Export competitiveness of India's textiles and clothing sector in the United States
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Kim, Misu Article Export competitiveness of India's textiles and clothing sector in the United States Economies Provided in Cooperation with: MDPI – Multidisciplinary Digital Publishing Institute, Basel Suggested Citation: Kim, Misu (2019) : Export competitiveness of India's textiles and clothing sector in the United States, Economies, ISSN 2227-7099, MDPI, Basel, Vol. 7, Iss. 2, pp. 1-17, https://doi.org/10.3390/economies7020047 This Version is available at: https://hdl.handle.net/10419/256979 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may be saved and copied for your personal and scholarly purposes. You are not to copy documents for public or commercial purposes, to exhibit the documents publicly, to make them publicly available on the internet, or to distribute or otherwise use the documents in public. If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/
economies Article Export Competitiveness of India’s Textiles and Clothing Sector in the United States Misu Kim Institute of Indian Studies, Hankuk University of Foreign Studies, 107, Imun-ro, Dongdaemun-gu, Seoul 02450, Korea; [email protected] Received: 5 April 2019; Accepted: 10 May 2019; Published: 17 May 2019 Abstract: We analyzed India’s export competitiveness in the textiles and clothing (T&C) sector in the United States. The T&C industry is traditionally important for the Indian economy due to its significant contribution to export, employment, and industrial production. However, the competition in the global T&C market intensified after the Multi-Fiber Arrangement phase-out in 2005. Therefore, it is necessary to examine the export competitiveness of India’s T&C sector in the U.S., India’s largest export destination and one of the world’s largest consumers of T&C. In this study, we calculated the comparative advantage of India’s T&C based on Revealed Comparative Advantage (RCA), Market Comparative Advantage (MCA), and Comparative Advantage by Countries (CAC). Our analysis shows that India had a comparative advantage in the T&C sector in the U.S. from 1991 to 2017, despite intensified competition in the global market. Keywords: comparative advantage; export; competitiveness; textiles and clothing industry; India; limited liberalization 1. Introduction As the Four Asian Tigers (Korea, Hong Kong, Singapore, and Taiwan) achieved high economic growth based on export-led growth policy, many developing countries have also pursued an export promotion policy (Bhagwati 1988;Edwards 1998). When a country starts exporting a commodity, the country faces competition in the global market. Exporters adopt advanced technology and management systems, which in turn lead to an improvement in productivity (Loecker 2007;Agarwal 2014) . Consequently, a country can increase industrial production, employment, and economic growth by exporting. Therefore, the role of export in economic growth has been emphasized in many studies (Barro and Sala-i-Martin 1992). India recognized the importance of export in the early 1980s when India introduced limited liberalization and deregulation for economic growth. From Independence in 1947 until 1980, the Indian economy was governed by the socialistic planned economic system with import substitution policy and industrial licensing (Kim 2018). As a result, the Indian economy suffered from low productivity and efficiency, and the average growth rate of the Indian economy from 1950 to 1980 averaged 3.5% annually, which is widely known as the Hindu Rate of Growth (Ahluwalia 1995). The Indian economy faced full-scale economic reforms in 1991, in which liberalization and globalization were emphasized. Likewise, export has been an important issue in the Indian economic policy since the early 1980s. However, India’s export performance has not been fascinating. In 2016, India’s contribution to the world export was limited to only 1.6% of the total, whereas China’s share was 17%. In addition, the current Indian government initiated the ‘Make in India’ scheme in 2014 to develop the manufacturing sector, in which improvement in exports and employment generation is accentuated. Nonetheless, Economies 2019,7, 47; doi:10.3390/economies7020047 www.mdpi.com/journal/economies
