocation of production by MNEs abroad in order to maintain their international competitiveness in the face of ascent wages and other costs in their home countries. In Malaysia and Indonesia, for instance , 70 percent of the projects involving FDI have been export-oriented. In China, the share of foreign owned firms in exports has risen from 5 percent in 1988 to 40 percent by 1997. In contrast, the share of foreign affiliates in Indias exports is marginal at 5 to 7 percent (Kumar and Siddharthan, 1997, for a review of evidence from different countries).Therefore, India has not been able to exploit the potential of MNEs for export-oriented production. MNEs can play an important role in promotion of Indias manufacture exports with relocation of export platform production in the country with their access to global merchandise networks, best practice technology and organizational know-how. To some extent, therefore, Indias ability to attract export-oriented FDI will determine the magnitude of Indias exports in 2020. The studies have shown that export-oriented FDI inflows are of special type and are determined by different factors than other types of FDI (Kumar, 1994). The studies also f ind differences in the nature and determinants of export platform investments that are geared to MNEs home markets and those targeting the third countries (Kumar, 1998). India may make an move to target the export platform investments of both types by sharpening her bundle of pick endowments and created assets in the light of determinants identified by these studies.5. Technological Upgrading and Movement along with the Value Chain The Indian export structure has been highly dominate by simple and un-differentiated products where the main competitive advantage lies in bargain-priced labour, low levels of skills and simple technologies compared to that of China and South East Asian countries invite out for recent growth of pharmaceuticals and software services (Lall, 1999). Not only these products are slow moving, the export structure is highly vulnerable to competition. Indias competitiveness has also been adversely affected by the failure to diversify the commodity compositio n of our exports. In fact the commodity concentration of Indias exports has increased with a 9 percent rise in the share of squeeze six groups of exports in total and exports between 1987-1988 to 1998-99 (Kumar, 2000a).In comparison to India, atomic number 34 and East Asian countries have rapidly diversified their export structure in favour of technologically good goods. For instance, share of technologically advanced goods (differentiated and science based goods) in Indias manufactured exports rose marginally to about 8 per cent by the mid-1990s over 5.6 per cent in the mid-1970s in China, this proportion increased from 8.8 per cent to 23 per cent over the 1987-95 period, and for Malaysia from 12 per cent to 57 per cent over the 1980 to 1995 (Pigato et al. 1997). The markets for low technology undifferentiated goods are highly price competitive and margins are unbroken under pressure by constant competition by entry of new low wage countries.