Abstract
The engineering sector is not only the largest segment of the Indian manufacturing industry but also the largest net foreign exchange earner. However, the sector has seen increasing import dependence, and domestic players have lost market share both in domestic and global markets. In this context, this paper looks at the changing pattern of exports of India’s engineering goods sector and attempts to identify products with most export potential. We find that though intermediate and capital goods mostly drive Indian engineering exports, India also has an increasing trade deficit in these goods. The analysis of export competitiveness reveals a strong negative relationship between India’s competitiveness and global market size, i.e., India is not competitive in those products with large market size and vice versa. Though the two-way trade in intermediate goods is an indicator of integration to global value chains, the strong global market presence in resource-intensive low-value added goods and the extremely limited final goods exports suggests that India is struggling to develop competitiveness in high-value adding segments of engineering goods. The government needs to shift its focus from the protection of intermediate goods towards improving domestic technological competence to increase domestic value addition and export competitiveness.
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Notes
- 1.
India’s imports of intermediate goods from Switzerland is almost entirely made up of import of gold. Switzerland is the world’s largest gold refiner country. Four of the world’s biggest gold refineries are in Switzerland and it is estimated that two-thirds of the world’s gold is refined in that country.
- 2.
World Bank WITS database
- 3.
Broad Economic Categories (BEC) classification is an international product classification based on the end-use category of products. The major categories into which products are classified in BEC Revision 4 are food and beverages, industrial supplies, fuels and lubricants, capital goods and its parts and accessories, transport equipment (passenger cars, industrial and non-industrial and its parts and accessories), consumer goods and goods not elsewhere specified. It is plausible to aggregate these subcategories of BEC approximately into the three basic classes of products within the Systems of National Accounts (SNA) framework, namely capital goods, consumer goods and intermediate goods. (https://ec.europa.eu/eurostat/ramon/other_documents/bec/BEC_Rev_4.pdf).
- 4.
RCA index of country I for product j is often measured by the product’s share in the country’s exports in relation to its share in world trade:
$$RCA_{{ij}} = {\text{ }}\left( {x_{{ij}} /X_{{it}} } \right){\text{ }}/{\text{ }}\left( {x_{{wj}} /X_{{wt}} } \right)$$where xij and xwj are the values of country i’s exports of product j and world exports of product j and where Xit and Xwt refer to the country’s total exports and world total exports A value of less than unity implies that the country has a revealed comparative disadvantage in the product. Similarly, if the index exceeds unity, the country is said to have a revealed comparative advantage in the product.
- 5.
Broad economic categories (BEC) classification is an international product classification based on the end-use category of products. The major categories into which products are classified in BEC Revision 4 are food and beverages, industrial supplies, fuels and lubricants, capital goods and its parts and accessories, transport equipment (passenger cars, industrial and non-industrial and its parts and accessories), consumer goods and goods not elsewhere specified. It is plausible to aggregate these subcategories of BEC approximately into the three basic classes of products within the Systems of National Accounts (SNA) framework, namely, capital goods, consumer goods and intermediate goods. (https://ec.europa.eu/eurostat/ramon/other_documents/bec/BEC_Rev_4.pdf).
- 6.
Excluding HS 8906 (goods nowhere else specified) and HS 8908 (industrial supply-primary) as per BEC classification.
- 7.
Excluding HS 8903 (consumption goods), HS 8906 (not classified) and HS 8908 (intermediate goods) in SNA framework.
References
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Pal, P., Swathysree, S.S. (2021). Looking at India’s Engineering Exports: Stuck in the Middle of the Value Chain. In: Mani, S., Iyer, C.G. (eds) India’s Economy and Society. India Studies in Business and Economics. Springer, Singapore. https://doi.org/10.1007/978-981-16-0869-8_9
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