Economies 2019,7, 47 2 of 17 the share of manufacturing sector in India’s exports decreased from 80% in 1990 to 61.9% 1 in 2017 (Anand et al. 2015, p. 6) , which is similar to those of the advanced countries like U.S. In the case of China, the contribution of manufacturing exports to the total was 90%. Therefore, India with the world’s second largest population has the problem of unemployment. In this context, it is necessary to examine India’s manufacturing export performance in terms of competitiveness. In particular, we focused on the textiles and clothing (T&C) industry, one of the oldest and most important industries in India. The T&C sector is traditionally important for the Indian economy due to its significant contribution to export, industrial production, and employment generation. The share of this sector in India’s total exports was 12.4% from April to November in 2017. This industry has a 7% share of industrial production, 2% share of Gross Domestic Product (GDP), and 15% share of exports in India, according to the Annual Report by the Ministry of Textiles (2018, p. 1). As T&C is a labor-intensive industry, this sector directly employs 45 million people and indirectly employs 60 million people—the second largest employment-generating industry after the agricultural sector in India (Ministry of Textiles 2018, p. 51). T&C export underwent substantial changes due to the emergence of the global value chain (GVC) and the multi-fiber arrangement (MFA) phase-out. MFA was implemented to impose quotas so that advanced countries could source T&C from developing countries from 1974 to 1994. The Agreement on Textiles and Clothing (ATC) succeeded MFA from 1994 to 2005. Export competitiveness, in which comparative advantage plays a crucial role, refers to the capability to sell in the global market (Ketels 2010;Gupta 2009). Therefore, we calculated the Revealed Comparative Advantage (RCA), the Comparative Advantage by Countries (CAC), and the Market Comparative Advantage (MCA) of India’s T&C, which are based on the concept of comparative advantage. This study particularly examines India’s export performance of T&C in the U.S. market, one of the world’s largest T&C consumers and India’s largest T&C export destination. The U.S. share of India’s total T&C export was 20.9% in 2017. From the U.S. side, India was the third largest importer of T&C after China and Vietnam in 2017. Vietnam and other developing countries, such as Bangladesh and Pakistan, emerged as major exporters of T&C in the global market after the MFA phase-out in 2005 because of their lower labor cost. This indicates that the competition in the global T&C industry intensified after the MFA phase-out. Therefore, it is timely to determine if India’s T&C export competitiveness is sustainable in the U.S. market in the future. Previous studies on India’s exports in the T&C sector, which were published before 2005, mainly investigated the impacts of MFA phase-out on the export performance of India’s T&C. The competition in the global T&C market was expected to intensify after the MFA phase-out, significantly impacting India’s exports (Hashim 2005). In a competitive market, deregulation and labor reforms were required to improve export performance, as stated by Kathuria and Bhardwaj (1998). Nordas (2004) reported that developing countries with lower labor costs, such as India and China, benefitted from the MFA phase-out. A number of researchers analyzed the export competitiveness of India’s T&C. Most studies (Kathuria 2013,2018;Dhiman and Sharma 2017;Kannan 2018) analyzed export competitiveness based on RCA, which was developed by Balassa (1965). Kathuria (2013) examined the comparative advantage of India’s garment industry (HS Codes261 and 62) by calculating RCA and dynamic RCA. He found that India maintained competitiveness in the case of HS Code 61 products from 1995 to 2003. Dhiman and Sharma (2017) showed that India enjoyed a comparative advantage in most textile products based on an RCA analysis from 2010 to 2014. Kannan (2018) showed that India’s comparative advantage in T&C deteriorated from 1995 to 2007. However, these studies calculated RCA in the global market as a whole and did not reflect the current years; therefore, this study extends the study period from 1991 to 2017. RCA has limitations: it cannot reflect the export competitiveness in a specific country. As the 1This number is updated to 2017, which was 67% in 2013 in Anand et al. (2015, p. 6). 2 HS is the Harmonized Commodity Description and Coding System, which is mainly used for information collection related to tariffand trade.
Economies 2019,7, 47 3 of 17 aim here was to investigate export competitiveness in a country, the U.S, we calculated the CAC and the MCA along with the RCA, which are measurements revised to reflect the comparative advantage in a country. CAC and MCA are revised to reflect comparative advantage in a specific market based on RCA. The rest of this paper is organized as follows. Section 2provides an overview of India’s T&C industry. Section 3covers India’s export performance in the T&C industry. Methodology and data are covered in Section 4. Results are discussed in Section 5, and the last section provides the concluding remarks. 2. Overview of India’s Textiles and Clothing Industry The T&C industry is traditionally important for the Indian economy due to its significant contributions to total exports, industrial production, and employment. According to the India Brand Equity Foundation, India’s T&C market was worth US$150 billion in 2017, increasing from 70 billion US dollars in 2009 (Figure 1). The share of this sector in India’s total exports was 12.4% from April to November in 2017. This industry has a 7% share of industrial production, 2% share of GDP, and 15% share of exports in India, according to the Annual Report by the Ministry of Textiles (2018, p. 1). As T&C is a labor-intensive industry, this sector directly employs 45 million people and indirectly employs 60 million people—the second largest employment-generating industry after the agricultural sector in India (Ministry of Textiles 2018, p. 51). Many female workers and rural citizens are employed in this sector, empowering women and reducing poverty in rural areas. The contribution of Micro, Small and Medium Enterprises (MSMEs), particularly smalland micro-sized firms, in the T&C industry is larger compared to those of other sectors. Over 20% of registered MSMEs are engaged in the T&C sector, according to the fourth census on MSMEs (Ministry of Micro, Small and Medium Enterprises 2009, p. 25). The report on the fourth census of MSMEs has two parts: registered and unregistered enterprises. According to the report, 66% of registered MSMEs were in the manufacturing sector, whereas 73% of unregistered MSMEs were in the service sector. Economies2019,7,xFORPEERREVIEW3of17 revisedtoreflectthecomparativeadvantageinacountry.CACandMCAarerevisedtoreflect comparativeadvantageinaspecificmarketbasedonRCA. Therestofthispaperisorganizedasfollows.Section2providesanoverviewofIndia’sT&C industry.Section3coversIndia’sexportperformanceintheT&Cindustry.Methodologyanddata arecoveredinSection4.ResultsarediscussedinSection5,andthelastsectionprovidesthe concludingremarks. 2.OverviewofIndia’sTextilesandClothingIndustry TheT&CindustryistraditionallyimportantfortheIndianeconomyduetoitssignificant contributionstototalexports,industrialproduction,andemployment.AccordingtotheIndiaBrand EquityFoundation,India’sT&CmarketwasworthUS$150billionin2017,increasingfrom70billion USdollarsin2009(Figure1).TheshareofthissectorinIndia’stotalexportswas12.4%fromAprilto Novemberin2017.Thisindustryhasa7%shareofindustrialproduction,2%shareofGDP,and15% shareofexportsinIndia,accordingtotheAnnualReportbytheMinistryofTextiles(2018,p.1).As T&Cisalabor‐intensiveindustry,thissectordirectlyemploys45millionpeopleandindirectly employs60millionpeople—thesecondlargestemployment‐generatingindustryafterthe agriculturalsectorinIndia(MinistryofTextiles2018,p.51).Manyfemaleworkersandruralcitizens areemployedinthissector,empoweringwomenandreducingpovertyinruralareas.The contributionofMicro,SmallandMediumEnterprises(MSMEs),particularlysmall‐andmicro‐sized firms,intheT&Cindustryislargercomparedtothoseofothersectors.Over20%ofregistered MSMEsareengagedintheT&Csector,accordingtothefourthcensusonMSMEs(Ministryof MSMEs2009,p.25).ThereportonthefourthcensusofMSMEshastwoparts:registeredand unregisteredenterprises.Accordingtothereport,66%ofregisteredMSMEswereinthe manufacturingsector,whereas73%ofunregisteredMSMEswereintheservicesector. Figure1.India’stextilesandclothing(T&C)marketsize.Source:IndiaBrandEquityFoundation. India’sT&CindustryhasstrengthandcompetitivenessintheglobalmarketbecauseIndiahas abundantrawmaterials,lowlaborcosts,andverticallyintegratedproductionfacilities(Anthonyand Joseph2014,p.22).AsT&Cisalabor‐intensiveindustry,laborcostisacrucialfactorin competitivenessandproductivity.India’slaborcostismuchlowercomparedtothoseofChinaand othercountries,whichmakesIndia’sT&Cattractive.In2011,themanufacturinghourly compensationcostinIndiawasUS$1.59,whichwasmuchlowerthanthoseoftheU.S.andKorea,as showninTable1.China’smanufacturinghourlycompensationcostin2011wasUS$2.62andthatof thePhilippineswasUS$2.02. 70 78 89 99 108.5 137 150 0 20 40 60 80 100 120 140 160 2009 2010 2011 2014 2015 2016 2017 (US$billion) Figure 1. India’s textiles and clothing (T&C) market size. Source: India Brand Equity Foundation. India’s T&C industry has strength and competitiveness in the global market because India has abundant raw materials, low labor costs, and vertically integrated production facilities (Anthony and Joseph 2014, p. 22). As T&C is a labor-intensive industry, labor cost is a crucial factor in competitiveness and productivity. India’s labor cost is much lower compared to those of China and other countries, which makes India’s T&C attractive. In 2011, the manufacturing hourly compensation cost in India was US$1.59, which was much lower than those of the U.S. and Korea, as shown in Table 1. China’s manufacturing hourly compensation cost in 2011 was US$2.62 and that of the Philippines was US$2.02.
Economies 2019,7, 47 4 of 17 Table 1. Manufacturing hourly compensation costs. Source: The Conference Board International Labor Comparisons program (2018). (Unit: US$) Year India Philippines China Korea U.S. 2002 0.73 1.02 0.6 10.25 27.36 2005 0.91 1.2 0.83 14.83 30.14 2008 1.26 1.75 1.59 16.85 32.78 2011 1.59 2.02 2.62 19.25 35.51 2016 1.69 (2014) 2.06 4.11 (2013) 22.98 39.03 India is one of the world’s largest producers of textiles’ raw materials such as cotton, jute, and silk. Production facilities ranging from the hand-spun and hand-woven sectors to capital-intensive mills are also available in India, as shown in Figure 2. Economies2019,7,xFORPEERREVIEW4of17 Table1.Manufacturinghourlycompensationcosts.Source:TheConferenceBoardInternational LaborComparisonsprogram(2018). (Unit:US$) YearIndiaPhilippinesChinaKoreaU.S. 20020.731.020.610.2527.36 20050.911.20.8314.8330.14 20081.261.751.5916.8532.78 20111.592.022.6219.2535.51 20161.69(2014)2.064.11(2013)22.9839.03 Indiaisoneoftheworld’slargestproducersoftextiles’rawmaterialssuchascotton,jute,and silk.Productionfacilitiesrangingfromthehand‐spunandhand‐wovensectorstocapital‐intensive millsarealsoavailableinIndia,asshowninFigure2. ProcessRaw Material →Ginning→Spinning→Weaving /Knitting →Processing→ Garment/ Apparel Production Output Cotton, Jute, Silk, Wool →Fiber→Yarn→Fabrics→Processed Fabrics → Final Garment/ Apparel Figure2.KeysegmentsoftheT&CindustryinIndia.Source:IndiaBrandEquityFoundation(2018). India’sginningprocessingiswelldeveloped,soIndia’scottonisofgoodquality(Begumand Das2018,pp.37–38).India’sspinningprocessingalsohaspriceandvarietycompetitiveness.In addition,verticalintegrationinproductionsystemleadstoalowerproductioncost,asshownin Table2.India’sproductioncostsofspunyarnandofwovenandknittedfabricswerelowerthan thoseofChinaandothercountriessuchastheU.S.andKorea. Table2.Internationalproductioncostcomparisonin2014.Source:InternationalTextile ManufacturingFederation. CountrySpunYarn (US$/kg) WovenFabric (US$/m) KnittedFabric (US$/m) China4.511.131.07 India3.520.90.83 Indonesia3.330.820.79 Korea3.711.030.9 U.S.3.511.010.86 Thedemandfortechnicaltextilesintheglobalmarkethasbeenincreasing;however,Indiaisnot competitiveinthismarketduetothelackoftechnologyandinvestment.Accordingtoareport submittedtotheMinistryofTextilesinIndia,India’spriceofman‐madefiberrangesfrom20%to 25%,moreexpensivethantheinternationalstandard(WazirAdvisors2016,p.45).Fortechnological upgrading,theIndiangovernmentimplementedtheTechnologyMissionforTechnicalTextilesfrom FY2011toFY20153.TheTechnologyUpgradationFundSchemewasintroducedin1999andwas implementedunderthename“RevisedRestructuredTechnologyUpgradationFundScheme”.The SchemeforIntegratedTextileParkswaslaunchedin2005toprovideinfrastructurefortextile productioncompanies.Toimprovecompetitivenessandproductivity,theIndiangovernment 3India’sfiscalyearstartsfromApriltoMarch;henceFY2011indicatesfromMarchin2010toAprilin2011. Figure 2. Key segments of the T&C industry in India. Source: India Brand Equity Foundation (2018). India’s ginning processing is well developed, so India’s cotton is of good quality (Begum and Das 2018, pp. 37–38). India’s spinning processing also has price and variety competitiveness. In addition, vertical integration in production system leads to a lower production cost, as shown in Table 2. India’s production costs of spun yarn and of woven and knitted fabrics were lower than those of China and other countries such as the U.S. and Korea. Table 2. International production cost comparison in 2014. Source: International Textile Manufacturing Federation. Country Spun Yarn (US$/kg) Woven Fabric (US$/m) Knitted Fabric (US$/m) China 4.51 1.13 1.07 India 3.52 0.9 0.83 Indonesia 3.33 0.82 0.79 Korea 3.71 1.03 0.9 U.S. 3.51 1.01 0.86 The demand for technical textiles in the global market has been increasing; however, India is not competitive in this market due to the lack of technology and investment. According to a report submitted to the Ministry of Textiles in India, India’s price of man-made fiber ranges from 20% to 25%, more expensive than the international standard (Wazir Advisors 2016, p. 45). For technological upgrading, the Indian government implemented the Technology Mission for Technical Textiles from FY2011 to FY2015 3 . The Technology Upgradation Fund Scheme was introduced in 1999 and was implemented under the name “Revised Restructured Technology Upgradation Fund Scheme”. The Scheme for Integrated Textile Parks was launched in 2005 to provide infrastructure for textile production companies. 3India’s fiscal year starts from April to March; hence FY2011 indicates from March in 2010 to April in 2011.
Economies 2019,7, 47 5 of 17 To improve competitiveness and productivity, the Indian government allowed 100% foreign direct investment (FDI) in the T&C industry through an automatic route. From April in 2000 to June in 2018, the total FDI in India’s T&C was US$2.97 billion. The major investors were from Mauritius, Singapore, Belgium, Japan, and the U.S. 3. India’s Export Performance of Textiles and Clothing Industry India’s export of T&C substantially changed during the 1980s. Indian authorities recognized the importance of export and implemented an export promotion policy for economic growth in the early 1980s. As a major source of foreign exchange earnings, exports of the T&C sector were important for export performance (Economic and Political Weekly 1982, p. 1517). The GVC system emerged in the early 1980s, which significantly affected global T&C export (Tewari 2005). Therefore, India’s export of T&C increased over three-fold from 1981 to 1990 (Chartterjee and Mohan 1993). India’s export of T&C was US$3.1 billion in 1988 and increased to US$37.2 billion in 2017 at a compound annual growth rate (CAGR) of 8.6% (see Figure 3). Economies2019,7,xFORPEERREVIEW5of17 allowed100%foreigndirectinvestment(FDI)intheT&Cindustrythroughanautomaticroute.From Aprilin2000toJunein2018,thetotalFDIinIndia’sT&CwasUS$2.97billion.Themajorinvestors werefromMauritius,Singapore,Belgium,Japan,andtheU.S. 3.India’sExportPerformanceofTextilesandClothingIndustry India’sexportofT&Csubstantiallychangedduringthe1980s.Indianauthoritiesrecognizedthe importanceofexportandimplementedanexportpromotionpolicyforeconomicgrowthintheearly 1980s.Asamajorsourceofforeignexchangeearnings,exportsoftheT&Csectorwereimportantfor exportperformance(EconomicandPoliticalWeekly1982,p.1517).TheGVCsystememergedinthe early1980s,whichsignificantlyaffectedglobalT&Cexport(Tewari2005).Therefore,India’sexport ofT&Cincreasedoverthree‐foldfrom1981to1990(ChartterjeeandMohan1993). India’sexportofT&CwasUS$3.1billionin1988andincreasedtoUS$37.2billionin2017ata compoundannualgrowthrate(CAGR)of8.6%(seeFigure3). Figure3.India’sexportofT&Ctotheworld.Source:CollectionfromWorldIntegratedTradeSolution andauthor’scalculation. AccordingtotheWTO(2018),IndiawasthethirdlargestexporteroftextilesafterChinaandthe EU,andwasthefifthlargestexporterofclothingafterChina,theEU,Bangladesh,andVietnamin 2017(seeTable3). Table3.ThetopfiveexportersofT&C.Source:WTO(2018). Textiles Value(US$Billion)ShareinWorldExports(%) 20172017201020052000 China11037.130.520.310.4 EU6923.42734.936.7 India175.85.14.13.6 U.S.144.64.86.17.1 Turkey113.93.63.52.4 Clothing China15834.936.726.618.2 EU13028.628.43128.7 Bangladesh296.54.22.52.6 Vietnam275.92.91.70.9 ‐10 ‐5 0 5 10 15 20 25 30 35 ‐ 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 GrowthRate(%)(AuxiliaryAxis) Export(US$million) Figure 3. India’s export of T&C to the world. Source: Collection from World Integrated Trade Solution and author’s calculation. According to the World Trade Organization (2018), India was the third largest exporter of textiles after China and the EU, and was the fifth largest exporter of clothing after China, the EU, Bangladesh, and Vietnam in 2017 (see Table 3). Table 3. The top five exporters of T&C. Source: World Trade Organization (2018). Textiles Value (US$ Billion) Share in World Exports (%) 2017 2017 2010 2005 2000 China 110 37.1 30.5 20.3 10.4 EU 69 23.4 27 34.9 36.7 India 17 5.8 5.1 4.1 3.6 U.S. 14 4.6 4.8 6.1 7.1 Turkey 11 3.9 3.6 3.5 2.4 Clothing China 158 34.9 36.7 26.6 18.2 EU 130 28.6 28.4 31 28.7 Bangladesh 29 6.5 4.2 2.5 2.6 Vietnam 27 5.9 2.9 1.7 0.9 India 15 4.1 3.2 3.1 3.0
Economies 2019,7, 47 6 of 17 India exports a variety of T&C commodities, such as cotton yarn and fabrics, man-made yarn and fabrics, wool and silk fabrics, made-ups, and clothing. Figure 4shows the composition of Indian textile and apparel exports in 2005, 2010, and 2015. Clothing had the largest share, 43%, of India’s export of T&C in 2015 with an amount of US$17 billion. Export of fiber and filament increased from US$1 billion in 2005 to US$4 billion in 2015, while export of yarn increased from US$2 billion in 2005 to US$4 billion in 2015. Economies2019,7,xFORPEERREVIEW6of17 India154.13.23.13.0 IndiaexportsavarietyofT&Ccommodities,suchascottonyarnandfabrics,man‐madeyarn andfabrics,woolandsilkfabrics,made‐ups,andclothing.Figure4showsthecompositionofIndian textileandapparelexportsin2005,2010,and2015.Clothinghadthelargestshare,43%,ofIndia’s exportofT&Cin2015withanamountofUS$17billion.Exportoffiberandfilamentincreasedfrom US$1billionin2005toUS$4billionin2015,whileexportofyarnincreasedfromUS$2billionin2005 toUS$4billionin2015. Figure4.ThecompositionofIndia’sT&Cexports.Source:CollectionfromDirectorateGeneralof CommercialIntelligenceandStatistics,GovernmentofIndia. India’smajorexportpartnersofT&ChavebeentheU.S.,UAE,U.K.,andChinaasshownin Table4.Asof2017,theU.S.wasthetopexportdestinationofIndia’sT&Cwithashareof20.92%, followedbyUAE(11.04%),Bangladesh(6.04%),UK(6.02%),andGermany(4.8%).From1991to2017, theU.S.wasthelargestexportdestinationofIndia’sT&C.India’sexportofT&CtotheU.S. substantiallyincreasedfromUS$732.94millionin1988toUS$7.78billionin2017.Thoughtheaverage growthrateofIndia’sT&CexporttotheU.S.slowedaftertheMFAphase‐out,theaveragegrowth rateofIndia’sT&CexporttotheU.S.decreasedfrom12.2%duringtheperiodfrom1988to2005to 5.2%from2006to2017.TheshareofIndiaintheU.S.T&Cimportswas3.94%in1995andincreased to7.18%in2017. Table4.India’smajorexportdestinationsofT&C.Source:WorldIntegratedTradeSolution. RankYear 1991200020052017 1U.S.(20.43%)U.S.(25.31%)U.S.(26.42%)U.S.(20.92%) 2UAE(5.72%)UAE(7.6%)UAE(5.98%)UAE(11.04%) 3Bangladesh(3.05%)U.K.(6.59%)U.K.(8.01%)Bangladesh(6.07%) 4U.K.(9.79%)Germany(6.05%)Germany(6.54%)UK(6.02%) 5Germany(12.24%)France(4.39%)Spain(3.28%)Germany(4.8%) Note:ParenthesesindicatetheshareofIndia’sexporttotherespectivecountries. 1 742 12 4 3 4 59 4 17 7 5 10 0 5 10 15 20 25 30 35 40 45 2005 2010 2015 (US$billion) Fiber/Filament Yarn Fabric Apparel Others Figure 4. The composition of India’s T&C exports. Source: Collection from Directorate General of Commercial Intelligence and Statistics, Government of India. India’s major export partners of T&C have been the U.S., UAE, U.K., and China as shown in Table 4. As of 2017, the U.S. was the top export destination of India’s T&C with a share of 20.92%, followed by UAE (11.04%), Bangladesh (6.04%), UK (6.02%), and Germany (4.8%). From 1991 to 2017, the U.S. was the largest export destination of India’s T&C. India’s export of T&C to the U.S. substantially increased from US$732.94 million in 1988 to US$7.78 billion in 2017. Though the average growth rate of India’s T&C export to the U.S. slowed after the MFA phase-out, the average growth rate of India’s T&C export to the U.S. decreased from 12.2% during the period from 1988 to 2005 to 5.2% from 2006 to 2017. The share of India in the U.S. T&C imports was 3.94% in 1995 and increased to 7.18% in 2017. Table 4. India’s major export destinations of T&C. Source: World Integrated Trade Solution. Rank Year 1991 2000 2005 2017 1 U.S. (20.43%) U.S. (25.31%) U.S. (26.42%) U.S. (20.92%) 2 UAE (5.72%) UAE (7.6%) UAE (5.98%) UAE (11.04%) 3 Bangladesh (3.05%) U.K. (6.59%) U.K. (8.01%) Bangladesh (6.07%) 4 U.K. (9.79%) Germany (6.05%) Germany (6.54%) UK (6.02%) 5 Germany (12.24%) France (4.39%) Spain (3.28%) Germany (4.8%) Note: Parentheses indicate the share of India’s export to the respective countries. 4. Methodology and Data 4.1. Methodology As the competition in the market increases with a globalized economy, export competitiveness has been accentuated by many scholars (Balassa 1965;Porter 1990;Krugman 1994). Export competitiveness, in which comparative advantage plays an influential role, is generally defined as a country’s capacity
Economies 2019,7, 47 7 of 17 to sell their goods in the global market (Ketels 2010;Gupta 2009). Therefore, we calculated the RCA, CAC, and MCA, which are based on the concept of comparative advantage. Balassa (1965) developed the RCA to examine the comparative advantage of a country’s specific product in a global market, which is based on market share. The RCA is calculated by the share of a country’s export of a commodity in the share of the respective country’s export in the world. RCA ranges from zero to infinity. An RCA greater than 1 implies that the country has a comparative advantage for a specific commodity in the world, reflecting its export competitiveness. Country a’s RCA of commodity bin the world was calculated as follows: RCAab = Xab/WXb Xa/WX (1) where Xab is country a’s total exports of commodity b, Xa is country a’s total exports, WXb is world exports of commodity b, and WX is world exports The RCA explains the comparative advantage in terms of a specific product’s share in the global market, so it cannot reveal competitiveness in a specific market. Kim (2009) argued that differences exist in the export competitiveness between global and specific markets. The numerator of the RCA can be influenced by the economic size of the respective exporting country (Kim et al. 1997). The CAC was developed to analyze the comparative advantage in a specific country (Min 1993, p. 72). The CAC also measures comparative advantage based on the share of the commodity’s exports, which is similar to the RCA. The CAC of country ain the cmarket with the commodity bwas measured as: CACc ab = Xc ab/Xb a Xab/Xa(2) where Xc ab is country a’s exports of commodity bto country c, Xc a is country a’s total exports to county c, Xab is country a’s total exports of commodity b, and Xais country a’s total exports. The CAC indicates the comparative advantage of a country’s commodity in a foreign country, which is calculated by the proportion of a country’s export of a commodity in a foreign country in terms of the proportion of export of the commodity in world exports. The CAC also ranges between zero and infinity. A CAC greater than 1 indicates a comparative advantage of a commodity in a foreign country. The MCA was developed to examine the comparative advantage in a specific market based on the RCA (Kim et al. 1997). The MCA of country ain market cwith product bwas calculated as: MCAc ab = Xc ab/Xc a WXac/Xc(3) where Xc ab is country a’s export of commodity bto country c, Xc a is country a’s total export to country c, WXac is world export of commodity bto country c, and WXc is total export to country c. Xc a and WXc can be substituted by WIbc and WIc, country c’s imports of commodity band country c’s total import, respectively, because a country’s total export is the same as the total import by a country in theory. The MCA was calculated based on the share of a country’s export of a commodity in a foreign country in relation to the share of a foreign country’s import of a commodity in the world. The MCA also ranges between zero and infinity. An MCA greater than 1 indicates the comparative advantage of a country’s commodity in a foreign country. 4.2. Data Data on India’s T&C exports to the U.S. were collected based on two-digit HS Codes 50–63, which are listed in Section 6of Textiles and Textile Articles. As shown in Table 5, commodities from HS Codes 50–59 are related to fiber and fabrics, whereas commodities from HS Codes 60–63 are clothing and linen products, i.e., final products.
Economies 2019,7, 47 8 of 17 Table 5. Category of T&C products based on two-digit HS codes. HS Code Description HS Code Description 50 Silk 57 Carpets and other textile floor coverings 51 Wool, fine, or coarse animal hair, horse hair yarn, and woven fabric 58 Special woven fabrics; tufted textile fabrics; lace; tapestries; trimmings; embroidery. 52 Cotton 59 Impregnated, coated, covered, or laminated textile fabrics; textile articles of a kind suitable for industrial use. 53 Other vegetable textile fibers; paper yarn and woven fabrics of paper yarn 60 Knitted or crocheted fabrics. 54 Man-made filament 61 Apparel and accessories, knitted or crocheted. 55 Man-made staple fiber 62 Apparel and accessories, not knitted or crocheted. 56 Wadding, felt, and nonwovens; special yarns; twine, cordage, ropes, and cables and articles thereof. 63 Other made-up textiles articles; sets; worn clothing and worn textile articles; rags
Economies 2019,7, 47 15 of 17 India’s carpet had the highest comparative advantage in terms of the CAC and the MCA in the U.S. market than other T&C products, but the CAC and the MCA were displaying a decreasing trend. From Table 8, India’s export of HS Code 57 increased from US$1424.25 million in FY2013 to US$1779.02 million in FY2017. The share of India in the U.S. imports of carpet also increased from 29.2% in 2012 to 33.2% in 2016, the largest sourcing country for the U.S. Table 8. India’s exports of carpets. Recited from Expansion of Exports of Indian Handwoven Carpets to the USA (2017). * Source: Ministry of Commerce, Government of India; # Source: Foreign Trade Division, U.S. Census Bureau. Year India’s Total Exports of Carpets (US$ million) * Share of India’s Carpets Export to U.S. (%) * Year Share of U.S. Carpets Import from India (%) # FY2013 1424.25 41 2012 29.2 FY2014 1579.09 42 2013 30.6 FY2015 1819.68 42 2014 32.4 FY2016 1726.51 47 2015 33.9 FY2017 1779.02 46 2016 33.2 India’s export of yarn and fabrics to the U.S. constituted 8.6% of India’s total exports of T&C to the U.S. in 2015, decreasing from 15.8% in 1991. In terms of the CAC, silk products had a comparative advantage throughout the study period, but other products had a CAC greater than 1 only for certain periods. With regard to the MCA, HS Codes 50, 53, 54, and 58 had a comparative advantage with a bell-shaped curve, indicating that their comparative advantage increased but lessened later. In the case of HS Codes 51, 54, 55, 56, and 60, the MCA values were greater than 1 after a certain time. Only HS Code 59 did not have a comparative advantage due to its MCA being less than 1. 7. Conclusions T&C industry has an important role in Indian economy due to its significant contribution to exports, industrial production, and employment generation. Global T&C market underwent a significant change after the MFA phase-out in 2005. Hence, the U.S., the largest consumer of T&C in the world, could diversify importing countries after 2005 like Vietnam and Bangladesh with low labor cost. From the India’s side, the U.S. has been the largest export destination from 1991 to 2017. Therefore, it is timely to examine if India’s export competitiveness of T&C in the U.S. is sustainable. We measured comparative advantage based on RCA, CAC, and MCA to investigate India’s export competitiveness of T&C in the U.S. The RCA is suitable for investigating comparative advantage in the global market, whereas the CAC and the MCA are best employed for examining comparative advantage in a specific market, such as the U.S. The results show that India had export competitiveness of T&C in the U.S. during the study period even though the competition in the U.S. market stiffened after the MFA phase-out in 2005. However, the emergence of low-cost-producing countries like Vietnam, Bangladesh, and Honduras can threat India’s export competitiveness in the global market. In terms of labor cost, India cannot sustain competitiveness compared to other developing countries like Ethiopia. China is the world’s largest exporter of T&C in spite of higher labor cost. It seems that the quality of Chinese T&C product can compensate higher labor cost. Therefore, India also needs to improve the quality of T&C product. At the same time, the global demand for man-made fiber and fabrics has steadily increased compared to that for natural fiber, in which India has comparative advantage. Therefore, technological development related to man-made fiber and fabrics is essential to India’s T&C future. In addition, the development of India’s export infrastructure, for example logistics, is also required to sustain export competitiveness. This study has a few limitations, so we conclude with suggestions for further studies. First, India’s comparative advantage should be compared with those of other developing countries, especially
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